Water Bill

Public Bill Committee, 10 December 2013.

Clause 16 - Charges schemes

Thomas Docherty (Labour, Dunfermline and West Fife)

I beg to move amendment 135, in clause 16, page 47, line 36, at end insert—

(i) make provision for section [Billing information: affordability].

Linda Riordan (Labour, Halifax)

With this it will be convenient to discuss the following:

New clause 29—Billing information: affordability—

‘Any company providing water services to a residential household must include on its bills—

(a) details of any tariffs provided by that company;

(b) a recommendation of the lowest possible tariff for each residential household; and

(c) information regarding eligibility criteria and how to make an application for assistance under Water Sure.’.

Thomas Docherty (Labour, Dunfermline and West Fife)

Thank you, Mrs Riordan, it is a pleasure to serve under your chairmanship today.

The debate on this group of proposals is relatively straightforward. We had a good opening session on Thursday afternoon on some of the more technical aspects of the Bill. It was a useful exchange, but today we go to the heart of the political debate on the Bill. In the two and a half years since the Bill emerged as a White Paper, I have been critical not so much of the contents as of what it does not do—it does not address the cost of living crisis facing households up and down the country.

I shall speak to each of the new clauses in turn. It is understandable that they have been grouped together, but they seek to do slightly different things. For those Members who are not as familiar as you, Mrs Riordan, with WaterSure, perhaps I should begin by explaining what it is. The WaterSure scheme was set up by the Labour Government to provide assistance to households that had high usage requirements but a low income. The criteria are straightforward: a person has to have a meter in their home and either a certain number of children under the age of 19 or someone with a registered disability or illness that requires high water usage in the household. People also have to be on certain benefits. We might touch on changes to the criteria later in the discussion.

I hope the Minister agrees that last Tuesday’s session, when we heard evidence from the Consumer Council for Water, was genuinely useful. Interestingly, approximately 72,000 households in England take up the scheme, and a further 20,000 households in Wales take up the equivalent scheme there—as hon. Members know, the Welsh have a slightly different structure but do fundamentally the same thing. Unfortunately, as the Consumer Council for Water pointed out in its evidence—hon. Members can read it in columns 25 and 26 of Hansard—that is only a fraction of those who are eligible to receive assistance. Perhaps the Minister has the most up-to-date breakdown of figures for households per water company, but it is frightening just how few in each water company area receive that assistance.

That so few receive assistance is not just because the scope of the assistance is rightly narrowly drawn; it is because, as we heard in Tuesday’s session, most households simply do not know that the assistance is there for them in the first place. Dame Yve Buckland’s points on Tuesday were useful so I shall quote them for the Minister. She stated that the Consumer Council for Water

“engaged actively with the industry to get the scheme rebranded, to make it simple, make the paperwork simpler and to promote it. Since 2007, we have seen a 350% increase in the take-up of WaterSure...But arguably, it is still a drop in the ocean”.––[Official Report, Water Public Bill Committee, 3 December 2013; c. 25.]

Pardon her dreadful pun. New clause 29 is a direct result of the compelling evidence we heard on Tuesday from the Consumer Council for Water.

The Opposition recognise that the Government, building on the previous Government’s work, are seeking to address that shortfall of understanding. However, we argue that, rather than getting into a complicated debate about how to target the information better—the Minister will recall that the Select Committee on Environment, Food and Rural Affairs considered that when we examined the draft Bill—and rather than coming up with a complicated new IT system to target information at households who could benefit, the simplest and most practical way of getting information to people is to include it on their bills.

In new clause 29, the Opposition propose that bills sent to households include simple information saying: “This is what WaterSure is, these are the criteria that you would have to meet to qualify and, if you believe that you qualify, this is who to contact to apply for it.” In the spirit we have shown so far in Committee, we hope the Minister accepts that the new clause is not a political one. It is an attempt to reach out to his constituents and constituents up and down the country who should be eligible and who are not currently receiving that important help.

I shall quickly give the Minister figures from 2010-11 to indicate the scale of the challenge we face. If the Minister has the most up-to-date figures, I would be grateful if he shared them with the Committee. In the South West Water region—the Committee includes a number of south-west Members—only 9,850 households receive WaterSure help. I am sure the Minister agrees that a lot more households in Devon and Cornwall should be receiving WaterSure help and are entitled to receive such assistance.

Anne Marie Morris (Conservative, Newton Abbot)

Is the shadow Minister aware that the take-up of WaterSure is higher in the south-west than anywhere else in the country?

Thomas Docherty (Labour, Dunfermline and West Fife)

The hon. Lady is absolutely right that the south-west has the highest take-up in England, but take-up for the scheme in Wales is slightly higher. We probably agree that that is because of the populace the schemes deal with, but she will also agree that the take-up in Devon and Cornwall, as Dame Yve Buckland has said, is still a “drop in the ocean” compared with the number of households that would be eligible.

Sheryll Murray (Conservative, South East Cornwall)

Is the hon. Gentleman aware that the water company in the south-west had a drive to make consumers aware of the WaterSure scheme about 18 months ago? The company has already taken the initiative. What difference would his proposal make?

Thomas Docherty (Labour, Dunfermline and West Fife)

I am happy to address the hon. Lady’s question. As the Consumer Council for Water has said, there has been a significant increase—up to 350%—in the past six years, but take-up is still far too low. The best estimate is that only about a third of those who are eligible are taking up the scheme. If the Minister is not minded to accept new clause 29 today—I will be disappointed if he is unable to break the civil service lock—will he spell out what further steps the Government will take? It is unacceptable that fewer than 10,000 households in the south-west have taken up the scheme, but the hon. Member for Newton Abbot is right that the take-up rate in the south-west is the highest rate in England. I shall quote other figures: in your area of Yorkshire Water, Mrs Riordan, 3,853 households are taking up the scheme. Fewer than 4,000 households in the whole of Yorkshire is simply far too low.

The Minister has to accept that, as the Consumer Council for Water has said, although progress has been made, there is a lot more to be done. My proposal is a practical step—a common-sense approach—and its beauty is its simplicity. Every customer is sent a bill. There is no additional cost: there is no cost to the taxpayer or to the water companies. The billing information has to go out anyway, so why not provide information about eligibility? The hon. Member for South East Cornwall would accept that our biggest problem is that many of our constituents simply do not know that the scheme exists. We have to do more to promote the scheme, particularly in this time of hardship.

Matthew Offord (Conservative, Hendon)

The hon. Gentleman says consumers do not already know that the scheme exists. However, I understand that water companies voluntarily include information with household bills on how to apply for assistance under the WaterSure scheme.

Thomas Docherty (Labour, Dunfermline and West Fife)

The problem is that it is not as straightforward as the hon. Gentleman has been informed. It is a bit more patchy than that, and there has not been a standardisation. I refer to the evidence we heard on Tuesday from the Consumer Council for Water, which, after all, is the independent champion of consumers. It says that we simply must do more to promote the scheme. For far too long, we have been hung up about whether we can improve take-up through targeting or through a more complex measure. The beauty of my proposal is its simplicity: every water company would send out the information.

The one time that our constituents think about the cost of water is when they get their bill. Many hon. Members have experienced that. We usually think about the cost of things when we get the bills. Many of us receive our bills online, but we are not even prescribing whether or not the information should go out electronically; we simply say that, when the bill is sent out, it should include that information. The Committee will agree that it is simply unacceptable that two thirds of people who are eligible for help do not receive it.

New clause 30 would introduce a national affordability scheme for water. We had a lively debate on Second Reading on social tariffs. I hope to encourage more contributions on them from Members on both sides of the Committee. Last Tuesday, the Consumer Council for Water said:

“One in eight customers says they cannot afford their bill”.––[Official Report, Water Public Bill Committee, 3 December 2013; c. 23.]

That is 12%—an astonishing figure. The Consumer Council for Water highlighted that water bills, although not as high as energy bills when we look at them in isolation, add to the overall cost of living. If we add the cost of water to the rising cost of food and energy, and to the ongoing cost of running a car, the problem is compounded. The written briefing to the Committee from Citizens Advice stated that almost as many people who are struggling to pay their water bills come through its doors as people who are struggling to pay their gas and electricity bills.

The industry has not done enough. The Committee has heard Opposition Members repeatedly highlight the fact that only three water companies currently offer social tariff schemes. As we know, social tariffs were introduced in the Flood and Water Management Act 2010 because the water industry told the House of Commons that water companies were absolutely committed to doing more. The industry said that, rather than having a standardised scheme, it would introduce comprehensive schemes if we gave it the opportunity.

Three and a half years after the House of Commons voted for social tariffs, they have been introduced by only three water companies. The business plans were published last week, but only a further dozen of the water companies have any plans at all to bring in social tariffs in the near future. Even those proposed social tariffs do not go far enough.

John Cryer (Labour, Leyton and Wanstead)

What does my hon. Friend make of the industry’s response last Tuesday during the evidence session? The water companies seemed to be saying, “The fact that only three water companies have introduced social tariffs is purely because of the morass of Government regulation and interference.” I do not find that particularly convincing.

Thomas Docherty (Labour, Dunfermline and West Fife)

My hon. Friend is entirely right. The response from Mr Wesley was reprehensible. He seemed to blame everybody but the water companies—he shamefully blamed the regulator, Ministers and customers. My hon. Friend is absolutely right to highlight that performance. It is fair to say that, as a lobbyist for the water industry, Mr Wesley did not do a particularly good job. Judging by the look on the face of Cathryn Ross, the chief executive of Ofwat, I suspect she did not think it was acceptable for the water lobbyist to blame the regulator for the fact that the water companies had made so little progress.

It is not just that only three water companies have introduced schemes; the schemes themselves are less than satisfactory. In my new role as shadow Minister, I met the chief executive of Affinity Water a couple of weeks ago. He said that when Affinity eventually gets round to introducing its social tariff scheme—at best, we are looking at 2015-16—only 80,000 households will receive any type of support, out of something like 1.2 million households. Let us not forget that that water company covers a large part of the south-east region, one of the most expensive areas to live in, and the area with the highest cost of living. That is simply unacceptable—it is not satisfactory at all. The implementation of the scheme has been risible. The breadth of households that will be captured by the social tariffs is very poor. It is clear that, left to their own devices, water companies will not do enough to help their customers. Enough is enough. We simply cannot go on with a laissez-faire attitude. We cannot keep saying, “If we give them a bit more time, the water companies will get there.”

That is why the Opposition propose new clause 30, which does three things to improve the situation for hard-pressed families up and down the country. It ends the postcode lottery by ensuring that every water company has a social tariff scheme, and addresses the criteria for the social tariff scheme. We propose a national affordability scheme to replace the ad hoc social tariff. Before the Minister comes up with reasons why the Government will not help hard-pressed families, let me be clear that we are talking about national criteria delivered locally. We are absolutely clear that we are not going to get into a situation in which customers in the north-east of England are subsidising customers in the south-east and vice versa. The proposal is for nationally standardised criteria delivered locally.

Dan Rogerson (Liberal Democrat, North Cornwall)

I am grateful to the hon. Gentleman for setting out some of the thinking behind his national affordability scheme proposal, because there were a number of questions in my mind about how it would be constituted. I believe he implies that the scheme applies within water company areas, but would it be funded out of general taxation, or would it be funded through bills, which is how the current social tariff is funded?

Thomas Docherty (Labour, Dunfermline and West Fife)

I think the Minister has probably read the briefs that his civil servants helpfully provided—[Interruption.] If the hon. Member for Enfield, Southgate wants to stop chuntering and make a contribution, I will happily give way to him.

Several hon. Members rose—

Thomas Docherty (Labour, Dunfermline and West Fife)

I will take about four interventions at once if Government Members can get their lines straight. I will happily give way to the hon. Member for Enfield, Southgate, who is chuntering.

Several hon. Members rose—

Thomas Docherty (Labour, Dunfermline and West Fife)

If the hon. Gentleman—the Parliamentary Private Secretary—wants to make a contribution, I will give way, but he does not, so I will take an intervention from the hon. Member for South East Cornwall.

Sheryll Murray (Conservative, South East Cornwall)

The hon. Gentleman is making a really powerful speech, but perhaps he would like to answer the question.

Thomas Docherty (Labour, Dunfermline and West Fife)

If I can avoid the sledging, I will happily answer the question. [ Interruption. ] Again, I cannot understand why the hon. Member for Enfield, Southgate continues to sledge from the Back Benches, and to do it badly. If he has something that he wants to say, he is more than welcome to intervene. If not, I would like to make some progress and answer the hon. Lady’s question.

Social tariffs work through funds from the water companies. Opposition Members believe it is totally unacceptable that water companies made such excess profits last year. We would like to see some of that money go into reducing the cost of bills. We believe, however, that where social tariffs work, they are funded from within the water company area. To answer the Minister’s specific question, we propose not a new tax on customers but that water companies be dragged kicking and screaming to introduce the social tariffs that would benefit their customers, because the reality is that the voluntary approach has not worked.

George Hollingbery (Conservative, Meon Valley)

I have been hypothesising in my head and I think that the hon. Gentleman is setting a general case, which, when applied in some specific cases, could be extremely difficult to deliver. If a water company serviced many people who had affordability issues and not terribly many who did not have such issues, how would his scheme be funded?

Thomas Docherty (Labour, Dunfermline and West Fife)

I am slightly puzzled, because as I far as I am aware the hon. Gentleman supports social tariffs.

George Hollingbery (Conservative, Meon Valley)

I asked a specific question, to which I would like an answer.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am trying to address the hon. Gentleman’s question helpfully. I am surprised that he now seems to be setting his face against social tariffs.

George Hollingbery (Conservative, Meon Valley)

On a point of information, I have never said that I am against social tariffs. I simply do not understand where the hon. Gentleman got that from.

Thomas Docherty (Labour, Dunfermline and West Fife)

The hon. Gentleman appeared to be indicating that he was against the principle of social tariffs, which is that those who are most unable to afford to pay their water bills receive support from the general pool—pardon the pun—of customers in their area. If I have not misunderstood him, he seems to be suggesting that the number of people who receive support should vary from one water company area to another. He seemed to be suggesting that the water company should be allowed to work out how many people it wants to help and how to fund that.

George Hollingbery (Conservative, Meon Valley)

I think the question I asked was antithetic to that. I think I said that if the number of people who require help with their water bills through the affordability scheme is worked out according to the hon. Gentleman’s method, which is presumably by household income, and it so happened that in one water company’s area 90% of people required support and 10% did not, how would that be funded?

Thomas Docherty (Labour, Dunfermline and West Fife)

The hon. Gentleman is dragging me down a path on a matter that will be dealt with in secondary legislation, and I would probably be called out of order if I talked about that. If I have some leeway to answer the question, however, I am baffled as to how widely drawn the criteria would be for 90% of people to be inside the scheme and only 10% outside.

George Hollingbery (Conservative, Meon Valley)

Will the hon. Gentleman give way?

Thomas Docherty (Labour, Dunfermline and West Fife)

I want to make a little progress and then I will happily take a further intervention. The fundamental problem with the laissez-faire approach is that it is not helping those who most need help. Eighty thousand people came through citizens advice bureau doors last year to seek assistance with their water bills. Fewer than 100,000 people receive assistance from WaterSure or its equivalent in Wales.

Hundreds of thousands of households up and down the country are struggling day in, day out with the cost of living crisis. New clauses 29 and 30 would provide simple, effective measures finally to provide some relief to those hard-pressed families.

Pat Glass (Labour, North West Durham)

It is a pleasure to serve under your chairmanship for the first time, Mrs Riordan. I want to talk to new clause 30, which is about affordability in general, but water bills in particular. We are all aware that life is hard out there for many of our constituents. My constituency is situated high in the north Pennines, where, incidentally, we have lots of water, largely because the previous water supplier made a major investment in Kielder before it was privatised, but my constituents still find it hard to pay their water bills. As we have heard, one in eight of our constituents are struggling to pay their water bills.

I recently held an event on getting ready for winter, because winter in the north Pennines is no laughing matter. Although it did not snow every day between November and March last winter, there was snow on the ground in my constituency every day.

Sheryll Murray (Conservative, South East Cornwall)

The hon. Lady is making a good case for her constituents. Are her constituents in the situation described by my hon. Friend the Member for Meon Valley, in which 90% of households require help? How would the scheme proposed by the shadow Minister actually work?

Pat Glass (Labour, North West Durham)

I do not think that even this Government would come up with a scheme so ludicrous that 90% of those who contribute were eligible. That would be just ridiculous.

Thomas Docherty (Labour, Dunfermline and West Fife)

I wonder whether the problem is that Conservative Members think that it is all grim up north and that we need a scheme in which 90% of people are eligible.

Pat Glass (Labour, North West Durham)

I give way to the hon. Member for Hendon.

Matthew Offord (Conservative, Hendon)

The confusion arises because the shadow Minister simply cannot say how the scheme would be funded. The Opposition recently called for a cross-subsidy to fund such a scheme, and even more recently they were talking about excess water company profits. Will the hon. Lady please tell us which one it would be?

Pat Glass (Labour, North West Durham)

We are talking about cross-subsidisation, but I honestly do not believe that even this Government would come up with a scheme for which 90% would qualify. That would be just ludicrous.

Matthew Offord (Conservative, Hendon)

I didn’t ask that.

Linda Riordan (Labour, Halifax)

Order. Please allow the hon. Member for North West Durham to be heard as you would expect to be heard when you speak.

Matthew Offord (Conservative, Hendon)

Of course.

Pat Glass (Labour, North West Durham)

One of the things I have found hard since entering Parliament in 2010 is the bullying, particularly of women, in the Chamber. It is completely unacceptable.

Sheryll Murray (Conservative, South East Cornwall)

On a point of order, Mrs Riordan. I am very disappointed to be accused of bullying when I asked a genuine question. I certainly had no intention of bullying the hon. Member for North West Durham with my intervention.

Linda Riordan (Labour, Halifax)

You have made your point.

Pat Glass (Labour, North West Durham)

In my recent getting ready for winter event, I talked to two elderly ladies who were a little older than me—[ Interruption. ]

Linda Riordan (Labour, Halifax)

Order. The hon. Lady will be heard.

Pat Glass (Labour, North West Durham)

I talked to two ladies who were a little older than me, and they were concerned about paying their bills, whether their bills to heat their homes or generally, including their water bills. The only solution that those two elderly ladies could think of was for one of them to give up their home and move in with the other. I counselled them on that because there are many reasons why such a solution could go wrong, but I can understand the real anxiety felt by those two ladies, who are not unique. Other Members will have such people in their constituency.

Following last week’s autumn statement, I am even more convinced that the UK is two very different countries. In the north, we have a recession, austerity cuts that are biting hard and widespread poverty made worse by policies such as the bedroom tax. We have very high levels of unemployment, particularly among our young. Although the Prime Minister regularly tells us that he has created 1 million new jobs in the north, those jobs have been created by getting rid of good-quality public sector jobs and replacing them with part-time, often zero-hours contract jobs on the minimum wage. The one thing that we do have is lots of water. In London and the south-east, where there is clearly no recession, I am told that it is as hard as ever to get a table in a good restaurant, house prices are booming, employment is booming and there is investment. We can see it every day. You have trains, you even have buses, and we do not have any of those in the north, but we have no—

Matthew Offord (Conservative, Hendon)

On a point of order, Mrs Riordan, is this really about new clause 30 or about affordability?

Linda Riordan (Labour, Halifax)

It is totally relevant. It is about affordability.

Pat Glass (Labour, North West Durham)

Thank you, Mrs Riordan. We were told a couple of years ago that in the south-east we were days away from having standpipes in our streets. That suggests to me that the great water privatisation project is failing to provide enough investment to deliver basic services if we get one dry winter followed by a dry summer in the richest, most populated part of the UK. Yet our water companies, which came so close to failing catastrophically to provide even a basic service to the south-east a couple of years ago continue to make huge, even obscene profits. Water companies appear to be vying with the energy companies, bankers and MPs to be top of the public hate list.

Water companies have seen huge profits of £37 billion since privatisation. They made £1.9 billion profit last year, of which £1.8 billion was paid out in bonuses and dividends, and they are borrowing to fund what little investment there is.

George Hollingbery (Conservative, Meon Valley)

Will the hon. Lady give way?

Pat Glass (Labour, North West Durham)

I will not. We have heard that Thames Water has just been refused authority to increase its prices by 11% to pay for the new London sewer. I suggest that Thames Water customers, of which I am one, have paid for this sewer over and over again. If Thames Water paid out a little less in bonuses and dividends it could pay for that sewer without borrowing or putting up prices.

I was extremely disappointed to hear last week that only three water companies have so far managed to put social tariff schemes in place. The representative from Water UK kept telling us, not very convincingly, that these three were put in place at the first opportunity. They have had five years to get their act together collectively. The way he blamed the Government, the regulator and, finally, customers will just not wash. Every customer who does pay is paying an extra £15 on their bill to cover bad debts and most are probably not aware of it. So much depends on the question and the way you ask it. If the water companies say to customers, “Would you like to pay a couple of extra pounds to cover a social tariff scheme?” the answer, especially with today’s cost of living, would be no. Most people are struggling. However, if it was made clear that they were actually paying £15 on every bill to cover bad debts, that would at least put the question into a little more perspective.

As things stand, the water companies can sit back, do absolutely nothing and pass on the cost of bad debts to their customers, because there is no incentive for them to put a social tariff scheme in place. Coming back to what I said at the beginning, my constituents and, I am sure, those of Government Members, are struggling enormously to pay bills, whether it is energy or water bills. It is really important that the Government build affordability into the Bill, otherwise constituents such as mine will simply turn into bad debts.

Emma Lewell-Buck (Labour, South Shields)

It is a pleasure to serve under your chairmanship, Mrs Riordan, and to follow my hon. Friend the Member for North West Durham. I support the amendments tabled by my hon. Friend the Member for Dunfermline and West Fife. As we have heard repeatedly, one of the objectives the Government set out in their White Paper is to make sure that water supply is affordable for consumers; but today, as for so many other essentials, water bills are rising for the average user, and the Government’s proposed solutions do not do enough. I support the new clauses because they would put the consumer’s interests at the heart of the water market.

Water bills do not always make the headlines in the same way as other costs, such as household, energy or petrol, but the fact is that they have increased.

Sheryll Murray (Conservative, South East Cornwall)

I know the hon. Lady comes from a different part of the country from me, but I do not think she has paid attention to the headlines that excessively high water bills in the south-west have been making for the past 14 years. Is she aware of the excessively high water bills we had consistently in the south-west under the Labour Government?

Emma Lewell-Buck (Labour, South Shields)

If you are concerned about the water bills in your constituency, you should back our amendments—

Sheryll Murray (Conservative, South East Cornwall)

On a point of order, Mrs Riordan. I am sure the hon. Lady did not intend to address you. [ Interruption. ]

Linda Riordan (Labour, Halifax)

Order.

Thomas Docherty (Labour, Dunfermline and West Fife)

Further to that point of order, Mrs Riordan. I am sure the hon. Member for South East Cornwall does not mean to say we do not have a Chair for this sitting. I am sure she will take back that slur on you.

Sheryll Murray (Conservative, South East Cornwall)

Certainly, Mrs Riordan.

Linda Riordan (Labour, Halifax)

In that case, I call Emma Lewell-Buck.

Emma Lewell-Buck (Labour, South Shields)

The fact is that household water bills have increased by almost 50% since privatisation. At the same time, regional water companies made £1.9 billion profit last year.

In last week’s evidence sessions, we heard that there is a number of initiatives and schemes to assist with affordability, but many witnesses agreed that they lack teeth and that few end users benefit. Last week, the Minister was clear that he shares the water chiefs’ optimism that regional companies will take up social tariffs, but I believe that optimism is misplaced. At present, only three companies offer schemes, and only 25,000 customers get any benefit at all. When I asked my regional water company why it had not implemented social tariffs, it told me a similar story to the one the Committee heard last week from Dame Yve Buckland—that there is limited appetite among customers for social tariffs. Schemes are voluntary, so establishing one means convincing some customers to accept higher bills. Whatever the merits of such schemes, that will always be a hard sell, particularly when for the majority of people other household expenses are shooting up, thanks to the cost of living crisis.

If affordability is really at the heart of what the Government want to do, they should accept our proposals for a national affordability scheme that would guarantee help for those who struggle that most with their bills, benefit people all over the country and, importantly, not tighten the squeeze on households further up the income ladder.

George Hollingbery (Conservative, Meon Valley)

I absolutely understand the point the hon. Lady is making, and I commend her enthusiasm. Affordability is indeed a great concern for a great many consumers, but I think she just said that in conversations with her, water companies suggested that they did not like to impose these social arrangements because others in the water area would have to pick up the bill. However, I believe the Opposition’s scheme would make that mandatory across the country. In this instance, the hon. Lady cannot have her cake and eat it.

Emma Lewell-Buck (Labour, South Shields)

Our scheme is slightly different from what the hon. Gentleman describes.

Social tariffs are not the only option available to those struggling with their bills: there are also WaterSure and Water Direct. Although both are well intentioned, and we heard in evidence that some water companies employ a range of other measures to assist customers, too often they do not reach the customers who need them the most because they are found only by those who seek them out. Many people in my constituency do not even know that they qualify for these schemes, even though they have the potential to make a real difference.

It is unrealistic to expect every consumer to have the time or knowledge to get to grips with the numerous options available. My constituents already face a host of competing financial pressures on top of the ordinary stresses and strains of work and family life; that is doubly true for some of my most vulnerable residents, such as the elderly or those with learning difficulties. The market needs to work for those customers by making information about schemes such as WaterSure explicit. New clause 29 would achieve that by placing a duty on water companies to include such information with bills.

Sheryll Murray (Conservative, South East Cornwall)

Will the hon. Lady explain why, when the Labour Government introduced WaterSure, they did not take action to ensure that what Labour Members are calling for now was introduced then?

Thomas Docherty rose—

Emma Lewell-Buck (Labour, South Shields)

I give way to my hon. Friend the Member for Dunfermline and West Fife.

Thomas Docherty (Labour, Dunfermline and West Fife)

It might help if I remind the hon. Member for South East Cornwall that social tariffs were introduced by the Labour Government as a direct result of the pleas from the water companies to go down the voluntary route, and the fact is they have not worked.

Emma Lewell-Buck (Labour, South Shields)

I end by saying that the spirit of consensus that has been shown on other parts of the Bill should be shown on amendment 135 and new clauses 29 and 30.

John Cryer (Labour, Leyton and Wanstead)

It is a pleasure to serve under your chairmanship, Mrs Riordan.

I will to speak briefly, largely from the point of view of a constituency interest. I mentioned when we took evidence last week from—was his name Rob Wesley? He is clearly a memorable figure. He represented the industry. Before I elaborate on this I should say that I found his answers completely unconvincing. He may have responded to other hon. Members in a constructive way but I did not get a single answer to any of my questions. Thames Water, as I mentioned last week, is planning to increase bills by 11%. I represent three or four of the poorest wards in London, which means three or four of the poorest wards in Britain. I also represent some relatively better off wards, but people living in the three or four poorest wards are already struggling to pay their energy bills and water bills, and I worry about the effect that the 11% increase will have on them. They will struggle even more than they do now.

This is not directly relevant, but I will mention it briefly: according to Metro last week, Thames Water said that

“it intends to pay no corporation tax for the next decade”.

For Thames Water to make that announcement on top of the 11% rise in people’s bills is really rubbing salt into the wound. I know that some of my constituents, perhaps on their way home from work, reading in Metro that this company, which is extremely profitable and pays large dividends, would increase water bills by 11% and would not pay any corporation tax, felt it keenly. Thames Water does not have any social tariff scheme, at least not yet, and as far as I know—I am open to correction—it has no plan to introduce a social tariff scheme. If anyone knows any more about this, perhaps they will intervene to let me know if there are any plans in the pipeline.

Certain figures spring to mind generally with the water industry. Bills have consistently risen by more than inflation. As has been pointed out, £37 billion has been paid out in dividends and many water companies engage in elaborate tax avoidance schemes. For the avoidance of doubt, the idea that Opposition Members are ferocious critics of the water industry and all Government Members are unalloyed fans is not quite accurate. In the debate last month, several Government Members were very critical of the water industry. The hon. Member for Dover (Charlie Elphicke) said:

“The unacceptable, even antisocial, tax avoidance culture in the water industry has meant that many companies have not paid tax for years.”—[Official Report, 5 November 2013; Vol. 570, c. 181.]

He was not alone.

George Hollingbery (Conservative, Meon Valley)

I largely agree with the hon. Gentleman and with my hon. Friend the Member for Dover. All companies that operate in this country should pay tax in this county and should support the public goods which we want to develop and which they use. However, I hope the hon. Gentleman will acknowledge that some of those headline numbers are a little more complex than they appear on the surface. The water industry is financed in a particular way, which requires huge amounts of debt. It cannot be compared with regular everyday companies. Does the hon. Gentleman understand that life is a little more complex than it appears on the surface?

John Cryer (Labour, Leyton and Wanstead)

Life is always more complicated than the headlines say it is. Members on both sides of the House, after the events of the past two or three years and our experiences with the press, know that life is often more complicated than it appears. Nevertheless, the water industry has done extremely well since privatisation. Investment in the industry was sustained at a reasonable level until 2007, but since then it has declined while profits have continued unabated. I know that the reality is more complicated, but the water industry is making considerable profits and is paying out considerable dividends. Investment has been on the slide for a number of years and several water companies are planning to increase bills further than they already have. They have consistently increased bills by more than the rate of inflation.

Thomas Docherty (Labour, Dunfermline and West Fife)

My hon. Friend is making a compelling case. Does he share my concern that some companies—for example, Thames Water—have made bigger than expected returns because they took advantage of quantitative easing? It is therefore right that some of that money should be used to help hard-pressed customers.

Linda Riordan (Labour, Halifax)

Order. Will hon. Members keep to the topic of affordability?

John Cryer (Labour, Leyton and Wanstead)

Thank you, Mrs Riordan. On that issue, I was about to say that those profits could have been used to introduce social tariffs to increase affordability for poorer people, such as my constituents. The bottom line is that the industry has not increased capacity since privatisation in 1989. The same reservoirs supply water largely through the same pipes—certainly the same pipe network—to a similar number of customers, but the water companies have made increased profits, and only three have introduced social tariff schemes.

I again refer to the evidence session last week. I and one or two other hon. Members asked Rob Wesley about the lack of social tariffs, but his answers were completely unconvincing. He simply mumbled about regulation holding water companies back. It is unacceptable that those extremely profitable companies have not introduced affordability schemes. They say that there is too much Government regulation, but that is a pathetic analysis. To be honest, I want to see the water industry in public ownership, but I am not going to get that, regardless of who is in government. [Interruption.] I thought that mentioning public ownership would excite Government Members. It is like mentioning the devil. Failing that, there must be an effective affordability scheme, so the people I represent can pay their water bills.

Chris Evans (Labour, Islwyn)

It is a pleasure to serve under your chairmanship once again, Mrs Riordan. I rise to speak in support of the new clauses in the name of my hon. Friend the Member for Dunfermline and West Fife. There is a failure in the water market, as there has been in all the privatised industries except telecoms. However, a failure in the water market is more damaging than in any other market, because water is essential to life. We have seen the water companies pleading poverty on the one hand, but paying out massive dividends on the other. We have seen indebtedness increase in constituencies such as mine. We have seen water shortages. More people are struggling with their bills than ever before. We really are in a cost-of-living crisis; it is not just a slogan.

People are struggling to pay their water bills because the water companies provide only three social tariff schemes. How must those people feel when they hear that Severn Trent Water paid out £6.2 billion in dividends, Thames Water paid out £6.3 billion, United Utilities Water in the north-west paid out £7.3 billion, Anglian Water paid out £6 billion, and there is a high level of tax avoidance in the system? If I was in their position, I would wonder what was going on. Then I hear Government Members asking about affordability and where we will get the money from. Has the Minister given any thought to what the former Prime Minister, Sir John Major, said about looking at a windfall tax? It could fund some sort of affordability scheme. Equally, we could talk about market failure, and why water companies are allowed to pay out such dividends.

Sheryll Murray (Conservative, South East Cornwall)

Will the hon. Gentleman clarify whether he is proposing a windfall tax?

Chris Evans (Labour, Islwyn)

I am in no position to propose a windfall tax; I asked whether the Minister would like to study what the esteemed former Prime Minister and former leader of the Conservative party said. When Sir John Major was the Prime Minister, Government Members were so loyal; perhaps they will listen to him and consider whether there is any merit in a windfall tax.

There is an anger about the utility companies that we have to put into perspective. Bosses are paid £1 million a year for nothing more than collecting rainwater and putting it down a pipe. Compare that with a doctor or a nurse. The utility bosses are being paid five or six times as much as someone working on the front line saving lives. The Minister talks about the affordability scheme; what assessment has been made of the effect on bills of the bonuses, payments and dividends being paid out? What about the wonderful scheme that water companies have come up with for compulsory water meters? That represents an investment of £2.5 billion. Is that really the best use of that money? I agree with my hon. Friend the Member for Leyton and Wanstead on that.

I single out Thames Water, which had a run-off problem. It came up with a £4 billion scheme, which it could not finance, despite £6 billion of dividends being paid out. Who underwrote that scheme? The Government. For all the talk about these companies being privatised, they are still being run by the Government. If the Government can provide a £4 billion guarantee, why can they not provide an affordability scheme? Where is all the money going?

I can see that the Minister is ready to respond, so I will conclude. There are people out there who have no faith in Ofwat, civil service officials, Ministers or Parliament, because all they see are aggressive tactics from the water companies and no one standing up to them. With the new clauses, he has a real chance to draw a line under what the water companies are doing and bring about an affordability scheme. We have made suggestions, and I hope that he takes them on board.

Dan Rogerson (Liberal Democrat, North Cornwall)

This is an important debate for us to have. I understand, Mrs Riordan, that you wanted to ensure that we explored the issues around affordability as they relate to the amendments. You made it clear that hon. Members have had the opportunity to make the case on the problems that people may face, and there is agreement across the Committee that there are water bill payers who struggle to pay their bills.

As a south-west MP, I am well aware of the issue, as the hon. Member for Dunfermline and West Fife pointed out. This has been an issue in my part of the world for much longer than it has in other parts of the world. As water bills went up across the rest of the country, they were much higher in the south-west. That is why I bear the scars of lobbying Ministers in the previous Government to see whether they would do something. I pay tribute to them, as I did at the time, for putting in place the Walker review, which tested evidence on how we might deal with the situation in the south-west, among other issues. However, that review did not result in any action, so I am delighted that the coalition Government have done something about the issue.

The hon. Member for Dunfermline and West Fife pointed out that the previous Government set up the framework legislation for the social tariffs, which are one of the tools that water companies can use to ensure that they are supporting customers who have been struggling to pay their bills, but they are one tool among a number of others. I shall turn in more detail to the amendment and new clauses in a little while, but first I want to respond to points that others have raised.

Thomas Docherty (Labour, Dunfermline and West Fife)

I was trying not to interrupt the Minister in full flow, but on the point about social tariffs, will he say whether he thinks it acceptable that, even in their current business plans, many water companies still do not propose to introduce social tariffs in the coming year?

Dan Rogerson (Liberal Democrat, North Cornwall)

I would be happy to come back on that and update the hon. Gentleman, and I will return to the plans for social tariffs that companies are bringing forward. However, I wanted to pick up on a couple of points made by other speakers in the debate. The hon. Members for North West Durham, and for South Shields, both from the north-east, have talked about issues that their constituents face, and the conversations that they have had with their water company about pursuing a social tariff. It is admirable that MPs are engaging with water companies, making the case for a social tariff, and talking to those companies about what they can do for MPs’ constituents.

The hon. Member for Leyton and Wanstead raised a couple of points about Thames Water and its approach to social tariffs. Thames has put a social tariff in its business plan and intends to introduce it in 2014; it is now working towards implementing it. I hope that the hon. Gentleman will welcome that. Again, he is right to challenge his local water company on this point, and I am pleased that it is responding to the challenge that he and other MPs, as well as local organisations, will make in that regard. He also made points about the taxation system. We could range widely over how corporation tax and other taxes are viewed, but I suspect that that is more a matter for another debate. However, in response to his point about taxes that companies defer on the basis of the investment that they are making in capital, this happens across all sectors and in a whole range of businesses: it is not peculiar to this industry. Of course, Ofwat will take that into account when looking at the price plans, tariffs and investment with which companies come forward.

A study has shown that a 1% increase in the cost of capital—we were talking about how companies can borrow to invest—can add £20 to water and sewerage bills, so maintaining stability of the regulatory framework is essential for the stability of customers’ bills. In other words, if we send out signals that we will slap windfall taxes on companies that seek to secure money to invest, the message is likely to drive up the cost of that investment, and drive up bills for consumers, rather than lower them.

John Cryer (Labour, Leyton and Wanstead)

One of the points that I was making was that investment in infrastructure has been in decline since 2007. That is not universally the case, and as the hon. Member for Meon Valley pointed out, things are often more complicated behind the headlines—some companies have sustained investment—but generally, across the industry, investment has been in decline since 2007, so the argument, “We can defer taxes; we have all these baroque tax avoidance schemes because we are investing,” does not quite stand up.

Dan Rogerson (Liberal Democrat, North Cornwall)

The hon. Gentleman is also talking about what is probably the biggest capital scheme that will come forward in future years, the Thames tideway tunnel, which is a pretty huge investment. I think he would agree that, with regard to that company, that is setting out a direction of travel; there is a big investment there.

Thomas Docherty (Labour, Dunfermline and West Fife)

On excess profits and windfall profits, will the Minister clear this up once and for all? Do the Government think that it is acceptable for companies to make £1.9 billion in pre-tax profits and pay out £1.8 billion to their shareholders?

Dan Rogerson (Liberal Democrat, North Cornwall)

The hon. Gentleman and I—and other hon. Members who are here—debated affordability two or three weeks ago, and explored some of these issues. As the hon. Member for Leyton and Wanstead pointed out, Members across the House raised issues about companies’ behaviour and their complicated arrangements. That is why the Secretary of State has written clearly to water companies to say that he expects them to take account of the cost of borrowing and the situation that customers are facing. That is why Ofwat is taking far more account not just of issues around profits, investment and prices for consumers, but of issues around transparency and companies’ willingness to engage with the regulator to ensure that they are meeting people’s aspirations and understanding of how companies should behave and make things available. That is why I very much welcome Ofwat’s newer approach, which is far more rigorous and proportionate.

I hope that will reassure the hon. Member for Dunfermline and West Fife. It certainly goes much of the way to reassuring me that we are entering a period in which water companies will expect to have these things looked at incredibly closely. They will also expect that the benefits they have had from the low cost of borrowing will be shared with customers.

I will now deal in more detail with the hon. Gentleman’s amendment 135 and new clause 29. Water companies do not have complex tariff structures. In practice, the sole choice for the majority of household customers is whether to pay according to the amount of water they use—a metered tariff—or according to the rateable value of their home—an unmetered tariff. The cheapest option therefore depends on the amount of water used by the household. Many smaller households with low water use can benefit from having a meter. Water companies are required to fit a water meter free of charge on request. They also advise customers on whether they might benefit from the installation of a meter.

There is no evidence that further regulation is required in this area. All companies already include details of WaterSure on their household bills. As the hon. Gentleman pointed out, we heard in evidence from the Consumer Council for Water that it has been doing a great deal of work with companies on this area. The hon. Gentleman also raised the issue of updated figures on the take-up of WaterSure. I have some figures. Discussions with the Consumer Council for Water have confirmed this week that all the companies make reference to WaterSure and ensure that that information is available. On take-up, the overall figures in England for August this year are 70,510.

Neil Parish (Conservative, Tiverton and Honiton)

I thank the Minister for giving way. I feel that the Government could be a little stronger in bringing about metering. We want to make sure that people use water effectively and efficiently; if they are metered, they pay for the exact amount of water that they have used, and will look after that water. A very large household might well not want their water metered, but that will not make them save water and use it cost-effectively. Metering will help the environment because it will extract less water. The Government should be much more proactive in bringing companies into line with South West Water and others that have brought in a lot of metering.

Dan Rogerson (Liberal Democrat, North Cornwall)

On crossing to universal metering, there would clearly be environmental benefits if people understood better how much water they used and had that information. The hon. Gentleman and I represent constituencies in an area where many people have gone over to metering. In areas where that has started, the process snowballs, because ultimately the non-metered bills are seen to be higher. In some other parts of the country, this proposal does not meet with the approval of customers. The hon. Member for Islwyn pointed out that he was not a fan of compulsory metering and was concerned about the effects that it might have. We need to maintain an approach that is right for each area. Given the cost on companies of moving to metering—installation is a cost not to customers, but to companies—companies might invest in meters a lot of money that could be spent on other infrastructure, which we also want. We need a balance, which is why the Government are not convinced that we should go for universal metering.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am most grateful to the Minister for giving way. To take him back to the specific issues on new clause 29, will he explain why he has set his face against the very thing that the Department of Energy and Climate Change requires energy companies to do?

Dan Rogerson (Liberal Democrat, North Cornwall)

As I set out at the beginning of my remarks, the situation with energy is very different: the number of tariffs and the amount of choice in the energy market is very different from what we have in the water market. That is why I do not believe the case is made to do what the hon. Gentleman suggests.

Thomas Docherty rose—

Dan Rogerson (Liberal Democrat, North Cornwall)

I will give way to the hon. Gentleman one more time, and then I want to make a little progress.

Thomas Docherty (Labour, Dunfermline and West Fife)

I do not wish to hold the Minister back from his lengthy justification of the Government’s position, but he has only half-answered the question. What he said perhaps explains why he is against the tariff system, but DECC also requires energy companies to state what support they provide to struggling households. Why will he not do as his colleagues at DECC do?

Dan Rogerson (Liberal Democrat, North Cornwall)

The reason I gave for that is that companies are already doing so. As we heard from the Consumer Council for Water, all companies are now giving that information, so it seems a little odd to legislate on the face of the Bill to force people to do something they are already doing. The Opposition may now favour that approach in other areas as well, but we will have to wait and see.

We heard that the Consumer Council for Water worked very closely with companies on the format of bills. They advise that one of the biggest risks in using water bills as a means of communication with customers is information overload. That is another reason why I consider the amendments to be unnecessary.

New clause 30, also tabled by the hon. Gentleman, would require the Government to introduce by secondary legislation what is described as a national affordability scheme, but neither the nature of the scheme envisaged, nor how it would be funded, is entirely clear. In the debate we have drawn out a little bit more—there have been references to windfall taxes and so on, although no specific proposals. I say to the hon. Member for Islwyn that first of all he needs to convince the Members on his own Front Bench, and then we could have a debate in Parliament between the parties.

Chris Evans (Labour, Islwyn)

What I raised was not suggested by the Opposition but by a former Conservative Member, Sir John Major. I wonder what the Minister’s views are.

Dan Rogerson (Liberal Democrat, North Cornwall)

While many Members hold Sir John in high regard for his contribution to national life, in my early years in politics I disagreed with that gentleman on a number of things, and I am sure I will continue to do so. Despite the progress made in reaching accommodation between the parties in coalition, some differences remain, and this is another area where I differ from Sir John.

We have always been clear that a nationally mandated social tariff would be difficult to introduce. The hon. Member for Dunfermline and West Fife pointed out that there would be issues with cross-subsidy between water company areas, and he rejects that approach, so we are now a little bit clearer about what he is suggesting. A national scheme for affordability, if it were done on that basis, could have ignored the realities of the water industry, which is structured regionally, but the hon. Gentleman is not seeking to do that. He also rejected the possibility of funding the scheme from general taxation. In effect, he is talking about a kind of social tariff, funded within region, as are those that are already being introduced.

My hon. Friend the Member for Meon Valley made a fair point, although admittedly he went to an extreme by picking a figure of 90%. If there were nationally set criteria—income-based, for example—under which people became eligible to receive this, then because of regrettable disparities in income between different parts of the country and different water company areas, different numbers of people would be eligible in different water company areas, and because of that, the burden on the remaining customers would vary by area.

Later we will turn to the flood insurance clauses and the proposed method for funding Flood Re—a levy on other customers at a level agreed with the industry. That would be standard across the country. We are not saying that those customers who happen to live near people who are subject to flooding should pay a lot more than those in other parts of the country. I think that this is a risk in the approach set out by the hon. Member for Dunfermline and West Fife. If we have nationally set criteria and different numbers of people who qualify in each area, there would be a higher burden on remaining bill payers, some of whom may well be struggling but just fail to qualify for a social tariff, in different water company areas. I think that this is a problem with the route the hon. Gentleman is now suggesting.

We want people who are struggling to pay to get help, and all water and sewerage companies have developed packages to help customers with affordability issues. These include customer assistance funds, support tariffs, debt advice and water efficiency measures. Social tariffs provide an extra tool, and many companies are now introducing them. Statutory guidance requires that companies work with customers to develop local solutions that are acceptable to bill payers and tailored to meet local circumstances.

Water companies have been able to introduce social tariffs since April this year, and three have already done so. Most others are also now bringing forward plans to do so.

Thomas Docherty (Labour, Dunfermline and West Fife)

The Minister says “most others”. Going on for half a dozen have no plans to introduce such tariffs. Is that acceptable?

Dan Rogerson (Liberal Democrat, North Cornwall)

We must ensure that companies’ proposals are the right ones for local circumstances. The fact that the vast majority of companies are now setting out their plans shows that the argument for social tariffs has been won and that they are being implemented.

There are several dangers with the hon. Gentleman’s national affordability scheme. If it is structured on a national basis, there is a danger that Treasury rules could consider it a tax. With one structure across the country, there could be problems arising from income disparity and the different conditions in different areas.

Thomas Docherty (Labour, Dunfermline and West Fife)

Will the Minister give way?

Dan Rogerson (Liberal Democrat, North Cornwall)

I want to conclude my remarks. I am sure that the hon. Gentleman will respond to the debate.

It would also be an odd state of affairs in a price-regulated sector. There is evidence that the regulator is being much tougher with companies and that companies are responding. The best way of keeping down bills for everybody is to have strong regulation, which is the direction that the Government have set out for the regulator and that the regulator has responded to. On that basis, I cannot support the amendment.

Thomas Docherty (Labour, Dunfermline and West Fife)

Although I am grateful for the opportunity, it is with genuine disappointment that I respond to the Minister. I was in quite a chipper mood when walking in this morning.

New clause 29 sets out a common-sense approach to ensure that all water companies standardise the way they provide information. It builds on the evidence we heard from the Consumer Council for Water just last week. Let me summarise it again, because the Minister was obviously not paying attention. Only a third of those eligible for WaterSure are receiving the assistance to which they are entitled. The Consumer Council for Water explicitly said—I will not read it back to him, because he can get it from his officials—that we have to do more to bring the attention—[Interruption.] I am not sure that the Minister can read for himself, given that he spent much of his speech talking about things that we are not proposing. He discussed taxation, which we are not proposing. He talked about a national levy scheme, which we are not proposing.

In the hour or so during which Opposition Members spoke about the need for affordability, not one Government Member spoke about what they wanted to do to help customers. That is a damning indictment. I am astonished that the Minister spent so much of his speech talking about things that we are not doing, rather than what the Government will do.

George Hollingbery (Conservative, Meon Valley)

Does the hon. Gentleman agree that the vast majority of Opposition Members, while understandably impassioned about their constituents, actually spent a lot of time discussing a scheme that he was not proposing?

Thomas Docherty (Labour, Dunfermline and West Fife)

I do not recognise that description. We had four brilliant, powerful speeches, during which Opposition Members stood up for their constituents. It is a shame that not one Government Member stood up to speak about what they wanted to do to help their constituents.

Let me briefly deal with the Minister’s points. On national criteria, it is entirely reasonable to say that, whether someone lives in Halifax, Newton Abbot, South Shields or the south-west, people should know the criteria that would make them eligible for assistance. For the benefit of Government Members, let me read out the number of households in each region that are paying more than the 5% of income that the Government believe is a sign of water poverty. These are the Government’s own statistics. In the south-west region, which several Members here represent, 120,000 households are struggling to pay their bills: in the north-west, the United Utilities region, 370,000 households are struggling; in the Northumbria region—we heard some excellent speeches from Members from that region—110,000 households are struggling, and in the Thames region, 620,000 households are struggling. That is according to the Government’s own statistics and criteria.

Sheryll Murray (Conservative, South East Cornwall)

The hon. Gentleman has singled out the south-west again. Will he acknowledge that for 12 years under the Labour Government, the south-west, with its disproportionately high water bills, was completely ignored and it took this coalition Government to start to help hard-pressed consumers by providing some assistance with their water bills?

Thomas Docherty (Labour, Dunfermline and West Fife)

I am not sure how referring to Thames, north-west and the north-east means I am singling out the south-west region, although I know that the region is very special. The hon. Lady repeats this myth that the Labour Government did not do anything to help hard-pressed customers. Well, my five-year-old believes that if he says something often enough it becomes the truth. The reality is that the Labour Government were the only Government since privatisation to actually bring about a cut in water bills.

Dan Rogerson (Liberal Democrat, North Cornwall)

Will the hon. Gentleman confirm under which Government the current price review period began, and when the bills that people are paying at the moment and that he is so concerned about were set?

Thomas Docherty (Labour, Dunfermline and West Fife)

It was under the last Labour Government. I am sorry that the Minister was not aware of that fact, but I am happy to provide clarity for him.

The Minister went on to contradict himself. He is very quick-footed and I think it was quite a good attempt to slip it past without any Members noticing. On the one hand he praises the new Flood Re scheme, which may be debated later this week if we make sufficient progress, and says it is a commendable scheme because we are going to have cross-subsidisation of households; then he wrings his hands and says “We don’t want cross-subsidisation to deal with affordability.”

Dan Rogerson (Liberal Democrat, North Cornwall)

The hon. Gentleman clearly missed the point. The point I was making was that the Flood Re levy is set as a standard levy across all customers. The sort of thing that he wants to do, which is introduce a national scheme, on national criteria but paid within water company region, would not protect bill payers in that way. In fact, as my hon. Friend the Member for Meon Valley pointed out, in some areas people who may well be struggling to pay their bills already would have a much higher levy than in other areas.

Thomas Docherty (Labour, Dunfermline and West Fife)

That is half an explanation, but I am keen to make progress.

The Minister quite critical of what he described as a “lack of detail” in our new clauses. I simply do not accept that, for the obvious reason that we are talking about secondary legislation. The Opposition are happy to enter into bipartisan discussions about a national affordability scheme if the Government want to, but it looks as if the Government is not interested in doing so, and that is disappointing.

Dan Rogerson (Liberal Democrat, North Cornwall)

I am always happy to talk to the hon. Gentleman; it is always a pleasure to do so. I am grateful to him for setting out some of the detail of his scheme. As I pointed out in my previous intervention, that makes me even less likely to support it than I would have been on the vague basis that it was set out before.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am not sure how the hon. Gentleman is any less likely to support it than he was in the first place, but that is interesting.

The Government are totally against cross-subsidisation yet they support bad debt provision. Every one of our water companies has a bad debt provision, which adds about £15 to every single water bill, regardless of income. It is not even spread on a sliding scale; it is a flat rate of £15. Perhaps the Minister can explain why he is in favour of cross-subsidisation when it comes to Flood Re or bad debt, but is against helping those who are hardest pressed?

Dan Rogerson (Liberal Democrat, North Cornwall)

Any social tariff, which, as I have made absolutely clear, I support, is a form of cross-subsidisation, so the hon. Gentleman completely mischaracterises my argument. My point is that social tariffs are set according to local circumstances and are very much based on what customers who pay into the system can afford. The hon. Gentleman’s system would place no cap on that, and people in hard-pressed regions, such as the south-west, might find themselves paying a lot more to meet some nationally set criteria that would be more applicable to other regions.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am sorry that the Minister inadvertently misrepresents the Opposition’s position. We are saying that the criteria would be set nationally, but the scheme would be delivered—[ Interruption. ] The Minister throws his hands up in the air dramatically, but the Opposition believe that customers in the south-west region should have the same support as customers in the north-west or the north-east and that the south-east should be the same as the north-east. I am sorry that the Minister does not support that.

Finally, the Minister said, with a genuinely straight face, that we do not need a national scheme because we have strong regulation. The Opposition do not believe that writing one letter to the water companies in the past 12 months shows strong leadership and strong regulation. The water companies have had far too long; they are not making progress on social tariffs and we need to act.

Dan Rogerson (Liberal Democrat, North Cornwall)

The hon. Gentleman is an expert on many areas of the water industry, but I hope he is not saying that the Secretary of State was seeking in his letter to be the regulator for the water industry. I think the hon. Gentleman is aware that that is Ofwat’s job.

Thomas Docherty (Labour, Dunfermline and West Fife)

The problem is that the Secretary of State is not interested. He believes he can adopt a laissez-faire attitude and leave it up to the British Insurance Brokers Association to get on with things. It is about time he got a grip on this.

The water companies are failing in their fundamental duty to help constituents up and down the country. Even when the Minister had the opportunity to condemn them for not introducing social tariffs, he chose not to take it. Someone needs to stand up for hard-pressed consumers. It is quite clear Government Members will not, but Opposition Members will.

Linda Riordan (Labour, Halifax)

Does the hon. Gentleman wish to withdraw the amendment?

Thomas Docherty (Labour, Dunfermline and West Fife)

I beg to ask leave to withdraw the amendment.

Thomas Docherty (Labour, Dunfermline and West Fife)

I beg to move amendment 138, in clause 16, page 47, line 36, at end insert—

‘(i) make provision about the rates of charges to household premises and non-household premises.’.

Linda Riordan (Labour, Halifax)

With this it will be convenient to discuss new clause 31—Oversight of charges—

‘In section 2 of the Water Industry Act 1991 (general duties with respect of the water industry), after subsection (2C) there is inserted—

“(2CA) For the purposes of subsection (2A)(a) above the Secretary of State or, as the case may be, the Authority shall have regard to the rates of charges to—

(a) household premises; and

(b) non-household premises.”.’.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am most grateful for the opportunity to discuss these provisions. I do not intend to detain the Committee long.

This is, I suspect, one of those debates the Minister wishes he did not have to take part in. We will be referring to the evidence and report produced by the Select Committee on Environment, Food and Rural Affairs, which were published last Session, when the Minister had the pleasure of serving with the hon. Member for Tiverton and Honiton and me on that Committee. The provisions deal with a fundamental point about de-averaging prices. With your permission, Mrs Riordan, I will talk to the amendment and the new clause at the same time.

We have had some good debates over the past two and a half years about the merits of cheese and cream from different parts of the United Kingdom. The Minister has made a powerful case for Cornish cheddar and cream being among the finest in England, while the hon. Member for Tiverton and Honiton—I may be starting a blue-on-yellow fight—would argue that Devon has the best cheese, although we all know that Yorkshire has the best cheese in England, Mrs Riordan.

I raise the issue of creameries and cheeseries—

Sheryll Murray (Conservative, South East Cornwall)

Cheeseries?

Thomas Docherty (Labour, Dunfermline and West Fife)

If it is not cheesery, perhaps the Minister can get some inspiration from his officials and tell us what the word is.

Dan Rogerson (Liberal Democrat, North Cornwall)

Creamery is the word for a cheese maker.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am most grateful. If nothing else, we have had some enlightenment from the Minister on that critical topic.

I raise the issue of the dairy industry because the Select Committee took evidence on it when we looked at de-averaging in the last Session. The Water Industry Commission for Scotland said this:

“If a dairy in a rural community were to [identity an alternative source of water that would meet its needs or] reduce the strength or volume of its waste, this could lead to the partial stranding of an asset built to serve that customer. It may be the only significant business…in the area and potentially significant costs will now have to be met by those customers that remain, including households if the asset that was constructed is to be paid for in full.”

We debated examples of that last week. The Committee will recall the good discussion we had about Albion Water and Shotton paper mill. The Minister did not quite address competition law, so perhaps I can press him to say a bit more about that. As he knows, if he goes back to the 2006 case of Albion Water and Shotton paper mill, the tribunal warned of the danger that, in competition law—many clever lawyers will seek to overturn the intention of Ministers—if a dairy company or whoever else decides reasonably to change its retail supplier, it could leave the asset stranded and the retailer, by invoking that law, will not have to meet some of the costs that the water wholesaler is left with. Unfortunately, those costs will be passed on to other non-domestic and domestic customers in that area.

The reason why that has not been an issue in Scotland is that clauses like the ones we propose were put into the Bill that set up that system. This would be a technical change, which is designed, as the Minister knows, to be genuinely helpful. Hopefully, no one in the Committee wants to see assets stranded with household and other business customers left to pick up the pieces. I do not intend to keep us for much longer, but, if the Government do not accept the advice from WICS and the Select Committee, will the Minister tell us why?

Dan Rogerson (Liberal Democrat, North Cornwall)

I am always grateful when the hon. Gentleman offers his help. He is keen to point out how helpful he has been. Perhaps he was being slightly less helpful when he accused me of not being able to read, but we will gloss over that.

The amendments are unnecessary. Ofwat is already obliged to further the consumer objective and Ofwat is the body that sets the rates for a five-year period for all customers, which includes both household and non-household customers. The hon. Gentleman might want to explore the impact of his proposed changes on household customers. We were clear in an earlier debate that competition law does not apply where access to markets and charges are regulated—the Water Industry Act 1991 applies.

In the spirit of trying to be helpful, I hope that that reassures the hon. Gentleman a little. I think essentially we have a disagreement on how robust the framework is to prevent the sort of situation that the hon. Gentleman is concerned about.

Thomas Docherty (Labour, Dunfermline and West Fife)

The Minister will appreciate that we have a technical, rather than political, disagreement. In light of the Albion case in 2006, in which competition law trumped the legislation, will he set out the advice he has had from his officials on why that will not be a problem on this occasion?

Dan Rogerson (Liberal Democrat, North Cornwall)

The case to which he refers rumbled on for a great length of time and affected the ability of a new entrant into the industry, Albion Water, to take forward some other projects that it wanted to engage with. I mentioned in previous debates that I have seen a residential development in which it is involved in Gloucestershire. It is using grey water and providing opportunities to capture water and recycle it through new houses. That is a positive thing. The hon. Gentleman is concerned about its entry into the market in Wales. I should like to put it on the record that I am pleased to see that company, as a new entrant, coming up with innovative solutions for household customers as well.

Neil Parish (Conservative, Tiverton and Honiton)

We all want to see more competition, but we have to ensure that when a retail company comes in it charges enough for that water so that any grey water or waste water that comes from those plants is also dealt with through the wholesaler. Is that the point that we are adequately covering?

Dan Rogerson (Liberal Democrat, North Cornwall)

With regard to the specifics of drawing parallels with what happened in that case and projecting that forward to the provisions in the Bill, that case was brought under the Competition Act 2010. The Water Industry Act 1991 at the time did not regulate the arrangements applicable to the supply to the Shotton paper mill. This is a key difference. Now, as I have explained, in future we would look at the situation under the Water Industry Act 1991 rather than under the Competition Act 2010. As the hon. Gentleman said, we do not disagree about some of the directions in which we would like to see things move, but the question is whether the provisions currently in place are sufficient to ensure that we can move forward with confidence. It is my belief that the hon. Gentleman’s amendments are not necessary.

Thomas Docherty (Labour, Dunfermline and West Fife)

Before the Minister finishes, can he clarify this for me? He seems to accept that we have a genuine concern, but he believes that the amendment is unnecessary. If he assumes that the amendment would not be detrimental to the Bill, why does he not just accept it and then we could have belt and braces?

Dan Rogerson (Liberal Democrat, North Cornwall)

That is an approach one can take in some aspects of life, but I do not think we need to introduce legislation, just in case, even though we are confident that it is unnecessary. We could have Bills that were much larger were we to double legislate in a number of circumstances, even if we believed that the provisions, based on the evidence, were unnecessary. So on that basis I would still resist the hon. Gentleman’s amendment.

Thomas Docherty (Labour, Dunfermline and West Fife)

I will not detain the Committee long. We have quite a lot to get through. I am again disappointed in the Minister’s approach. This is an attempt to tidy up what the Select Committee felt was a discrepancy in the Bill. As I have already highlighted, this is not a problem in Scotland because there is a specific provision. I honestly believe that this is another example of the civil servants digging their heels in because someone else came up with the idea rather than them. My fundamental concern is that I have a legal note from a very senior legal practice that sets out exactly how one could get round the Minister’s assurances.

The key issue is that if we go back to the Albion Water case, which is the fundamental danger in all of this, the chapter 2 prohibitions in the Competition Act 2010 require a statutory obligation or dominant undertaking to be placed in the Bill. We fear that in 2018 and 2019, once the market has opened up, we will have to come back to pass emergency legislation because the civil servants have been digging their heels in. We will seek to withdraw the paving amendment today, but will press it to a vote next week if the Minister does not want to take the weekend to reflect on his position. I beg to ask leave to withdraw the amendment.

Clause 17 - Rules about charges for connections etc

Clause 18 - Charges for providing a water main etc

Dan Rogerson (Liberal Democrat, North Cornwall)

Clause 18 amends sections of the Water Industry Act 1991 that set out the charging regimes under which customers and developers have to pay for new water mains, connections to the public water supply and so on. Schedule 7 makes further amendments to repeal the remaining redundant detailed charging provisions in the 1991 Act. The effect of the clause is to remove the piecemeal provision in the Act on the various charges involved and to bring each charge within charging rules, as provided for by clause 17. That will help customers and developers by providing additional clarity on what charges can be imposed for these works, allowing them to have greater understanding of the potential costs before starting on a site. It should also help to limit disputes by providing more transparency than exists at present.

Clause 19 - Charges for providing a public sewer etc

Clause 20 - Charges for moving pipes

Dan Rogerson (Liberal Democrat, North Cornwall)

The clause amends section 185(5) of the Water Industry Act 1991. The change will provide clarity on what charges an incumbent water company can impose in relation to its duty to move pipes and apparatus in certain circumstances. Section 185 allows a person to request that an incumbent water company alter or remove pipes or apparatus running through his land if the position of the pipes or apparatus would prevent improvement to the land.

Section 185(5) currently allows water companies to impose on the person requiring the work such costs as are reasonably incurred in carrying out the work. There is currently a lack of clarity around what expenses are “reasonably incurred” and how such reasonable expenses are calculated. This change will allow the charges to be included within charging rules to be made under clause 17, bringing transparency and consistency for developers.

Thomas Docherty (Labour, Dunfermline and West Fife)

Will the Minister clarify what representations the Government have had from the various bodies? The clause particularly affects landowners. Has he had a chance to discuss it with the CLA or the NFU, and are they satisfied with the provisions he is setting out?

Dan Rogerson (Liberal Democrat, North Cornwall)

I have not personally discussed this in my few months in office. However, we have discussed widely on the provisions we have sought to include in the Bill—the tidying-up procedures as well as the fundamentals that we have been debating—and all organisations have had the opportunity to contribute to those consultations.

Clause 21 - Drainage systems relieving public sewers

Dan Rogerson (Liberal Democrat, North Cornwall)

I beg to move amendment 143, in clause 21, page 55, leave out line 26.

The amendment will remove part of the new section 114A that clause 21 would insert into the Water Industry Act 1991, to ensure that land used by an incumbent water company to construct a sustainable drainage system will become subject to the protected land provisions of the 1991 Act. That allows Ofwat to regulate the disposal of land to ensure that the consumer benefits.

Clause 22 - Primary duty to secure resilience

Dan Rogerson (Liberal Democrat, North Cornwall)

The water White Paper that we published in 2011 articulated a powerful case for planning now to protect the resilience of our future water supplies. That message was underscored by the events of last year. In 2012 there was flooding on one day out of five, and drought on one day out of four. There were 6,000 flood warnings and alerts, and hosepipe bans affected more than 20 million people. We need to take account of the impact of environmental pressures, population growth and patterns of demand on essential services; to reduce pressure on the water environment that we all rely on; and to reform the aspects of the system that institutionalise short-term thinking, focusing instead on long-term resilience.

To support the required change in behaviour, the clause creates a new primary duty to further the resilience objective. It has been given wide scope, to recognise the fact that water resources are managed in the natural environment and to reflect the need for innovative solutions, demand management and planning and investment that look to the long term.

I know some hon. Members feel that those objectives would be best served by changing the order of Ofwat’s existing duties to make sustainable development a primary duty. We shall have the opportunity to debate that at some length later, but I want to mention now that I strongly support the objective of securing that environmental guarantee and resilience.

Ofwat currently has a duty to take into account sustainable development.

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

I am pleased to hear the Minister make that commitment to sustainable development in Ofwat’s remit. I am sure that he will elaborate if we have the chance to debate some of the new clauses.

Dan Rogerson (Liberal Democrat, North Cornwall)

I know that my hon. Friend cares about the issue, and the new clauses that he has tabled are evidence of that.

Clause 22 is focused on resilience, and I hope that the House will support that. The resilience duty has been created to address the specific duties to do with long-term pressures on the industry. Its scope has been made sufficiently broad to allow it to encompass all the activities that water companies can undertake to manage the pressures, including investing in additional water storage, which I know many members of the Committee are keen on; tackling unsustainable abstraction, a huge concern that has already been raised in Committee; and focusing on environmental management across the catchment.

It is my belief that the new duty of resilience addresses precisely the legitimate concerns that Members have raised about the long-term pressures on our water and sewerage services and the water environment on which they rely. I look forward to hearing more debate about such issues later in Committee, but the new duty of resilience that we are discussing is important. I commend the clause to the Committee.

Thomas Docherty (Labour, Dunfermline and West Fife)

We welcome clause 22 and do not intend to oppose it. However, the Minister will know that we have genuine concerns, and I refer him again to the work of the Select Committee. I know that we do not often discuss the south-west region in this Committee, so let me quote what South West Water said to the Select Committee:

“Currently, an element of capacity is built into the network to accommodate peaks in flows or to ensure continuity of service where an aspect of the system fails. However, in a ‘competitive’ environment, where new entrants will be competing to provide resources and assets at the most efficient cost, it is not yet clear how these critical capacity safety nets will be maintained.”

We also heard evidence from organisations such as Wessex Water and the Local Government Association, and from many other stakeholders.

One unfortunate reality of the British climate is that we veer from droughts to floods. We have heard previously in Committee eloquent speeches about hosepipe bans; in the same regions, six months later, there can be flooding on the catastrophic scale we saw just a couple of days ago. Although we do not intend to oppose the clause, I hope that the Minister will set out how he is ensuring that the serious concerns raised by the witnesses, the Select Committee and the Opposition will be addressed. After all, it is in no one’s interest that we see more flooding on the scale we have recently seen.

Dan Rogerson (Liberal Democrat, North Cornwall)

The hon. Gentleman makes some important points. I welcome the fact that he and his colleagues are supportive of reforming and increasing the duties to examine longer-term issues. I am pleased that he sees the need for that.

We want to see better management of water resources. The resilience duty will potentially cover a range of considerations about how water is managed, and that might involve storage. As the hon. Gentleman said, and as my right hon. Friend the Secretary of State said on Second Reading, in some areas, a lot of water comes down and that is a problem; if we were able to capture, harvest and use some of that water at times of shortage, we would have a much more resilient system.

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

Everyone supports the idea of resilience, but the question is about the balance between large capital expenditure and managing water demand, ensuring that we look after our water as it is transferred from the reservoir to the consumer.

Dan Rogerson (Liberal Democrat, North Cornwall)

That is why I welcomed the evidence from the Environment Agency about the important role it has to play in managing resources and the powers it has at its disposal to do so. We discussed issues such as abstraction when debating a previous group of amendments.

I believe that by introducing a duty of resilience we will put in place another piece of the puzzle that will allow us to look after resources. It will ensure that when Ofwat looks at how companies behave and their business plans it takes into account their plans to invest to ensure that resources are there for the future. The duty of resilience will also require companies to look at environmental considerations. To ensure security of supply, the environmental considerations are aligned with the fact that water is a limited resource in some catchments. It is a win-win scenario.

In evidence we heard some people express concerns about whether we have got the balance of the duty right. I am happy to listen to those arguments. When we debate the new clauses that the hon. Member for Dunfermline and West Fife and my hon. Friend the Member for Brecon and Radnorshire have tabled, we can look again at that issue to ensure that we have the balance right.

Thomas Docherty (Labour, Dunfermline and West Fife)

The Minister and Members who had the pleasure of serving with him on the Select Committee on Environment, Food and Rural Affairs will recall that the Select Committee’s central conclusion on the issue of resilience was:

“We recommend that Defra revisit this issue, inviting evidence from water companies, consumer representatives and other interested parties both on the likely impact of the reforms and on the detail of their implementation.”

Before the Minister finishes, will he clarify how many meetings he has had on that issue since taking up his post?

Dan Rogerson (Liberal Democrat, North Cornwall)

I have had a number of meetings with different organisations. I have met with Ofwat and water companies, and I have heard from NGOs about their concerns. The benefit of the current system, unlike the old Standing Committee system for public Bills, is that what people said in the evidence sessions is on the record. I do not think their views have changed greatly from what they said to the Select Committee or in previous consultations.

Following on from what the Select Committee said, we have looked at the resilience duty closely. We have made some changes to the upstream package, for example, which I know the hon. Gentleman is concerned about. I know that he treasures the Select Committee reports and takes copies of them to bed with him every night. They seem to be his most prized possessions, and I look forward to hearing a great deal more from them.

In conclusion, I welcome the fact that Members from both sides of the House see the need for the new duty of resilience and recognise the benefits it can bring. I look forward to debating duties more generally at a later stage.

Clause 23 - General duty as regards undue preference in the provision of services

Thomas Docherty (Labour, Dunfermline and West Fife)

I beg to move amendment 140, in clause 23, page 56, line 36, at beginning insert ‘(1)’.

Linda Riordan (Labour, Halifax)

With this it will be convenient to discuss amendment 141, in clause 23, page 57, line 2, at end insert—

‘(2) In that subsection, after paragraph (e) there is inserted—

“(f) to secure the provision of services by licensed water suppliers and licensed sewerage suppliers in a manner that is not detrimental to the exercise of the functions referred to in subsection (2A)(b) above.”.’.

Thomas Docherty (Labour, Dunfermline and West Fife)

Thank you, Mrs Riordan. It is a pleasure to serve under your chairmanship again this afternoon. It is good to see that so many hon. Members have come back from their lunch to join us.

This is a technical but crucial pair of amendments. I will speak to them together, because they fit together. “No detriment” is a phrase that we use a lot in the water debate, so it is perhaps worth me spending 30 seconds explaining it. “No detriment” clauses ensure that the wholesaler is no better or worse off as a result of water efficiency measures undertaken by retailers. The idea is that, at each price review, the regulator sets a fair cost to the wholesaler, bearing in mind the activity of the previous five years.

Perhaps I can look—with your permission, Mrs Riordan—down the road at why that is important. The Government are rightly committed to ensuring that the water industry is resilient against the twin threats of population growth and climate change, but there is not enough work in the Bill to ensure that there is not an accidental and unintended consequence. We have seen significant savings in water usage with the Scottish model. Historically, the debate on retail competition has been on bringing down the cost of water usage to businesses, charities and the public sector, but it is right that we also bear in mind the abstraction benefit. In the figures I have seen, which take in the larger part of the sector, the introduction of competition creates a saving of something like 6% or 7% on water usage. Clearly we would all welcome that, particularly given the debate we have had on abstraction challenges.

The Bill, however, provides a perverse incentive that could reduce that potential saving. Some customers might benefit if we allow retailers to supply from a new water source that is cheaper than the current company’s regional average cost, but that might not add resilience or be efficient and might, at least partially, strand incumbent company assets. As we discussed this morning, that would simply increase costs for all other customers, including those in households.

The framework in the Bill will not deliver the aspirations set out in the Government’s “Water for Life” White Paper, paragraph 5.30 of which states:

“The Scottish experience has demonstrated the range of benefits business and public sector customers can get from more customer focused suppliers with an incentive to improve the services they offer. While some have simply looked to reduce their bills through simple measures such as discounts for direct debits or aggregated purchasing; others have benefitted from improved information on their water use which has enabled them to benchmark against others and introduce changes which cut operating costs significantly. Other organisations have been helped by their retail supplier to introduce more innovative measures such as rainwater harvesting.”

That goes back to the points made previously by the hon. Member for Tiverton and Honiton. We agree with the White Paper’s aspiration and think it is admirable. It also states:

“We want to see the market develop so that water suppliers work with their business and public sector customers in England to get the same benefits from a competitive market that Scottish customers already enjoy.”

Labour Members absolutely support that, but the problem is that there is no measure in the Bill sufficient to ensure that we do not get the stranding of assets and the forcing up of costs to customers.

Although I have been in favour of holding the water companies’ feet to the fire when appropriate, it is right that we do not disincentivise wholesalers working with retailers to reduce consumption. The reality is that only new entrants are affected. If Business Stream, for example, were to enter the market in England and found that it could access a cheaper source of water more than that from a current wholesaler, for example Northumbrian Water—I am conscious of not using South West Water as an example all the time—it will want to offer that reduced price to its customers. We all recognise that that is a good idea; it is one of the points of the market. However, there is no incentive to do much better than the incumbent on service or to innovate more generally, which means there is no incentive to provide tailored water efficiency advice, for example, which is beneficial to the customer, but might involve an up-front cost for either the retailer or the customer. That is an obvious discrepancy and we want to work with the Government to tidy it up.

As discussed on Second Reading and in previous debates, the supply of water and sewerage services is predicated on an understanding that such assets have an extremely long life—in some cases, of more than a century—because of the scale of investment required and, if the Committee will pardon the pun, the sunk costs. If the volume of water supplied or treated falls, the costs of maintaining the overall structure are forced up, leading to a lower return on the investment. That creates a disincentive for investment in the market, which is in no one’s interest. The Opposition believe that maintaining appropriate investor confidence is crucial. The Minister has had representations from the experts he brought in from Scotland and many investors have flagged up that live concern. When he responds, I would be grateful if he could explain why the Government have until now—I am sure he will be persuaded after my eloquent speech—not included in the Bill a measure like the amendment.

Scotland has been the base model for this work. One benefit of the Scottish model is that the retailers are free to focus on providing the best service and advice possible to their customers, both on water efficiency and on how to reduce wastage. Business Stream has a contract with East Dunbartonshire council—the local authority of the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson)—and is a good illustration. It put meters into all the high schools in that area—seven or eight—and found that six out of seven high schools had fairly standard water usage. However, the usage in one was off the scale. Business Stream was able to say to the local authority, “We think there’s a leak somewhere.” It put a little bit of money into sourcing the leak and fixing it, which saved a significant sum of money in the long term for the local authority, which was good for the taxpayer, and reduced the water requirement.

There is no incentive in the Bill for the retailer to offer such advice. We would therefore be grateful if the Minister looked carefully at the amendment. It is designed to help the Government. I hope we have a shared value in trying to bring people together. We surely want a system in which the retailer and the wholesaler work collaboratively and not in competition. I would be grateful if the Minister took the advice of his independent experts and the representations of the investor community and made this small change to the Bill.

Dan Rogerson (Liberal Democrat, North Cornwall)

I thank the hon. Gentleman for his amendments. Amendments 140 and 141 would amend a general duty in clause 23 regarding undue preference and discrimination in the sector. They would add a duty on the Secretary of State and Ofwat to secure that the provision of services by licensees does not have an impact on a separate duty on the Secretary of State and Ofwat to secure that incumbent water companies properly carry out their functions.

Amendment 131 would remove clause 23 entirely—I assume the hon. Gentleman has the aim of replacing it with amendment 141.

Thomas Docherty (Labour, Dunfermline and West Fife)

For the benefit of the Minister, that is entirely correct.

Dan Rogerson (Liberal Democrat, North Cornwall)

I am grateful to the hon. Gentleman for putting that on the record. Clause 23 provides the Secretary of State, Welsh Ministers and Ofwat with a general duty to ensure that incumbent water companies do not exercise undue preference to themselves or their own retail businesses, associated licensees or other incumbents, to the detriment of new entrant licensees, inset appointees or other incumbents when providing wholesale services.

Undue preference might be demonstrated by an incumbent water company prioritising inquiries or service requests from its subsidiary licensee over those from other licensees, inset appointees or incumbents—for example, a request for a new connection from its own retail business or subsidiary licensee might go to the front of the queue ahead of a request from a licensee or an inset appointee.

The clause introduces the same duty on Ministers and Ofwat to address undue discrimination in the delivery of services by incumbents to licensees, inset appointees and other incumbents. That might involve, for example, an incumbent placing different water quality standards from those it would place on its own suppliers or contractors on unassociated licensees or incumbents, over and above those required by the law. It is essential that those that enter the water supply and sewerage markets have confidence that incumbent water companies act appropriately within those markets and do not use their dominant positions to enable their own retail businesses and associates to undercut their competitors by giving preferential treatment or subjecting them to fewer burdens or lower costs.

The clause complements an existing provision that requires Ministers and Ofwat to exercise their functions under the Water Industry Act 1991 in a manner best calculated to secure that no undue preference or undue discrimination is shown when it comes to the fixing of charges. The new duty will sit underneath the wider duty for Ministers and Ofwat to promote competition in the provision of water and sewerage services where that is in the interests of customers. With the other provisions, clause 23 ensures that Ministers and Ofwat have the tools they need to ensure that new and existing markets work well for customers, and that there is a level playing field in which market participants can operate.

The new duty proposed by amendment 141 would instead require the Secretary of State and Ofwat to ensure that licensees act in a manner that ensures there is no detriment to incumbent water companies when carrying out their functions. We are not sure how that would sit alongside the general duty for the Secretary of State and Ofwat to secure that licensees meet their statutory obligations and the conditions of their licences, given that those will be set by the existing duties on Ofwat and Ministers, as well as the new duty in clause 23.

The proposed new duty would not add anything, but I note that there is a similar duty on the Water Industry Commission for Scotland to secure that its licensees act in a manner that is not detrimental to the exercise of Scottish Water’s core functions. We looked at the explanatory notes of the Scottish legislation to see what that means. They link the duty to market opening and suggest it could possibly be used as a way to require licensees to use a central mechanism to facilitate the exchange of information required when a customer switches to another licensee. The Open Water programme is developing that policy and we are satisfied that it can be delivered through licence conditions and codes, which we have debated.

We have looked at briefing material used by WICS. WICS implies that the “no detriment” duty would prevent licensees’ water efficiency activities impacting on incumbents’ profits. In England and Wales, both incumbents and licensees are under a duty to help their respective customers to conserve water. We are not willing to undermine the market for water efficiency services if that, indeed, is the desired impact. If the amendment were to have such wide or further unforeseen implications, we could put licensees at a competitive disadvantage if a similar duty were not placed on the retail side of the incumbent’s business. Why should licensees be kept under a duty that potentially curbs their water efficiency activities while an incumbent’s retail business is allowed to operate without that barrier?

Thomas Docherty (Labour, Dunfermline and West Fife)

I have been listening attentively to the Minister. Fundamentally, it sounds as if we are in completely different places. Will he explain why the note he is reading is 180° at odds with what WICS told his officials is the purpose of no detriment, which is to allow water efficiency to be encouraged?

Dan Rogerson (Liberal Democrat, North Cornwall)

The brief is based on the explanatory notes that accompany the legislation, so I guess we have a difference of interpretation. Given the broad interpretation of the corresponding provision in Scotland, as suggested by the explanatory notes, the amendment creates too much uncertainty and there appears to be scope for it to be applied in a way different from what was originally intended in Scotland, where it originated. We consider that the clause, along with the other existing duties, provides the market in England and Wales with the protection it needs.

I will try to pick up on a couple of the questions posed by the hon. Gentleman. Licensees will operate in only 10% of the overall market, so I would need convincing that the no detriment duty will have a practical effect other than potentially protecting the revenue of incumbent water services. The hon. Gentleman is clearly concerned about asset stranding, but we believe that such concerns are overstated. As I said, only up to 10% of companies’ assets by value will be subject to competition. The changes we made to the Bill after pre-legislative scrutiny are acknowledged by investors and companies as helpful in that regard.

Incumbent water companies will benefit from provision of water efficiency services, because they will not have to invest in new resources. The hon. Gentleman gave the example of Business Stream seeking to provide information because it would be incentivised to do that. In evidence, it said that part of its customer relationship was to pass that information on, and it would seek to work with customers to ensure that they are being efficient.

Essentially, we believe that competition will encourage water efficiency in England and Wales. The system is different in Scotland, and given our different circumstances we do not believe that we have to copy every aspect of that system slavishly and make our system a carbon copy. We are having discussions in the Open Water programme about taking the best of what worked in Scotland and applying that in a relevant way in England and Wales. We feel that we have got that balance right.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am quite disappointed that the Minister or his officials seem to have made up their mind. They are not listening to the clear advice that they were given. I bring the argument back to his regional company. Both WICS and the investors have warned his officials that without the amendment there will be no provision for a shared understanding of and agreement on how the costs will be met. There will be a bizarre situation in which, if an efficiency on water usage is made, which we would all commend, the wholesaler will be left to pick up the additional burden. The amendment would ensure an equitable arrangement and that the wholesaler is not penalised, because whenever a wholesaler is penalised, that penalty is passed on to its domestic customers and to other customers with the new entrant retailer.

I urge the Minister to look carefully at our amendment. It is offered as a helpful piece of advice. It worked in Scotland and is one of the key reasons why the Scottish market works. If the Minister is unable to listen to the advice of investors and WICS, then I regret that I shall have to divide the Committee.

Linda Riordan (Labour, Halifax)

With this it will be convenient to discuss the following:

New clause 26—Separation of retail and wholesale activities—

‘A company granted a water supply licence under section 17A of the Water Industry Act 1991, prior to Royal Assent of this Act, must establish separate legal identities for its—

(a) retail activities, and

(b) wholesale activities

within one year of Royal Assent of this Act.’.

Thomas Docherty (Labour, Dunfermline and West Fife)

The Minister has known this debate was coming since he was put on the Front Bench team. It is fundamentally about how we avoid incumbent water companies operating as a cartel to stop the effective functioning of new entrants, and it goes to the heart of the successful operation of the retail market. We heard compelling evidence in the session last week from Dr Kenway in particular, but from others as well, about the 25-year head start that the incumbent water companies will have on any of the new entrants.

Because it is always the right place to start, I will talk about Scotland in just a moment, but first let me say that idea of separation did not just come from the Select Committee, although it is important to remember that the Select Committee recognised its importance. It goes right back to Martin Cave and the Cave review that took place under the previous Government, which first floated the idea of retail competition. It was Martin Cave who recommended the legal separation of the retail arms from the incumbent water companies.

What do we mean by separation? What we need is confidence among both new entrants and customers that the incumbent water company is not giving itself an unfair advantage over new entrants. Let us think about the way the energy market works, taking Scottish Power as our example: its generation arm is held separately from its retailing arm and its grid ownership arm—that is, those who generate electricity are not allowed unfairly to give information to those in the national grid structure and those who sell it on to the customers at the point of the plug. Unfortunately, for reasons that the Select Committee never understood, officials in the Department for Environment, Food and Rural Affairs rejected that obvious approach to the retail market. Actually, I think I do know why they did that, but I will come to that in a second.

In Scotland, given that Business Stream and Scottish Water had an historical, inbuilt advantage, they did not just legally separate their functions so that Business Stream—the wholly owned entity of Scottish Water—put up firewalls; they went a step further and moved their premises out of Dunfermline and across the Forth into Edinburgh. If the Minister has not had a chance to visit Business Stream headquarters, I recommend that he comes to Scotland for a warm Scottish welcome and to see Business Stream and Scottish Water and how they have functionally separated.

Ideally, we would have functional and legal separation, but at this stage I would settle for legal separation, to put provisions in. I suspect that, because the Minister’s civil servants have not changed in the past couple of years, the usual examples will be trotted out about the costs of setting it up and how it is a bit of a pain for the water companies. After all, the water companies only made £1.9 billion pre-tax profits last year, so it would be terribly unfortunate to ask these destitute companies to bear a little bit of cost. Water UK has successfully lobbied DEFRA officials repeatedly on this over a long period. My great frustration with organisations such as Water UK, is that it is not interested in putting the customer first and protecting the new entrants; it is only interested in protecting incumbent wholesale water companies.

The Select Committee debated this matter at some length. The Minister and the hon. Member for Tiverton and Honiton will recall that a key area of contention among the Select Committee members was how we deliver confidence. As I said in the previous debate, we all want a successful, vibrant retail market, but there has to be investor confidence in that. Without the separation of retail and wholesale company arms, it is difficult to see how investors could have the same of level of confidence.

Without statutory separation, officials tend to say, “It’s a bit difficult. Let’s punt it to the regulator to sort out.” The Minister knows that the regulators have urged him to provide for separation and that Scottish Ministers have flagged it as a specific concern. He has been asked to do it, not just by the regulators, the investors and the new entrants, but by Scottish Ministers as well, yet he continues to resist. Even some water companies are now calling for separation. I should be grateful if he reflected, once again, on why, despite that overwhelming wall of representations, he has allowed his officials to be captured by Water UK and a handful of water companies, which, funnily enough, find that it is not in their interest to have good competition, because they got away with poor practices for years.

The Minister’s officials have included cost savings in the document, but WICS calculates that full retail separation could achieve net benefits of between £760 million and £2.5 billion for England and Wales in the first 30 years’ operation. That is real money that could be put back into public services from the public sector, or help small and medium-sized businesses. If we are to make the market work, we have to give people confidence. We cannot have a situation in which the wholesale arm sits on the same floor of the same building as the retail arm, without statutory provision to provide safeguards for the customers.

I hope that the Minister will reflect on this and remember the deliberations of the Select Committee when it came to its conclusions.

Dan Rogerson (Liberal Democrat, North Cornwall)

It is, as always, a pleasure to follow the hon. Gentleman in his reflections on what the Environment, Food and Rural Affairs Committee had to say. In fact, my recollection is that it talked about functional separation, not legal separation, so he is talking about going a stage further.

Thomas Docherty (Labour, Dunfermline and West Fife)

I thought the Minister was listening to what I said. I said that the Select Committee had said functional, but I was suggesting that as a first step we should go for the legal rather than the functional.

Dan Rogerson (Liberal Democrat, North Cornwall)

The hon. Gentleman did make that clear, but the position he advances with his amendments is not the same as that of the Select Committee. That is what I was seeking to emphasise.

New clause 26 would require licensed water suppliers operating under the existing water supply licensing regime to set up legally separated entities for the retail and wholesale parts of their business. I suspect that the intention is to place a requirement to legally separate on incumbent water companies, rather than on the eight new entrant licensed water suppliers. Under the Bill, new entrant water supply licensees will be wholesale customers of the incumbent water companies, so there is no need for them to legally separate.

Thomas Docherty (Labour, Dunfermline and West Fife)

I could have misheard, but I think the Minister said eight new water entrants. If that is so perhaps he could explain where he could the figure eight from.

Dan Rogerson (Liberal Democrat, North Cornwall)

Perhaps I will return to that later in my remarks. The figure was passed to me at some point.

Legal separation is generally raised as a way of combating discrimination, but it is by no means the only way. What the amendment might be proposing for incumbent water companies is that two bodies must be created under the single existing statutory appointment and probably under the same ownership. That is already possible, as demonstrated by the joint venture set up by Wessex Water and Bristol Water. The legally separated company provides the customer-facing services while Wessex Water and Bristol Water provide wholesale services.

Ofwat will need to use its regulatory or concurrent competition powers smartly to prevent and discourage incumbent companies from discriminating against new entrants in favour of their own retail businesses, either through the prices they charge or by other non-price forms of anti-competitive behaviour. The Government expect Ofwat or other competition authorities to take firm action where there is evidence of discriminatory pricing or behaviour. The tools at its disposal include the power to require undertakings from market participants to address anti-competitive behaviour; that could include but not be limited to structural changes—in other words it could happen subsequently.

Neil Parish (Conservative, Tiverton and Honiton)

Is the Minister absolutely convinced that what we are putting in place is robust enough to ensure that where a water company has both a retail and a wholesale arm, it does not cross-subsidise the retail with the wholesale, which would not be possible for any potential new entrant?

Dan Rogerson (Liberal Democrat, North Cornwall)

My hon. Friend is obviously concerned that we get this right and, as he has been at pains to say throughout, that we are going far enough to do that. The way the Bill has been developed based on what we said in the water White Paper ensures that we have the ability to do that through the regulator. The hon. Member for Dunfermline and West Fife characterises that as, “It’s too difficult. Shove it over to the regulator.” An alternative way to say that is, “We are giving the regulator the powers to do this and we trust them to do it.”

Thomas Docherty (Labour, Dunfermline and West Fife)

Perhaps the Minister could tell us whether Ofwat asked for that power, or if it asked for a legal separation provision in the Bill.

Dan Rogerson (Liberal Democrat, North Cornwall)

I suspect that the hon. Gentleman is not entirely wedded to everything that Ofwat has asked for. When we come to sustainable development duties, there might be some variance. Sometimes we take a different view from the regulator about what we are asking them to do, and I suspect he does too.

Water companies and their investors told us that there would be considerable risks to future investment if structural reform was imposed on the sector—I am talking about the consultations on the White Paper. That risk has also informed our approach to retail exits, which the hon. Gentleman also carries close to his heart, whereby a power for an incumbent to exit could be used by a competition authority to require companies to separate only where it finds individual cases of discrimination. We do not want to take risks with a successful model, given the challenges we face in building the resilience of the sector.

In clause 23, we introduce a wide power for Ministers and Ofwat to take steps to address undue discrimination and preference in incumbent water companies’ dealings with other market participants and their own retail businesses and subsidiaries. The hon. Member for Dunfermline and West Fife was keen that we remove that and replace it with his own option. We have now moved on from that. Legal separation helps to address issues of discrimination in competitive markets, but it does not eliminate them altogether; only ownership separation could begin to do that. Given investors’ concerns and the relatively small size of the competitive market, we thought it would be better for Ofwat to work with the incumbent water companies and the licensees on the best way to minimise the risk of discriminatory behaviour.

We do not have representation from Water UK on the Committee, and it has come in for a bit of a hammering from the hon. Gentleman and some of his colleagues, but I think it would be fair to say that it is a representative body, and new entrants are now engaging with it and becoming part of what it does. I suspect that we will see Water UK increasingly representing a range of positions—people who are new into the sector as well as incumbents. The hon. Gentleman seems to feel that it speaks only for the incumbents.

Ofwat has produced a document that lays down the challenge to incumbent water companies to make plans to address discrimination within their businesses. These plans will be tested with at least two licensees. We think that this process deserves to be seen through without imposing irreversible structural changes on the sector.

The figure which the hon. Gentleman was keen to probe during my remarks, that of eight companies, relates to new entrants which currently hold licences. More may emerge and enter the market before April 2017. There are 21 incumbent water companies, and this debate is more about the incumbents. The amendment refers to licensees, and we were pointing to the fact that the drafting of the hon. Gentleman’s amendment would pick up the eight licensees as well as the incumbents, on which he was focusing.

Clause 23 allows Ofwat to address discrimination in favour of an incumbent retail business and subsidiary licensee, which relates to the issues raised by my hon. Friend the Member for Tiverton and Honiton. We believe that the clause we have just discussed provides the powers to address these concerns. On that basis, I urge the hon. Gentleman not to press his new clause to a vote.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am grateful for that explanation. Perhaps I might offer my opinion that Water UK has been adequately represented in parts of this Bill Committee over the last few days. If I may, first I will pick up on the point about the position of the Select Committee on Environment, Food and Rural Affairs. This is perhaps one of those issues on which I say “potato” but you say “potahto”. The Select Committee actually said that while its preference was for legal separation, if that was not possible, it wanted functional separation.

The Minister will recall that the Committee was actually quite innovative, and said that we should have a lighter-touch regime for companies that voluntarily chose to provide some separation. Before I sit down, I wonder whether the Minister has had any inspiration on whether he is minded to ask Ofwat to consider that approach. It would mean that the hand of Ofwat was lighter on the shoulder of those companies that went down the route of functional or legal separation than on the shoulder of companies that refused point blank to do so. I am disappointed that the Minister is not prepared to listen to not only Ofwat or the Select Committee, but Scottish Ministers, WICS and investors.

Dan Rogerson (Liberal Democrat, North Cornwall)

I note in passing that from the few occasions when I have seen the hon. Gentleman engage with Scottish Ministers on the Select Committee, it seems that he does not always hang on their every word and seek to deliver whatever they want.

Thomas Docherty (Labour, Dunfermline and West Fife)

As the Minister knows, I am quite a consensual sort of player. When the Scottish National party very occasionally gets something right, I do not hold its badge against it. In the same way, when the Minister occasionally gets something right, not only will we sit down in shock, but we will help to get the Bill through. This is why we have not opposed every single one of the clauses the Government have put forward. The reality is that Scottish Ministers, as the Minister knows, have made representations and said that this is an area of danger for them because of the impact on industry.

I am disappointed that the Minister has not addressed the investor representations—made directly either to him or to his predecessor, and certainly to his officials—which flag up the need for confidence. This is a fundamental point of disagreement. We want the market to work, and for that there has to be investor confidence. If investors and regulators are asking for something and only a handful of water companies are not in favour of doing it, then I know which side of the argument I want to be on. I will therefore press the new clause to a Division.

Linda Riordan (Labour, Halifax)

The question is that clause 23 stand part of the Bill. As many as are of that opinion, say “Aye”.

Linda Riordan (Labour, Halifax)

The Ayes have it.

Thomas Docherty (Labour, Dunfermline and West Fife)

On a point of information, Mrs Riordan—as a new Front Bencher, I am slightly confused—if the Opposition wish to press new clause 26 to a Division either today or later, do we have to vote against clause 23?

Linda Riordan (Labour, Halifax)

Having taken advice, the answer is that, if you want to press new clause 26 to a Division, you need to vote against clause 23. I will put the question again.

George Hollingbery (Conservative, Meon Valley)

On a point of order, Mrs Riordan. I do not intend to cause any trouble at all, but I would just like, for information, to understand the procedure we have just gone through. The Committee clearly voted for clause stand part. Can I be illuminated as to whether or not it formally ought to have been asked of the Government parties whether they were content to take that vote again? I am merely seeking an answer for information purposes, not to disrupt proceedings.

Linda Riordan (Labour, Halifax)

It was unclear on both sides what the question was, so, seeking clarification, we took the vote again.

George Hollingbery (Conservative, Meon Valley)

I am grateful—I really meant that in the spirit of the free flow of information.

Linda Riordan (Labour, Halifax)

Clause 23 and new clause 26 are alternatives. That is why there had to be a vote.

Clause 24 - Strategic priorities and objectives

Thomas Docherty (Labour, Dunfermline and West Fife)

I beg to move amendment 136, in clause 24, page 57, line 6, leave out

‘may from time to time’

and insert ‘must’.

Linda Riordan (Labour, Halifax)

With this it will be convenient to discuss the following:

Amendment 137, in clause 24, page 57, line 6, leave out ‘a’ and insert ‘an annual’.

Amendment 139, in clause 24, page 57, line 8, at end insert—

‘(1A) Following the publication of a statement under subsection (1) the Secretary of State may instruct the Authority to conduct a review of pricing of water.’.

Thomas Docherty (Labour, Dunfermline and West Fife)

The amendment addresses what happens when Ofwat gets it wrong, perhaps through no fault of its own. The current price review period gives some good examples of what can change, and we heard an excellent speech this morning from my hon. Friend the Member for Leyton and Wanstead on Thames Water’s excess profits in the past year. There is a good reason why Thames Water made so much money.

I will not lecture Members on either side of the Committee about gearing, but Members understand that when Thames Water says to the regulator, “For the coming five-year period we would like to set our prices at a certain level”, part of the working assumption it makes is that it is borrowing money to make investments and will have to repay that money over a certain period at a certain rate. We can all understand how that works and why it is important that Ofwat is mindful of those facts when it sets the figure for the forthcoming price review. I am sure that the Minister will confirm that it is one factor that Ofwat will consider for all the water companies when it sets the price review for the next five years. We see it in the business plans as well.

However, there were particular circumstances in this price review. None of us could have foreseen—frankly, we would not be working in the House of Commons if we had foreseen it—that companies such as Thames Water would end up having to repay their loans at a significantly lower figure than they had anticipated. Thames Water is not unique in this: a number of other water companies found themselves in a similar situation. This is exactly what happens when companies gear up in the way that they did. What makes Thames Water particularly noteworthy is that, unlike many other water companies in England and Wales that found themselves in this situation, it chose not to pass any of that excess profit back to householders. It has simply creamed off all the money into its own pockets, and that is simply unacceptable.

This group of amendments provides a mechanism for the Secretary of State to say, “This is unacceptable; water companies should not behave in this manner,” and to instruct Ofwat to reopen the price settlement. Water companies should not be allowed to cream the money off from hard-pressed householders and businesses and not pass on any of their unforeseen windfall profits. That is the point. We all believe that water companies in the market should be given a certain level of return, but when the return dramatically exceeds what was allowed for, something needs to happen.

George Hollingbery (Conservative, Meon Valley)

I am very interested in the hon. Gentleman’s argument and I want to press him slightly. How do we define an unexpected circumstance, and what triggers a review? It is a key question. We would have to define very carefully when it was reasonable to review the circumstances surrounding a factor. Thames Water may have decided—it probably did not—to sell its debt to investors at a certain rate, on the basis that its economic forecast suggested that interest rates might fall. How would his amendment address the clear business risk that Thames Water had calculated—in this case, perhaps correctly? How would he contrast that with what he would probably describe as gouging?

Thomas Docherty (Labour, Dunfermline and West Fife)

The hon. Gentleman is a thoughtful contributor to these debates, and I recall having a tentative discussion about knowns, unknowns and unknown unknowns. The problem is that he is tempting me to speculate on what an unknown unknown is by asking what an unforeseen circumstance is. I hope that he will understand if I say, very gently, that if I could foresee the unforeseeable, I would certainly be doing a different job.

George Hollingbery (Conservative, Meon Valley)

That goes right to the heart of my point. We need to be extremely careful to understand that if the hon. Gentleman’s amendment was passed, we would be trying to judge those unknowns before they happened. We will have to define exactly what we think might be unknown, in order to be fair to investors who have taken a risk investing in the water company.

Thomas Docherty (Labour, Dunfermline and West Fife)

Perhaps the hon. Gentleman and I have slightly different views of how accountability works with decision making. We had a good example of this issue this afternoon, when the Secretary of State for Defence came to the House to explain a Government U-turn, and 45 minutes before that, we had another Government U-turn. I suspect that there will be a third U-turn later today. When a decision is made, there is accountability: the Secretary of State is brought before a Select Committee or Parliament and has to explain why they made that change.

If I understand the hon. Gentleman correctly, he is saying that we should not give the Secretary of State or Ofwat the power to reopen a price review because we do not know what the circumstances are. That is, if he forgives me, a strange argument. The whole point is that they are unforeseen circumstances. I appreciate that the hon. Gentleman and his colleagues are all in favour of excess profits, but the counter-argument is that if water companies suddenly found themselves in severe hardship, unlikely though that is, there would still be the mechanism to allow us to say, “Frankly, we need to go back and look at whether that investment programme is still deliverable.” That is the point about providing this power through the amendment.

I have an idea of what the Minister’s response will be, if he is not entirely enthusiastic about the amendment. I suspect he might say, “It is for not the Secretary of State but Ofwat to make that decision.” [Interruption.] It sounds, from that muttering, as if I have hit the nail on the head. I am more than happy to listen to what he has to say. If he does genuinely think that it is better for the power to lie with Ofwat, we are happy to reflect on that over the next 36 hours, because there is still the option for a new clause to be tabled.

Fundamentally, the amendment would provide consumers with redress. Thames customers in London and the south-east find that the company is saying, “That is our money and we are not giving a penny of it back to the households,” and Ministers and Ofwat do not have the strength to say, “Enough is enough. We need to put customers first and share some of the unintended consequences.”

We are clear that the amendment would address excess profits. For the same reason, we have capital gains tax: if someone makes a profit that is not due to their earnings, but because they have found themselves in an economic situation where their interest rate is significantly lower than anticipated, that is not due to their skill; that is because of the general state of the economy.

George Hollingbery (Conservative, Meon Valley)

I am slightly struggling with—

Thomas Docherty (Labour, Dunfermline and West Fife)

As I was saying before I was so rudely interrupted, I will take an intervention from the hon. Member for Meon Valley.

George Hollingbery (Conservative, Meon Valley)

I am grateful to the hon. Gentleman. As I understood it, he was developing an idea about measuring the difference between things that are deservedly charged for and money that is saved, and things that are undeservedly charged for, such as interest rate drops and so on, versus cost savings within an organisation. I hope that he agrees that it would be extraordinarily difficult to quantify exactly what is an internal matter that has been derived internally, versus what has been derived externally, and to come to some sort of judgment. It would be enormously bureaucratic and on a one-year cycle. I cannot understand how that idea can have a future.

Thomas Docherty (Labour, Dunfermline and West Fife)

Let me say two things to the hon. Gentleman. First, I think his constituents and constituents of all those in the Thames Water area would say that it is inconceivable that Thames Water should be allowed to go on price-gouging its customers for five years, without any recourse from Parliament and regulators, so I completely disagree with his point. Secondly, as I expect the Minister will point out to him, Ofwat already has those powers in very limited circumstances, so this is not a leap in the dark; we would not be jumping off the market cliff when we introduced it. I expect that my hon. Friends will make the point that it is simply unacceptable for organisations such as Thames Water to make huge profits, year on year, with no regard to the wider financial environment in which our constituents are operating.

As we said previously in this short, but quite lively debate, Thames must have a duty to reflect on the economic circumstances that face people. I will come back to the point that the hon. Gentleman made. He is absolutely right and has nailed one point: we in the Opposition are not talking about profits that are generated by the company proactively making efficiency savings; or profits from driving down its costs through its own actions. If, for example, it takes genuine steps to reduce bad debt and then says: “We want to keep a portion of that money”, that is a reasonable step. However, when actions are taken that are outside its control and over which it has had no responsibility, and it finds itself making hundreds of millions of pounds in excess profit, I believe that it is right, and I am disappointed that the hon. Gentleman does not seem to agree with me, that some of that money should go back to hard-pressed customers.

We might have a good, lively debate over the next few minutes, and I would welcome the Minister’s thoughts on how he will now listen to customers and put them ahead of the vested interests.

John Cryer (Labour, Leyton and Wanstead)

Thank you, Mrs Riordan. It is worth remembering that Ofwat’s primary purpose is to ensure value for money. Looking at the profits in the water industry—and there have been some fairly hefty ones—one would have thought that this would perhaps involve the water companies giving their customers the benefit of the profits that they had made, but that has not generally happened.

To give a few examples: Severn Trent Water has paid out £6.2 billion in dividends; Thames Water, as I said earlier and which my hon. Friend has talked about, has paid out £6.3 billion. United Utilities, in the north-west, has paid out £7.3 billion and Anglian Water has paid out a straight £6 billion. In total, the water industry has paid getting on for £40 billion in dividend payments since privatisation. There are clearly some water companies that are not making the spectacular profits we are talking about, but many others—some of the biggest ones covering some of the largest and sometimes poorest areas of Britain—are making spectacular profits and their customers are not seeing anything of those profits.

Thomas Docherty (Labour, Dunfermline and West Fife)

My hon. Friend makes a compelling case. Would he be surprised to know that in the Secretary of State’s last letter to water companies, he actually said that this was the greatest success of privatisation in the last 25 years? Does my hon. Friend think that £40 billion profits is what the Secretary of State had in mind?

John Cryer (Labour, Leyton and Wanstead)

I would say two things. A lot of people are finding it difficult to pay their bills and are seeing them rise, including Thames customers and many others; and hon. Members on both sides of the House of Commons will find it extraordinary that the Secretary of State makes those sort of claims. I will mention the previous debate on the water industry on 5 November, and quote the hon. Member for Skipton and Ripon (Julian Smith). I was reading his speech—something that I do in an odd moment when I want to read his inspiring and uplifting speeches. In fact, I am thinking of having his collected speeches bound and given out this Christmas as presents.

Andrew Percy (Conservative, Brigg and Goole)

Don’t bother.

John Cryer (Labour, Leyton and Wanstead)

I am sorry. Is the hon. Gentleman already giving them out?

The hon. Member for Skipton and Ripon made a powerful contribution to the water debate. Part of the way through his speech he said that the figures from Yorkshire Water showed that,

“it is exploiting my constituents and people across Yorkshire”.

I never saw the hon. Member for Skipton and Ripon as a hard-left activist, perhaps working for the north Yorkshire left auxiliary. I always saw him as a pretty solid right-wing sort of bloke. Before I ruin his career, may I point out to the Whip that I am joking? He is not really a hard-left plant in the Conservative party and, as far as I can see, he tends to have fairly traditional free-market views. However, the behaviour of Yorkshire Water spurred him to say the following in the debate:

“In 2013 it”—

Yorkshire Water—

“made an operating profit of £331 million on a turnover of £936 million. Average increases in bills were 6.6%”—

well above inflation—

“with the average bill being £356. There was a quadrupling of the dividend payment, from £62.3 million to £256 million in the past year. The thing that really sticks in the craw of my constituents is the fact that despite those massive dividends and huge opportunities for its shareholders, Yorkshire Water paid zero tax in the last financial year”.

A number of us have made that point. He went on to say:

“When we compare that behaviour with the behaviour of my constituents, the small and micro-businesses throughout my rural constituency, we see that today’s debate and the one we will continue to have about holding the feet of the water companies to the fire is vital.”—[Official Report, 5 November 2013; Vol. 570, c. 213.]

I think everyone will agree with that. It demonstrates that hon. Members on both sides of the House feel a similar sense of anger and outrage on behalf of their constituents at the naked profiteering of certain water companies.

Mary Glindon (Labour, North Tyneside)

Does my hon. Friend think that the concern felt on both sides of the House is highlighted by the fact that more than 700,000 pensioners and more than half a million families spend more than 5% of their income on water? No wonder there is such concern across the House about the exorbitant money that the companies are making.

John Cryer (Labour, Leyton and Wanstead)

I agree completely with my hon. Friend. Those pensioners and families are not just in Labour or other Opposition party constituencies. They are in the constituencies of all the major parties, including those of the Conservatives and the Liberal Democrats. That fact is reflected in the public’s general perception of water companies. The polls show that the public think water companies are profiteering and taking advantage of what they perceive to be a rigged market. They think that companies use complicated taxation techniques to avoid paying their obligations. H Ms on both sides of the House disapprove of that.

That view is reflected in the fact—the Government should take notice of this—that in the last poll that I saw 72% of people said they believed that water would be better off nationalised. Whether hon. Members believe in public ownership, as I do, or in the free market, that is a serious problem for the water companies and the Government. It is not sustainable that 72% of people—in some polls the figure is higher, in others it is slightly lower—have such contempt for the water companies that they think water should be brought back into public ownership rather than remain in the private sector. Many hon. Members strongly believe in the free market, but they should recognise that that serious problem must be overcome by the water companies and the Government.

Finally, we were told for many years that investment in water infrastructure would deal with the many leaks. In 1995, 3,755 million litres of water a day were being lost to leaks. After struggling heroically for nearly 20 years, the water companies have got that figure down to 3,000 million litres a day. That shows that they are not even investing successfully in the infrastructure. What they are investing in is doling out profits and payments. Many chief executives and senior people in the water industry are giving themselves enormous rewards far higher than inflation, which is fuelling the outrage that is felt on both sides on the House. I want to emphasise the fact that it is both sides of the House. Members of all parties have contempt for the way the water companies have behaved. The hon. Member for Skipton and Ripon—I keep using him as an example because he has a very different political view to me—wants to break up the big companies and create more competition. I want to see water brought back into public ownership. But what drives our criticism of the water industry is the same feeling that our constituents are being taken for a ride.

George Hollingbery (Conservative, Meon Valley)

Hon. Members can agree that the water industry needs to face up to issues about its profitability, directors’ remuneration and so on. As the hon. Gentleman demonstrated, hon. Members on both sides of the House are concerned about that. I want, however, to concentrate on amendment 136. The truth is that it cannot possibly deliver what the hon. Member for Dunfermline and West Fife wants. In fact, I look on it with horror. I understand its benign intent and I agree with much of what he wants to do, but it cannot deliver. First, the point I made to him earlier must be addressed: what is or is not a reasonable factor? Who decides that? What is an internally generated profit and what is an externally generated profit?

Thomas Docherty (Labour, Dunfermline and West Fife)

I am listening to the hon. Gentleman’s point, but I suspect it would be for the Secretary of State to determine what a reasonable or unreasonable factor is.

George Hollingbery (Conservative, Meon Valley)

That is what the hon. Gentleman’s amendment makes clear. I would say it is beyond the wisdom of Solomon for anyone to do this job with a continually rolling one-year view. In what time frame does he envisage this profit is made—is it in the past year or the future? The amendment does not mention that. At what stage will we see proposals on how Ofwat will be instructed? Will that be for the Committee to do at a later stage, or the Secretary of State? I do not know, as that is not in the amendment and we do not know any of the hon. Gentleman’s answers to those questions.

Ultimately, the amendment would just be a charter for Ministers to interfere and play politics with an industry that is important to all of us and on which all of us rely. It will also be a charter for accountants, bankers and lawyers, who will endlessly get involved in trying to assess what it is that the Secretary of State is trying to get at on such a regular, rolling basis.

Dan Rogerson (Liberal Democrat, North Cornwall)

My hon. Friend is making an excellent point. In fact, it is slightly worse than that. A Secretary of State who may not want to play politics will be forced into making a statement on an annual basis, so even those who want to allow Ofwat to get on with doing the job will be pulled into doing that.

George Hollingbery (Conservative, Meon Valley)

At the very least, we would have to come up with some byzantine and complex metric by which, each year, the Secretary of State would have to measure whether they ought to interfere.

Thomas Docherty (Labour, Dunfermline and West Fife)

I suspect that the hon. Gentleman was not at oral questions when the Secretary of State trumpeted that he had sent a stiff letter to the water companies. If that is not playing politics, what does he think is?

George Hollingbery (Conservative, Meon Valley)

My view is that what the hon. Gentleman proposes would institutionalise the interference; it would set it down in statute that, every single year, the Secretary of State had to stick their finger in the air, try to gauge where the wind was coming from and decide whether to interfere. An extraordinary metric would have to be drawn up and approved by Parliament for that to be judged each time, and I see no proposals in the amendment on how that would come about.

Finally—this is the only point that really matters—it would crucify the fundraising abilities of water companies. They can borrow at the rates available to them because they are utility businesses with a five-year projection that lenders can understand, and they can begin to see their returns over that period. I guarantee that if the amendment were accepted by the Committee and put forward to the House, the share prices and long-term debt ratings of water companies would go through the floor and the amount of interest they would be charged to borrow would go through the roof. That would have an impact on all consumers immediately.

For whatever benefit there may be in punishing or docking the profits of water companies on an ad hoc basis—in fact, the amendment does not explain that one way or another—the only certain outcome would be a great deal of cost for bill payers owing to the increased interest rates faced by those companies. The real advantage that those businesses have at the moment is that lenders have certainty about what they are lending to and what their returns will be, so that they can offer a low interest rate. That will only increase if the hon. Gentleman’s amendment is accepted. I give way for a final time.

Thomas Docherty (Labour, Dunfermline and West Fife)

I am grateful that the hon. Gentleman gave way, though I think I gave way more often to him.

George Hollingbery (Conservative, Meon Valley)

It is only because I am about to sit down.

Thomas Docherty (Labour, Dunfermline and West Fife)

Does the hon. Gentleman accept that the returns enjoyed by water companies outstrip those of any comparator? Even big retailers such as Tesco or Sainsbury’s make nowhere near that level of return. Has investment in water companies not been a cash cow for years?

George Hollingbery (Conservative, Meon Valley)

The hon. Gentleman will know that the reasons those returns are allowed in this monopolistic situation is the enormous investment that is required to ensure that it functions at all. Since privatisation, £125 billion has been funded by the private sector at reasonable rates of interest, because there is certainty.

Thomas Docherty (Labour, Dunfermline and West Fife)

It is the percentage that is higher. There is a higher rate of return for water company investments than anything else, including retailers and high streets; it is the percentage return that is so ludicrous, and we want a cap on that.

George Hollingbery (Conservative, Meon Valley)

I think that the hon. Gentleman understands as well as I do that the levels of return are set by Ofwat. If he has a complaint about the levels of return taken by water companies, he should talk to Ofwat about the job it is doing, and why it is failing so badly at it. I have made my points. The amendment is poorly drafted. The intention is clear, and I understand why the Opposition would want it—

The rest of the debate is in Hansard.