The Duke of Wellington:

Moved by The Duke of Wellington

45: Clause 6, page 10, line 9, after “if” insert “the Authority,”Member's explanatory statement This amendment would add Ofwat as a relevant agency with the obligation to impose a fixed monetary penalty on a water company in respect of a specified offence.

My Lords, Amendment 45, the related Amendment 47 in my name and, in a sense, the intervening Amendment 46 from the noble Baroness, Lady Bakewell, all seek in essence the same purpose—namely, to ensure that any fines imposed on the water industry, either by the Environment Agency or by Ofwat, remain within the environmental protection regime and do not go to the Treasury.

I think the current rule is that fines levied by Ofwat go to the Treasury and fines levied by the Environment Agency stay within the Environment Agency. That is what I am seeking to change and I think the noble Baroness, Lady Bakewell, has a similar intent. I hope the Minister, although she will, of course, be told by the Treasury that it wants to keep the money—I am sure it will always do that—might be prepared to try to persuade the Treasury to allow these funds to be devoted, as both the noble Baroness, Lady Bakewell, and I have said in a slightly different way, to measures to improve the quality of the freshwater environment in England and Wales. I think that is obviously what most Members of this House would want and I hope the Minister might be able to make a move in that direction. That is the essence of the purpose of these two amendments which, as I said earlier, are similar to the intent of the noble Baroness, Lady Bakewell. I hope the Minister will consider very carefully these three amendments.

My Lords, the noble Duke, the Duke of Wellington, has set out the case for this group of amendments with his usual clarity and passion for sorting out the obligations which Ofwat needs to impose.

The money collected from fines from sewerage and water companies needs more clarity over its destination. At the moment, it would appear that the money from fines imposed by Ofwat does not go back into ensuring that investment occurs to correct the defects which allowed sewage spills in the first place. Much of the money from fines goes into the Treasury coffers and supports other government departments. This is not what the public want. They want the money from fines to go into making good inadequate and out of date sewerage systems and helping to create new reservoirs. A transparent and obvious way to achieve this is to set up a water restoration fund. This group of amendments requires all fines for environmental offences to be ring-fenced for this fund.

I understand that the Treasury is not in favour of this as it is hypothecation. I understand where it is coming from. However, it is necessary, due to the appalling performance of the water industry, for the public to be able to see just where the money from fines is going and how it is being used to improve the service they are paying for in their water and sewerage bills. We are, therefore, very keen to see such a fund set up without delay. There are undoubtedly going to be large fines coming down the line which water companies will have to pay. These fines cannot just evaporate into the ether so that customers cannot see what is being done with the money. Restoring public confidence in the water and sewerage industry is key to moving forward and a water restoration fund is a vital element of achieving this.

My Lords, I thank the noble Duke, the Duke of Wellington, for introducing this group. I also take the opportunity to thank him for his tireless commitment to clearing up the water industry. I have no doubt that the fact that we are considering this Bill in this Chamber at this time owes much to his hard work.

In government, we made progress on work to ensure that fines charged to water companies would be reinvested into the infrastructure of the water sector to reduce pollution and tackle flood risks. Given the very clear concern of the public about the health of our rivers, lakes and beaches and the impact of pollution, it seems only right that the proceeds of fines levied on water companies should be invested in tackling pollution, so we support the spirit of Amendments 46 and 47 in principle.

While there is clearly disagreement on how best to achieve the goal of reinvesting the funds raised through fines on water companies, we hope the Minister will listen to the concerns of the noble Baroness, Lady Bakewell of Hardington Mandeville, and the noble Duke, the Duke of Wellington, and ensure that proceeds from water company fines are reinvested in the sector.

I thank noble Lords for their suggested amendments and the points raised in relation to penalties and the water restoration fund.

First, I will talk to Amendment 45, tabled by the noble Duke, the Duke of Wellington. While I acknowledge the intention behind this amendment, which seeks to strengthen Ofwat’s enforcement powers, we do not believe that automatic penalties are appropriate for the obligations which Ofwat is responsible for enforcing. Ofwat’s role as the economic regulator is distinct from the role of environmental regulators and from the permitting regime for environmental activities. Offences that may be subject to automatic penalties and outlined on the face of the Bill, such as pollution control, abstraction, impounding and drought, fall within the remit of the Environment Agency and Natural Resources Wales. Extending the enforcement of these areas to Ofwat would therefore duplicate the responsibilities of the regulators and create more complexity in the current system.

Furthermore, Ofwat’s investigation and enforcement activities relate largely to breaches of core licence conditions, which are highly complex matters that are not fixed to singular assets or permits but rather systemic failings right across the company’s operations. Investigations often require significant and detailed evidence to be gathered, potentially from a number of sites, to establish whether a breach has occurred. This can take months to conclude and does not lend itself to an automatic penalty.

Ofwat has existing appropriate powers to impose financial penalties. For example, the Water Industry Act 1991 enables Ofwat to take enforcement action, including imposing financial penalties on companies if they are in breach of their statutory duties or licence conditions.

Finally, I remind the House that the independent commission will consider the roles and responsibilities of the water industry regulators and how we can ensure our regulators operate as effectively as possible. This is something that may be discussed in some depth by the commission. The Government will therefore not accept this amendment, but I hope the noble Duke feels reassured on the points about automatic penalties.

I will take Amendments 46 and 47, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and by the noble Duke, the Duke of Wellington, together. I very much appreciate the intention behind the amendments, but we do not believe it is necessary to define a mechanism for spending the money received through fines in law. A water restoration fund was launched in April this year, and this arrangement does not require legislation. As we have heard, the water restoration fund serves as a mechanism to direct water company fines and penalties into water environment improvement projects. We feel that defining a water restoration fund in law would instil inflexibilities regarding the scope of the fines available to include within the fund and how the money gathered from fines could be spent. We believe that retaining flexibility is important to ensure funding programmes deliver value for money.

As for the devolved elements of the noble Duke’s amendment, water is a devolved policy area, so it is for the Welsh Government to determine the extent to which a water restoration fund should apply in Wales.

What has come across in the debate, and what came across strongly in Committee, is the recognition that investment in the water industry will be absolutely critical to improving the existing poor standards. The Government are continuing to work with His Majesty’s Treasury on the continued reinvestment of water company fines and penalties in water environment improvement. We are working with the Treasury on this specific issue because we recognise its importance. As this is ongoing work and discussion, we will not be able to accept the amendments today. I thank noble Lords for the debate, and hope that they have been reassured by my comments.

My Lords, I thank the Minister for that explanation. The point of Amendment 45 was only that I was advised by the Public Bill Office that I had to table it to make Amendment 47 make sense—parliamentary drafting not being one of my specialities. However, the underlying point, which I share completely with the noble Baroness, Lady Bakewell, is that we want to see all the fines levied on the water industry reinvested in ensuring improvements to the clean water environment. That is what we are all trying to do. I suspect that the Minister would support that, in theory, and I wish her well with her discussions with His Majesty’s Treasury. I therefore beg leave to withdraw the amendment.

Amendment 45 withdrawn.

Amendments 46 and 47 not moved.