Baroness Bakewell of Hardington Mandeville:

Moved by Baroness Bakewell of Hardington Mandeville

At end to insert “but this House regrets that the new growth duty imposed on Ofwat could seriously impact its ability to take enforcement action against polluting water companies, and further regrets the failure of the Government to prioritise the sanctioning of polluters and the cleanliness of waterways.”

My Lords, I thank the Minister for his introduction to the Economic Growth (Regulatory Functions) (Amendment) Order 2024 and the draft Growth Duty: Statutory Guidance Refresh which accompanies it. I congratulate him on his enthusiasm.

Economic growth is important, but not at any cost. Although interested in the work of Ofcom and Ofgem, I am speaking this evening only to the issues as they relate to Ofwat and the water industry. I am indebted to the Wildlife and Countryside Link for its briefing and to the Secondary Legislation Scrutiny Committee for drawing this to the attention of the House. It is certainly of great interest to the public.

Many of your Lordships have expressed concern over the state of our waterways, lakes and rivers for some time. The public are also very concerned about the level of pollution continually flowing into what was once sparkling, clear water in which fish and wildlife could thrive but is now stinking and discoloured. Ofwat has struggled to ensure that the water companies fulfil their duties to provide clean water and effective disposal of sewage.

During many debates, the issue has been raised of withholding dividend payment to shareholders and bonuses to chief executives and directors of polluting water companies as a means of getting them to realise that their duties extended to the public, as well as to their shareholders. Customers of water and sewerage companies are finding their bills increasing, but the quality of the water in our waterways is decreasing daily. This order makes it harder for Ofwat to take enforcement action against polluting water companies, as this could be construed as hindering the growth of those companies. This is something of a gift to the three opposition parties in this Chamber in the run-up to the general election.

My main purpose this evening is to press for this order to be withdrawn. If that is not successful, then I would wish for the accompanying draft statutory guidance to be significantly amended. Unless this happens, it is extremely likely that Ofwat will be hindered in its ability to tackle freshwater pollution and other sources of environmental harm, such as unsustainable levels of abstraction.

The order significantly shifts water regulation away from environmental considerations. Over recent years, as new data is collected, it is emerging that the level of freshwater pollution and unsustainable abstraction caused by water companies has reached an all-time high. There is strong public support and political call for tighter regulation of water companies to prevent further environmental harm.

We had seen Defra appearing to be responsive to this, echoed in the 2023 Plan for Water, which pledged

“to address sources of pollution, and boost our water supplies through more investment, tighter regulation, and more effective enforcement.”

That is good so far. However, the order we are debating this evening from the Department for Business and Trade moves in the opposite direction, towards lighter regulation, in the hope of boosting economic growth. The Minister makes a very good case for this. As the Wildlife and Countryside Link says:

“Framing non-economic regulation as a burden on business rarely spells good news for the environment.”

I have the overwhelming impression that Defra has been lent on by the DBT. Has the 25-year environment plan been shelved completely? It is difficult to equate the DBT imposition of a growth duty, which is designed to lighten the burden of regulation on the water industry, with Defra’s commitment to tighten regulation of the same industry. When asked by the Secondary Legislation Scrutiny Committee about this, the DBT responded that

“the growth duty will not take precedence over other duties”, and the Minister has reiterated that this evening. However, I remain unpersuaded, as do others. Is regulation to be tightened to help protect the quality of the water in our chalk streams, lakes and rivers, or is it to be sacrificed to increase shareholder dividends? Can the Minister help us with this dichotomy?

The court of public opinion, when consulted through polls, indicates that 80% show support for banning the payment of dividends to shareholders of polluting water companies. This runs contrary to the thrust of this order. The statutory guidance for growth makes it clear what Ofwat must do, and how, to meet the requirement under the order. I emphasise that this will make it difficult to take enforcement action against polluting water companies. The guidance states:

“Certain enforcement actions, and other activities of the regulator, can be particularly damaging to the growth. These include, for example, enforcement actions that limit or prevent a business from operating; financial sanctions; and publicity, in relation to a compliance failure, that harms public confidence”.

Public confidence is at an all-time low. Just what is the message here? Is the DBT a shareholder of the most polluting water companies? In relation to the sewage scandal, and the March 2024 storm overflow pollution figures, which caused public outrage, this guidance is breathtaking. Water companies have not been slow to challenge Ofwat in the past. This guidance to apply the growth duty provides water companies with a regulatory tool to push back against environmental compliance.

On environmental issues, the Government are back-pedalling. A Minister says one thing in public and government policy appears to do another. What we are debating this evening shows confusion, deliberate or otherwise, in approach. That is why, from these Benches, we are asking the Government to think again. I beg to move.

This statutory instrument, despite the very expert way that it has been presented by the Minister, I believe could seriously inhibit the regulation of the water industry. I cannot help but echo a number of remarks made by the noble Baroness, Lady Bakewell; they are worth repeating.

Unfortunately, under current parliamentary procedures, it is not possible in either House of Parliament to amend secondary legislation. Having considered this and other similar issues, I urge both the Government and the Opposition to consider whether a better way cannot be found for Parliament to improve secondary legislation in the way that so often happens with primary legislation.

With regard to the order, I shall comment, like the noble Baroness, Lady Bakewell, only on the inclusion of Ofwat, the water regulator, in the scope of the order and the effect the order will have on the way that Ofwat operates as the financial regulator of the water companies. As everyone in this House knows, there is wide public concern about the continuing voluminous discharges of sewage into our rivers and on to our beaches. There have been many calls for tighter regulation. Even the Department for the Environment, Food and Rural Affairs pledges in its Plan for Water—which was published only a year ago, as has been mentioned—among other laudable objectives,

“tighter regulation, and more effective enforcement”.

However, this order, coming from a different department of state, proposes lighter regulation and less enforcement. The Minister continues to deny that, but I must quote directly from the draft statutory guidance, which says on page 26 that

“certain enforcement actions … can be particularly damaging to the growth. These include, for example … financial sanctions; and publicity … that harms public confidence”.

I suggest to the Minister that the failure to fine water companies and publicise gross discharges of sewage is far more likely to harm public confidence in the system of regulation of water company monopolies. We have to admit—again, despite the Minister’s enthusiastic proposal—that the order will cause Ofwat to hesitate before fining companies or taking enforcement action, for fear of being accused of limiting economic growth.

I have also read the impact assessment, published on 9 January and signed by the responsible Minister. Unfortunately, I could not read the signature, so I do not know who it was. Ah, it was the noble Lord, Lord Johnson—I am so sorry, it was signed by our Minister in the Lords. Again, I feel I have to quote from it. It says that

“the Gross Value Added … of the water sector has shown little long-run growth”.

I am sorry to say I think that phrase sums up how the Department for Business and Trade considers the water industry. It clearly does not believe that the water industry can generate economic value for the country, but the water industry can and should contribute to an improvement in the environment that we will pass on to our children and our grandchildren—and that has value, even if it cannot be measured by the Department for Business and Trade.

It is certainly the case that most businesses and the public at large want and expect a plentiful supply of clean water, fewer leaks from pipes and a huge reduction in discharges of sewage into our waterways. There is a strong argument, which in a sense the Minister has already deployed, and I am sure will continue to deploy, that less regulation will normally produce economic growth. That may indeed be true for many sectors of the economy, but a monopoly industry where there is no competition, and which is causing so much damage to the environment, needs more regulation and enforcement, not less. So I ask the Minister to discuss with his Secretary of State whether the order really should apply to Ofwat along with the other regulatory bodies within scope of the order. My conclusion is that this order as drafted really could further damage an already degraded aquatic environment.

My Lords, it is a pleasure to follow the noble Duke, the Duke of Wellington. I speak at quite a lot of sewage rallies and in sewage debates and I always give him credit for leading the charge against the Government’s laissez-faire attitude to sewage. There is usually a slightly stunned silence that I am congratulating a Duke—but that is life.

We heard some very fine words in the opening statement about the environmental considerations not being affected and so on. I am really sorry, but it is nonsense. If you have growth, you are going to have environmental devastation. It is automatic; it happens everywhere. At the moment, we have torrents of sewage pouring into our rivers, on to our coastlines and into our chalk streams. But, instead of stopping it, this proposal aims to increase it; and instead of giving Ofwat tougher powers to regulate the water industry and turn off the tap of CEO bonuses and shareholder dividends, Ofwat is now being told that economic growth is more important than clean water.

Whenever this Government do anything, I always ask, “Who benefits?” Who benefits here, of course, are Conservative Party donors and the economic growth they are going to experience at our expense and, in this case, developers who provided almost one-third of Conservative Party funds for the previous decade. What the Government mean by “economic growth” is the ability of developers to build cheap, sell high and connect up a lot of new houses to sewerage systems that cannot even cope with existing demand without emptying the excess into our local rivers and streams.

The only way to ensure that new houses are connected to a modern, effective sewerage system is to have public ownership of water companies. The only way to ensure that our water bills are being used to build local sewers rather than offshore bank accounts is to have people in charge who work for the public good and not for private greed.

By asking Ofwat to consider economic growth, the Government are not asking it to make a judgment on whether that growth is desirable, yet a growth in pollution that requires millions to be spent on clearing it up is classed as economic growth. More money spent on medicines that fight off gastric diseases from polluted water is economic growth, as is money repeatedly spent on restocking the fish populations of rivers. Are we really saying to Ofwat that growth at any cost to the health of humans and nature is a desirable thing that it should promote?

Last year, this House defeated the Government’s attempt to allow developers to build new homes that would have added pollution to some of the most sensitive waterways in this country. From the Norfolk Broads to Devon, the Government hoped to let developers pass on the clean-up costs for pollution to local people paying their water bills. We in your Lordships’ House stopped them. I would have liked us to do the same today, but clearly it is not going to happen.

I know that I will be on the Opposition Benches pestering the next Government to change these rules back. It will not take legislation; it is something a Minister can do and I will expect them to do it. Back in 2021, when the Government stripped out the last of our amendments on stopping sewage in the Environment Bill, without timetables and targets, I said, Cassandra-like:

“This will come to haunt MPs”.—[Official Report, 9/11/21; col. 1161.]

As the noble Baroness, Lady Bakewell, mentioned earlier, this piece of legislation is a gift to the three opposition parties. At the rally I was at yesterday, all three opposition parties had a very sympathetic hearing, but, I am afraid, the Conservative MP had a very tough time, even though she was clearly very concerned about the issue. This Bill is a vote loser and the Government should remember that.

My Lords, I am grateful to the Minister for his introduction to the order. I assume that one of the objectives it to try to bring some rationality to the different range of regulatory functions that exist between the different regulators. That is perhaps a laudable objective. But it is a missed opportunity in this case, as nothing is said in this order—nor has the Minister indicated that he would like to see this—about the regulators collectively trying to do what they can to ensure that the industries for which they are responsible operate so as to be resilient and able to deal with a variety of shocks. I declare my interest as chair of the National Preparedness Commission.

This is not just about environmental sustainability, although that is one element of it. It is about their ability as industries to respond to what may befall them. At a time of heightened international crisis—I appreciate that most noble Lords are here to discuss precisely that—it is extraordinary that the Government are not taking the opportunity to use the regulatory mechanisms to try to improve the ability of our critical national infrastructure to be resilient and to respond. I hope the Minister will be able to explain why the opportunity has not been taken to extend the remit to ensure that there is a broader definition—one not just about economic growth but promoting resilience. This has, for example, been taken on board by the UK Regulators Network as one of its longer-term strategic aims.

My Lords, I will take this opportunity to pause the current business on the SI so that the Leader of the House can repeat an Oral Statement taken in the House of Commons earlier today.

My Lords, before we begin, it might be helpful for the House to know that the usual channels have extended the Back-Bench speaking time to 30 minutes.