25 Mar 2014 : Column 425

House of Lords

Tuesday, 25 March 2014.

2.30 pm

Prayers—read by the Lord Bishop of Chester.

Introduction: The Lord Bishop of Chelmsford

2.37 pm

Stephen Geoffrey, Lord Bishop of Chelmsford, was introduced and took the oath, supported by the Bishop of Chester and the Bishop of Leicester, and signed an undertaking to abide by the Code of Conduct.

Libya: Arms to the IRA

Question

2.41 pm

Asked by Lord Empey

To ask Her Majesty’s Government whether they intend to discuss with the Government of Libya the question of compensation for United Kingdom victims of arms supplied to the IRA by the Gaddafi regime.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, the Government will continue to encourage the Libyan Government to engage with UK victims seeking redress, including those seeking compensation and their legal representatives. More broadly, we will continue to promote wide and lasting reconciliation between Libya and UK communities affected by Gaddafi-sponsored terrorism. We have raised these issues with the Libyan Government repeatedly and the Prime Minister, my right honourable friend Mr Cameron, raised this most recently with the Libyan Prime Minister in September last year.

Lord Empey (UUP): My Lords, on 15 November 2011, the Prime Minister wrote to me, saying:

“As I told the House of Commons on 5 September, the issue of compensation for UK victims of IRA terrorism will be an important priority for a revitalised relationship between Britain and the new Libyan authorities”.

The noble Baroness, Lady Warsi, in a Written Answer to my Question HL4664, said, on 22 January this year:

“The Government is not involved in any negotiations with the Libyan government on securing compensation payments for the British victims of Qadhafi sponsored Irish Republican Army (IRA) terrorism”.—[Official Report, 22/01/2014; col. WA136.]

The noble Baroness will see at once that there is a contradiction between the position of the Prime Minister and that adopted in her Written Answer to me. Will she assure the House that Her Majesty’s Government will vigorously pursue this issue with the new Libyan

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authorities to seek redress for the many hundreds and thousands of victims of this terrorism throughout the United Kingdom?

Baroness Warsi: I thank the noble Lord for having given me the opportunity to discuss the matter with him briefly yesterday. I know that he has been involved in this matter for much longer than I have. As he is aware, the Minister with responsibility for Libya has written to him, informing him that we are currently assessing all these matters, including the very specific ones to which he referred. I was involved in discussions on this matter earlier this week. I assure him that we will write to him in due course to provide much more clarity on the issue. The Government’s position has been, and will continue to be, that we want to develop a sustainable and effective partnership with Libya to enable us to resolve all issues, including that of the horrendous terrorism which resulted in huge tragedy for individual families.

Lord Alderdice (LD): My Lords, the previous Government set up a small unit in the Foreign and Commonwealth Office to facilitate the discussions that the noble Lord, Lord Brennan, and others were having to try to address this question not just in respect of specific victims in Northern Ireland but of economic benefit for the whole of the United Kingdom from the Libyan sovereign fund. We now have even more to offer than at the time of Gaddafi, when we could offer economic co-operation in exchange for reparations. Now, there is the opportunity to help rebuild civic society, democratic structures and the proper administration of justice in Libya. We have much to offer the Libyan Government. I trust that my noble friend will look again at the revitalising of that small unit in the FCO to facilitate these kinds of discussions.

Baroness Warsi: As the noble Lord will be aware, some progress was made in relation to this matter at a time when Gaddafi was coming in from the cold, as it were. The noble Lord will be aware—as will other noble Lords—that Libya has been through a horrendously difficult period in its history. There has been huge change in Libya and there have been two national transitional Governments. Only two weeks ago, there was a further change in the leadership at the top, with Prime Minister Zeidan standing down, marking another transitional period in Libya’s history. We are working with Libya while it is going through this incredibly difficult period, but I will bear in mind the noble Lord’s comments.

Lord Browne of Belmont (DUP): My Lords, the First Minister of Northern Ireland—my party leader—recently raised the issue of compensation from Libya once again directly with the Prime Minister. Does the Minister agree that, in the wake of the hurt done to innocent victims as a result of recent revelations of secret deals with republicans, it is vital that the Government move urgently to address this outstanding issue and to bring it to a successful conclusion as quickly as possible?

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Baroness Warsi: Indeed, as the noble Lord will be aware, the First Minister had an opportunity to discuss these matters with the then Libyan Prime Minister Zeidan earlier last year—I think in June. I suppose that the noble Lord is probably referring to the Telegraph allegations. We have issued a strong statement denying the accuracy of that report.

Baroness Symons of Vernham Dean (Lab): My Lords, is the noble Baroness not right, though, to stress to the House the fact that the Libyan authorities are essentially transient? The problem is the frequent changes in those authorities and those who hold government office. Has that not been further complicated by the law of political isolation that has been introduced in Libya, whereby one group of Ministers do not speak to—or, indeed, have anything to do with—the group of Ministers that they have just seen out of office?

Baroness Warsi: The noble Baroness makes an important point. Libya is going through an incredibly difficult period and we need to be realistic about what is actually possible on the Libyan side. There is very little chance at the moment of securing a Libyan payment for compensation. The Libyan Government see themselves as victims of the Gaddafi era, and it is therefore important that we try to build a political space, which is what we are doing, to allow the Libyan Government to engage on these and other issues.

Lord Cormack (Con): My Lords, do we not have to be careful that we do not visit the sins of the previous regime upon a very shaky one? Is it not fundamental to all our interests that there should be a stable and prosperous Libya?

Baroness Warsi: It is, and my noble friend makes an important point. It is when we have that stable and prosperous Libya that we can deal with the legacy issues, including the tragic killing of WPC Fletcher, the aftermath of the Lockerbie bombing and, indeed, the Gaddafi support for terrorism.

Lord Lexden (Con): Libya’s Semtex brought death and destruction to many parts of our country, including the Baltic Exchange and Warrington. Is it not incumbent upon the Government to give a clear undertaking to pursue claims for compensation with the utmost vigour, in fulfilment of the Prime Minister’s own pledge of 2011?

Baroness Warsi: I refer my noble friend to what I was saying. Of course it is one of our priorities, and it is important for us to have a stable Libya where we can discuss these matters. In fact, I had the privilege of visiting Wendy and Colin Parry at the Warrington Peace Centre only a few weeks ago. I am delighted that the Chancellor was able to support the funding of that centre in the Budget. It is for that reason and because these tragic circumstances have left these families still grieving that we must continue to press to have these matters resolved.

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Children: Online Safety

Question

2.48 pm

Asked by Lord Clement-Jones

To ask Her Majesty’s Government what progress has been made to ensure that the standards and systems adopted by public wi-fi providers will protect children from potentially harmful content.

Lord Gardiner of Kimble (Con): My Lords, as announced by the Prime Minister last year, the six major providers of public wi-fi, covering more than 90% of the market, are now delivering filtered public wi-fi wherever children are likely to be. Through the UK Council for Child Internet Safety, we are working with the providers, businesses and industry bodies to develop a logo to help children and parents understand the safest public places to be online.

Lord Clement-Jones (LD): My Lords, I welcome what my noble friend has said, but I am sure he is aware that the mobile network operators filter content which would be, or is, rated 18 by the BBFC and place it behind access controls so that they restrict content to those aged under 18. Can the Government not ensure that public wi-fi service providers adopt the same comprehensive approach to protecting children online and adopt the same standards and protections as the mobile operators?

Lord Gardiner of Kimble: My Lords, as I said, the six major providers have agreed to filter, as a minimum, illegal child abuse imagery and content and legal pornographic adult content. That is not to say that this will remain the basic standard of filtering—indeed, some leading providers are filtering more widely. We continue to review this. I am very mindful of what my noble friend said about the mobile network, but that is where the position is with regard to public wi-fi.

Baroness Benjamin (LD): My Lords, there is a wonderful world for children to discover on the internet but, sadly, evil also lurks there. Parents need to have trust and faith in wi-fi providers and suppliers and be sure that their children are protected. Can my noble friend tell the House how many sites—I believe there are a few—have asked for their porn filters to be removed? They need to be identified so that parents can be alerted to them.

Lord Gardiner of Kimble: My Lords, the whole purpose of the development of the logo is to ensure that parents and children know which public places are secure. The work that is going on in developing the logo is precisely to ensure the safety of children wherever they are on the internet. I am very conscious of what my noble friend said and I will look into it further.

Lord Alton of Liverpool (CB): My Lords, can I take the Minister back to a question that I asked him a few weeks ago about the presence on the internet of

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suicide sites, which encourage young people to take their own lives? Did he see the two-page article in the

Times

highlighting some of these terrible fatalities? Does he agree that this is not caught by the provisions that he announced to the House recently and that it is a discrete question which needs to be dealt with urgently?

Lord Gardiner of Kimble: My Lords, I am very much aware of what the noble Lord said and, indeed, of the article. Both suicide and self-harm are taken extremely seriously. The Government are committed to working with the internet industry to keep young people safe online and to promote positive support for people who are at a suicidal point. We are very concerned that, in dealing with the websites relating to suicide and self-harm, which are so appalling, we do not stop young people and others going to sites that would help them.

Lord Stevenson of Balmacara (Lab): My Lords, the Government have made very good progress with the mobile sector and we hope that they will be able to make similar progress with the wi-fi providers. However, is not the problem that, with 90% coverage, there is still 10% which is not covered, and that 10% involves a very large number of companies. That perhaps explains why Chester Cathedral had to close down its wi-fi operation last year, and only last month Canterbury Cathedral was also in a situation where open access was available. These matters are tricky and I would not want an instant response. The Bishops are shaking hands—that is historic; a deal has been made on this very day. However, the question for the Minister is: if this voluntary arrangement does not work, does statutory provision provide the answer?

Lord Gardiner of Kimble: As I think the Prime Minister has said, we will look at all situations as necessary. The primary objective of all this is to ensure that children and vulnerable people are safe. We have gone down the self-regulatory route because we think that it is the most adaptable. It is the way in which we can act most speedily to protect the very people whom we want to protect.

Lord Clement-Jones: My Lords, the noble Lord, Lord Alton, put his finger on the problem in terms of the difference between mobile standards and those for public wi-fi. Can the Minister assure us that further extension of the base standards for public wi-fi is under active discussion?

Lord Gardiner of Kimble: My Lords, I can. The UK Council for Child Internet Safety, chaired by three Ministers from different departments, has a working group on public wi-fi. This matter is under review and is something on which we are working with the providers. As I said, some are already going beyond the minimum base.

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Schools: Bad Behaviour

Question

2.54 pm

Asked by Baroness Massey of Darwen

To ask Her Majesty’s Government what policies they promote to prevent bad behaviour in schools, apart from punishment.

The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con): My Lords, we recently updated our Behaviour and Discipline in Schools advice. This stresses the need for schools to have a behaviour policy that both rewards and reinforces good behaviour and sanctions poor behaviour. We have also published a series of case studies which highlight the range of ways in which schools can foster good behaviour.

Baroness Massey of Darwen (Lab): My Lords, I thank the Minister for that response. Does he agree that many schools in challenging areas with challenging pupils nevertheless have good behaviour and good discipline? Why does he think that is? Does he also agree that positive strategies in schools, rather than punitive ones such as picking up litter or writing lines, are more effective in combating bad behaviour?

Lord Nash: I agree entirely with the noble Baroness. Schools have good discipline where they have high standards and expectations across the board and a whole- school behaviour policy that is clearly communicated and consistently applied. For instance, when we took over at Pimlico Academy, behaviour was pretty awful. We used an approach that we had seen in the States, where they start with the pupils’ breaking the rules and getting into trouble and then move them slowly to a position where they behave because they want an orderly society and realise that that is the only way in which they can learn. I believe that behaviour policy should be at the core of all good schools. The noble Baroness is certainly right that rewards and incentives for attendance, behaviour, improvement and effort are all very important in promoting good behaviour.

Lord Storey (LD): My Lords, the Minister may be aware that in Wales every secondary pupil has access to counselling services, and that independent empirical research has shown that there has been an 80% reduction in behavioural issues. He will also be aware that in Northern Ireland we fund independent counselling for young people, for obvious reasons. Does he think that there is a case for counselling in English schools? Should we look at a programme to develop such a provision?

Lord Nash: I know that my noble friend is very experienced in this area from his role as a primary school head in Liverpool for 20 years. Counselling is very important and there are some excellent counselling organisations, such as Place2Be. Our advice is clear that schools should be aware that when counselling is needed or mental health services need to be involved, they should involve other agencies. Counselling of

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course links with mentoring, for instance, when pupils at risk of being involved in gangs are mentored and counselled by particular types of people.

Baroness Howe of Idlicote (CB): My Lords, can the Minister tell the House what role school governors and councils should play in promoting high standards of behaviour in schools? Equally, do the Government believe that pupils themselves should have a role? In one group of schools, as I understand it, a slightly older pupil is given responsibility for settling in a new student and afterwards given “brownie” points on how effective the result has been. Can the Minister expand on other ideas for pupil involvement that the Government might be advocating?

Lord Nash: I agree entirely with the noble Baroness. A governor’s main role is to set the ethos and vision of the school. We would expect all governing bodies to accept such an ethos that had very high expectations for behaviour and to be very interested in the school’s behaviour-management policy. School councils and pupil feedback are essential. I recently visited Wickersley Academy in Rotherham, where every year-group elects two pupils to a school council. I said to one of the boys that that seemed to generate a certain amount of change every year. He said, “Not a bit of it. I make sure that I’m elected every year”. I look forward to seeing him in the other place shortly. Older pupils mentoring younger pupils, or acting as guardians in their early days, is very important both for the younger pupils and often for the older pupils for taking responsibility.

Baroness Whitaker (Lab): The noble Lord’s department has very creditably funded four organisations to reduce bullying in schools. Can he say what success they have had in the case of Gypsy, Roma and Traveller children for whom bullying is so substantial a cause of their dropping out at secondary school level?

Lord Nash: The noble Baroness is quite right: we have indeed funded BeatBullying, the Diana Award, Kidscape and the National Children’s Bureau to deliver training for schools to prevent and tackle all types of bullying based on prejudice and intolerance. Tackling all types of bullying is one of our top priorities. Each of the projects will be evaluated to measure the impact of the training on reducing bullying overall. Due to the relatively small numbers involved, it is unlikely that these evaluations will measure the impact on specific groups of children but we believe that the programme should, for instance, have a significant impact on reducing any bullying of Gypsy, Roma or Traveller children.

The Lord Bishop of Leicester: My Lords, in view of the Minister’s clear endorsement of the policy of positive reinforcement of good behaviour, does he agree that we should be doing much more to promote a culture of mutual respect more widely in society so

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that the benefit of the positive work of many schools is not lost when our children step out of the school gate?

Lord Nash: I agree entirely with the right reverend Prelate. I know that the church has a particularly strong record of promoting community cohesion across its schools. A culture of mutual respect and of respecting other races and religions is essential to a modern school.

Lord Deben (Con): My Lords, does my noble friend agree that much of the behaviour in schools would improve if all teachers felt that when they were eating in the school they should eat with the children at the tables and take a real part in the conversation, rather than sitting on one side and leaving less suitable people to supervise meals?

Lord Nash: I agree entirely with my noble friend: eating is an extremely civilised way for pupils to learn. I recently visited Dixons Trinity free school in Bradford, which was rated as outstanding shortly after it opened and which I strongly recommend any noble Lord to visit. It has a scheme of family dining whereby pupils eat in eights, teachers join them and one pupil collects the food and serves it to the other pupils. I talked to the pupils about this and they felt that it was extremely valuable.

Baroness Hughes of Stretford (Lab): My Lords, does the Minister agree that a strong PSHE programme is essential to inculcating good behaviour both in and out of school? Is it not another good reason why the Government should put a much stronger emphasis now on PSHE and require all schools to prioritise and improve their PSHE teaching?

Lord Nash: As the noble Baroness knows, we feel that strong PSHE teaching is at the core of all schools—we just do not think that we should legislate specifically for it, as we have discussed on many occasions in this House. We feel we should leave head teachers to adapt the particular pastoral care that they have in their schools. However, we have commissioned the PSHE Association to produce a series of case studies, and Ofsted also has produced a range of key characteristics. We are also establishing a PSHE expert group chaired by Joe Hayman, chief executive of the PSHE Association, to ensure that teachers have the support and resources to deliver high-quality PSHE teaching.

Baroness Hussein-Ece (LD): My Lords, what progress is being made in the historic overrepresentation of boys from African-Caribbean communities who are excluded?

Lord Nash: Exclusion rates are very low across the piece. Certainly most academy groups that I know are very anti-exclusion. We have no evidence that any one group is particularly focused upon. All pupils have the same regime attached to them and exclusion should be a last resort.

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Lord Berkeley of Knighton (CB): My Lords, a lot of research has shown that exposure to music and drama in young children tempers behaviour. I wonder whether the Government would like to commit to supporting music and drama in schools and, indeed, increasing it?

Lord Nash: We fully support music and drama in all schools; it can be a very calming influence. When we took over in my own school they had a bell which sounded like a submarine, which I thought was very uncalming. We now have a piece of piano music, the noble Lord may be delighted to hear. An active music/drama programme should be central to every school’s curriculum.

Ukraine

Question

3.04 pm

Asked by Lord Trimble

To ask Her Majesty’s Government what steps they are taking to support the Government of Ukraine.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, our focus is on a strong, independent and successful Ukraine that is free to make its own choices about its future. The Government have announced a £10 million package of technical assistance for Ukraine. We are continuing work on an IMF package and we have asked the European Parliament to confirm the removal of customs duties on Ukrainian exports. On Friday, the EU took a landmark step towards closer relations with Ukraine with the signing of the political chapters of an association agreement.

Lord Trimble (Con): I thank the Minister for that response. Presidential elections are to be held on 25 May and it is only to be expected that Putin will try to disrupt or degrade them in some way. In any event, a default by Kiev before the elections would be disastrous. Can we and our allies ensure that Ukraine will get the very substantial financial support it needs between now and those elections? I notice, incidentally, that the EU is talking about a package to be delivered over the next three years; that would be far too late. It would also be disastrous if the money being provided was stolen. I wonder what immediate practical help we could give so that corruption can be dealt with.

Baroness Warsi: The international community recognises the concerns that my noble friend has referred to. It is important that money should flow into Ukraine to give it the stability it so needs, which will ensure among other things that the elections can take place in a stable environment. However, when we offer financial assistance, whether that be through the IMF, an EU assistance package or, indeed, bilaterally, it is important to ensure that it is for a specific purpose and that conditionality is properly looked at. There have been

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too many concerns about corruption in the past and it is for that reason that one of the areas we are working on with the Ukrainian Government is the issue of recovering assets which previous Governments have frittered away.

Lord Campbell-Savours (Lab): My Lords, will European Union or UK allocations of money to Ukraine be subject to very clear good governance criteria, in particular given that members of Svoboda, the party of the extreme right, hold a number of ministerial posts, including that of Deputy Prime Minister? It is that party which is repeatedly expressing on television, radio and elsewhere its extreme views and hatred of the Russians in the east of the country.

Baroness Warsi: It is important to strike a balance. Some money is flowing into Ukraine already in order to provide technical assistance and support, for example, for the Ukrainian authorities to return stolen assets to their country. It is also important that, as the noble Lord says, appropriate conditionality is applied to any IMF or other package that may be agreed.

Lord Hurd of Westwell (Con): My Lords, Ukraine is a huge and important European country. Can my noble friend tell me—not necessarily today but perhaps she will let me know—how many UK-based staff are at present employed in Her Majesty’s embassy in Kiev? Does she think that the number reflects an adequate representation, and if not, what steps are being taken to improve it?

Baroness Warsi: I cannot give my noble friend the precise number, but of course I will write to him. However, I can assure him that a DfID team is already on the ground in Ukraine looking specifically at the technical support package I have already mentioned.

Lord Hylton (CB): My Lords, does the Minister agree that the OSCE should be involved with Ukraine at every level, from the humblest military or election observer up to the chairman in office? Will the OSCE look with particular care to see whether certain sections and groups within the population have genuine grievances and how they might be remedied?

Baroness Warsi: There is already an OSCE presence in Ukraine, but the noble Lord will be pleased to know that a further 100 monitors will deploy with the first advance parties which left for the country at the weekend. A chief monitor will be appointed immediately, and the secretary-general of the OSCE has made clear that he aims to increase the number of monitors up to 500, as has been agreed, at the earliest possible opportunity. These observers will be an essential element of the developments in Ukraine.

The Lord Bishop of St Albans: My Lords, can the Minister tell us what representations are being made on behalf of Ukrainians who are still living in Crimea and find themselves living there now under the Russian state? How are their interests going to be protected?

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Baroness Warsi: My Lords, that is the most difficult community for us to access. The right reverend Prelate asks an important question about a community which is probably most at risk. Unfortunately, we understand that OSCE monitors will not be allowed into Crimea at this stage, but I will write to the right reverend Prelate if I have any further details.

Lord Triesman (Lab): My Lords, there is obviously going to be a significant gap between the current Government in operation and the new one being elected. There will be weak and in some cases, sadly, inexperienced acting Ministers. Will the Government consider providing technical assistance in international financial arrangements, in both internal and external security and in the development of pluralism in institutions, perhaps using the Westminster Foundation for Democracy? They are not currently in a position to do the sort of job that is needed in order to take the country safely through to the next stage.

Baroness Warsi: Those are exactly the kind of areas which the £10 million package which I referred to will be covering. I think there is some Westminster Foundation for Democracy work already in play in Ukraine, but I will check and write to the noble Lord.

Baroness Falkner of Margravine (LD): My Lords—

Lord Howe of Aberavon (Con): My Lords—

Lord Pearson of Rannoch (UKIP): My Lords—

Noble Lords: Howe!

Lord Howe of Aberavon: My Lords, I acknowledge some commitment in this area, having had the privilege of spending some seven years during the last decade of the previous century as a member of the Advisory Council to the Presidium of the Supreme Rada of Ukraine. In that context, I am able to acknowledge what is certainly true: it not a wholly qualified organisation, judged by some standards. My own assessment is that it is equipped with economic resources—although not as significant as we might like—and real political skill. They are far from being communistic, and there is real deference to the Holy Pope. The Ukrainians deserve a sympathetic and practical partnership with us, so far as we can provide it.

Baroness Warsi: I will consider my noble and learned friend’s comments.

Combined Authorities (Consequential Amendments) Order 2014

Barnsley, Doncaster, Rotherham and Sheffield Combined Authority Order 2014

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Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral Combined Authority Order 2014

West Yorkshire Combined Authority Order 2014

Urban Development Corporations in England (Area and Constitution) Order 2014

Prevention of Social Housing Fraud (Power to Require Information) (England) Regulations 2014

Motions to Approve

3.12 pm

Moved by Baroness Stowell of Beeston

That the draft orders and regulations laid before the House on 10 and 24 February and 10 March be approved.

Relevant documents: 22nd and 23rd Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 24 March.

Motions agreed.

Water Bill

Report (1st Day)

3.12 pm

Clause 1: Types of water supply licence and arrangements with water undertakers

Amendment 1

Moved by Lord Whitty

1: Clause 1, page 2, line 4, at end insert—

“( ) Granting a retail or restricted retail authorisation for supply to non-domestic sector customers must be done in such a way and on such terms that it does not disadvantage domestic customers.”

Lord Whitty (Lab): My Lords, I hope noble Lords are not leaving because Amendment 1 is such a complicated amendment. It is one of the most straightforward amendments on the Marshalled List today.

As the House will know, we on this side have supported the objective of introducing a degree of competition into the retail end of water supply for the non-domestic sector. However, our support for that—and I think a lot of people’s support for that—was on the clear understanding that there would be safeguards to ensure that there was no disadvantage or detriment to domestic consumers as a result of the competition

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operating within the business or non-domestic sector. That has of course proved to be the case in Scotland, but the Scottish structure is not exactly the same as the English structure, and we felt that it was necessary to make explicit that there should be no disadvantage. In principle, the Government appeared to agree. We therefore asked the Government to make that proviso clear in the Bill but the Minister said that that was not necessary.

Since Committee, we have pressed the department on how the existing safeguards would work and where those existing safeguards appear. According to replies from the department, the safeguards that it is relying on are twofold. First, they can be found in the Water Industry Act 1991. There is a similar reference there but that is in the context of a piece of legislation in which no competition was envisaged. It was in the context of monopoly regional supply and is therefore not completely effective in dealing with the entirely changed situation that the Bill would introduce.

3.15 pm

The second place where the department says the safeguards are is in Ofwat’s regulatory methods on not allowing cross-costing with the domestic sector. That is true, but regulatory conventions and the way the regulator does its work are not as clear or as legally watertight as stipulations in statute. In any case, the Ofwat position appears to relate to cross-charging on pricing and not to other aspects, such as the level of service to the domestic consumer. The existing legislative and regulatory protection is not sufficient, so why not make it unequivocally clear in the Bill that the introduction of retail competition will bring no disadvantage to the millions of household consumers in England and Wales?

The Government sometimes say that the problem is not going to arise and point to the situation in Scotland, where there have clearly been benefits to business consumers, including those that did not actually switch from the incumbent provider, and domestic consumers. But the market is different in England and Wales. It is more complex and over time will become even more complicated. There are therefore unforeseeable consequences if no safeguards are built in. Consumers need to be reassured in this legislation that they have that protection. That is what my amendment is about.

I note that the Government have tabled two amendments in this group that give a clear role for the Consumer Council for Water in the charging regime. I welcome those government amendments, not least because they are very similar to the ones that I tabled in Committee. I therefore commend the Government on bringing them forward today.

The introduction of competition in the business market should not be detrimental to ordinary households in any way. The engagement of the Consumer Council for Water will help to ensure that is not the case but that is not as clear as the adoption of my amendment would be. The Government need to go a bit further and state that “no detriment to householders” will be clearly and unequivocally in the Bill and will apply to the new market situation that will arise as a result of the passage of the Bill, the relevant provisions of which, in general, we support. I beg to move.

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The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con): My Lords, I start by reiterating the interests that I declared in Committee. I am the owner of a farm, through which a tributary of the River Thames runs; I have a bore-hole, which supplies farm and tenanted properties; and I have a property that flooded in 2007.

I thank the noble Lord, Lord Whitty, for moving his Amendment 1 on the important issue of protecting householders. The Government take this issue very seriously. We are very keen to ensure that household customers remain fully protected following our reforms to the non-household market. I am confident that we have achieved this. The Water Bill introduces reforms that will enable us to manage future pressures as efficiently as possible while ensuring that customer bills are kept fair for the long term.

Mechanisms are already in place to prevent business customers’ bills being subsidised by household bills. Ofwat’s policy of setting different retail price caps for household and non-household customers in the current price review means that households will not subsidise the competitive market. We also expect household customers to benefit from the efficiencies and innovations that competition will foster.

It is also important to remember that the Secretary of State, Ofwat and the Consumer Council for Water have a shared duty to protect customers. They must have special regard to people who are unable to switch suppliers—that is, household customers—when carrying out their statutory functions. I am therefore confident that household customers will be protected against any negative outcomes resulting from the expansion of the competitive market.

This brings me to government Amendments 57 and 58. I was grateful to the noble Lords, Lord Whitty and Lord Grantchester, for highlighting in Committee the important work that is done by the Consumer Council for Water. The noble Lords tabled an amendment to require incumbent water companies to consult the Consumer Council for Water on their draft charging schemes. In Committee, I explained that the Consumer Council for Water already does this, but I agree that it is a good idea to place into legislation the central role of the Consumer Council for Water, ensuring that the consumer voice is heard. That is why I am bringing forward Amendments 57 and 58 today. The Consumer Council for Water already plays a fundamental role in working with the companies to ensure that their charges schemes meet stringent, research-informed safeguards on behalf of customers. We want to see this continue.

I hope that our amendments illustrate that the Government are listening. I am grateful that we have continued to work in a positive and collaborative way throughout this process and am delighted to see real improvements coming forward. I ask the noble Lord, Lord Whitty, to withdraw his amendment.

Lord Whitty: My Lords, I think that the Government have gone slightly further than previously in referring to there being no disadvantage in relation to the cost of water. Indeed, we will return to the affordability issue later today. The Minister did not deal completely

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with the issue of non-price disadvantage. The servicing of consumers could suffer from the introduction of a degree of competition if too much of a company’s effort was focused on the business end and led to a diminution in service as well as a disadvantage in price. The Minister has probably said enough for me not to press this point today or in this Bill, but the department and Ofwat will need to be quite clear as to their intentions in that and in their beefing-up of existing mechanisms designed to protect household consumers. I therefore welcome the Government’s amendments and will support them when we reach that point. I shall withdraw this amendment with some slight regret, but the Minister has been relatively helpful. It has been a good start.

Amendment 1 withdrawn.

Schedule 1: Water supply licences: authorisations

Amendment 2

Moved by The Earl of Selborne

2: Schedule 1, page 126, line 29, at end insert “for the purpose of, or in relation to, its participation in arrangements made by the undertaker for the introduction of water into its supply system”

The Earl of Selborne (Con): My Lords, in moving the amendment, I shall speak also to 33 amendments grouped with it. We return to the potential risk of de-averaging of charges, on which I moved a plethora of amendments in Committee. I think that there was some mystification around the Chamber as to the purport of the amendments. I hope that the amendments this time round will not come as such a mystery, because we rehearsed in Committee the potential risk of de-averaging of charges. There was general agreement that de-averaging was to be avoided, but I think that we still need to test whether the Bill gives the sort of protection that my noble friend the Minister assured us it did in Committee.

The reason why I think that the Bill currently presents a real possibility of non-household customers paying different prices for the same services within the same appointed area is because of the nature of the link between upstream and downstream. The customers who would be most adversely affected by de-averaging of charges would most probably be smaller businesses and non-household customers in more remote rural areas—at this moment, I should declare my interest as a farmer and therefore, by definition, living in a rural area. As I said, the problem arises from the direct link in the Bill between the retailer and the provider of resources. Such a link was allowed in the Water Act 2003 for water in a different form and reappears, modified, in the Bill. The link is introduced for the first time for sewerage services.

The danger is that, if a new entrant retailer can access a new source of water more cheaply than the incumbent and offer it to selected customers with the focus on price, and price alone, there will be no incentive to improve on or even match the incumbent in providing, for example, water efficiency services that might be

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beneficial to the customer but which might involve an upfront cost for either the retailer or the customer. In other words, if you can offer a simple “buy it cheap” service for specific customers, you have immediately blown a hole in the averaging regime.

The Bill creates perverse incentives which direct the focus of retailers away from helping customers to play their part in reducing levels of water abstraction and, more generally, in building water industry resilience. The Minister told me in Committee, and I am sure that he will repeat, that the amendments would allow incumbents to dictate the future direction of upstream markets. I disagree. As noble Lords will see, the amendments mention participation and allow—indeed, encourage—incumbents to look for innovative solutions, but not at the price of cherry-picking or allowing people to purchase water or sewerage services on price alone.

The Government agree and say in their guidance on draft charging principles that de-averaging must be prevented. I cite their advice:

“No category of customer should be unfairly disadvantaged by the way reform impacts on water charges. A fair and non discriminatory approach to sharing network costs”—

I repeat, sharing network costs—

“will be critical. For example, rural customers must … be protected”.

That we can all agree on. De-averaging is not desirable and must be prevented. The issue is whether the Bill as drafted will lead inexorably to two-tier charging, whatever guidance the Government might be giving on charging at the moment. The guidance goes on to say:

“Averaging of charges is common practice in sectors that have much greater scope for contestability than the water sector does. Ofwat has a number of tools to limit the effect of de-averaging on customer charges. They will use these to ensure that any marginal changes are introduced in a measured fashion and, above all, that they are in the overall interests of consumers”.

My problem is that I am simply not persuaded that Ofwat will indeed have the tools to limit the effect of de-averaging on customer charges. Given the proposed link between retailers and potential upstream service providers, I cannot understand how Ofwat will be able to manage the impact of de-averaging to prevent any unfairness between customers, especially rural customers. The problem is, of course, that once you have allowed that direct link between upstream and the retailers, you have to justify in law any interpretation of the rules in court.

I mentioned in Committee what is perhaps an obscure case, but nevertheless a legal precedent, the Shotton case in Wales, where the precedent was set that local costs were required to be used in a ruling in setting prices under bilateral deals. My noble friend the Minister assured me that this precedent could be ignored, but I remain convinced as I have the feeling that legal precedents are legal precedents. An even more serious threat would be if this were determined under a European law and the United Kingdom Government might not be able to prevent the de-averaging of charges if a link is allowed, as the Bill allows, between the wholesale and retail markets. There is a threat and it is incumbent on us to be absolutely certain that we are not widening the scope for de-averaging by the way in which the Bill is drawn up.

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3.30 pm

The Bill has the laudable purpose, in part, of promoting the cause of reducing water consumption and reducing the harmfulness and quantity of wastewater returned to the sewage system. What is needed to achieve this is a focused retail market, which forces retailers to differentiate themselves principally by the quality of their service rather than by price. This would ensure that customers can make real contributions to reducing abstraction and discharges and would contribute to establishing a more resilient and environmentally secure water industry. All this is highly important but we are not going to get it by selling on price and price alone.

These amendments therefore seek to break the link between an upstream service provider and a retailer. Those with wholesale authorisations would be required to interact with incumbent water companies rather than retailers. This would then allow Ofwat to require incumbent water companies operating networks to procure water and sewerage treatment services in the most economic way possible. My amendments therefore amend Schedules 1, 2, 3 and 4 so that the holders of authorisations participate,

“in arrangements made by the undertaker for the introduction of water”,

or,

“the removal of matter from the undertaker’s sewerage system”,

into the supply system, so that they cannot bypass the undertaker. I beg to move.

Lord Deben (Con): My Lords, I declare a past interest as a former chairman of a water company in this country and I sit on the board of one on the continent of Europe. I hope that my noble friend will take the remarks of the noble Earl, Lord Selborne, very carefully because there is a tendency to think of water as if it is like any other utility. Of course it is not because water is different, wherever you take it from, and it will be under bigger pressure than ever before because of the effects of climate change and of demand increases.

It is often possible in a small area to provide a small programme of water supply at a lower price because it is being tailored particularly and for very narrow demands. We are going to have to find better ways of sharing water supply in any case because of what is happening in this country, so the point that my noble friend Lord Selborne raises is very important. I have read carefully my noble friend’s comments about the Bill. None of us wants to reduce the amount of competition which the Bill provides, but I hope that the Minister will give some reassurance which goes beyond merely saying that Ofwat has the powers to deal with this. That is because I share my noble friend’s doubts that Ofwat has those and whether those powers would stand up in law—certainly, whether they would stand up were the law part of the very valuable European legal structure under which we operate. Thank God for the European Union, or we would never have the water supply which we have today. Our water would be much less clean and we would have much lower standards. We owe a great deal to our membership of the European Union on this, as on most other things.

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However, on this particular issue we have to ensure that the Bill does not put us into a position in which de-averaging—one of the ugliest words in the English language—becomes a serious problem. I hope that the Minister will be able to reassure me that the legal situation is fully covered because I, too, think that there is sufficient precedent to make anybody reasonably concerned.

Lord Grantchester (Lab): My Lords, I declare my interests as a farmer, thereby living in a rural area. Like the noble Earl, Lord Selborne, I am concerned with the effects generally on rural areas. While there are risks, I am not sure that this is the case here. We support the introduction of competition into the non-domestic market and take the issue of de-averaging very seriously. The noble Lord, Lord Deben, has spoken about how we must, indeed, be assiduous in making sure that price averaging is maintained as far as possible. However, we are satisfied that Ofwat has all the necessary regulatory tools to enable it to limit the effects of de-averaging.

Competition can also be about bringing innovation to the market in services and introducing efficiencies. However, we remain concerned that these amendments, which have been tabled by the noble Earl, Lord Selborne, might allow incumbent suppliers to constrain the development of future markets, thereby reducing the benefits that competition could bring.

Baroness Parminter (LD): My Lords, in welcoming the proposals to open up retail competition in the business sector, on Second Reading I, too, raised my concern, like other noble Lords, about the potential for the de-averaging of prices. Ensuring that rural or remote businesses do not pay more than their urban counterparts is vital. We need to share costs for water fairly, regardless of location.

In Committee, the Minister reassured the House that the regulator had the necessary tools to limit the effects of de-averaging on customer charges. Having talked to Ofwat myself, I know that it confirms that this is its belief. Equally, the Consumer Council for Water, which has the interests of water customers at its core, commissioned Martin Cave to review the issue, and he has confirmed that Ofwat can facilitate upstream competition without de-averaging.

The Government will be producing charging guidance to Ofwat, which the Minister confirmed will explicitly say that de-averaging can occur only where it is in the best interests of customers. This Bill provides Parliament with the opportunity to debate and vote on that charging guidance, following a consultation process, so that we have the necessary safeguards to ensure that it does. Not only will Ofwat have to act in accordance with such guidance, but the Consumer Council for Water will be a statutory consultee in the preparation of Ofwat’s charging rules. This seems to me to be a reasonable defence against the potential for de-averaging of water bills, particularly given that as a final resort the Government can veto Ofwat’s charging rules if they do not reflect the guidance given.

On that basis, I am satisfied with the assurances given by my noble friend the Minister, and I will not support the amendments tabled by my noble friend Lord Selborne.

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Lord De Mauley: My Lords, I thank my noble friend Lord Selborne for explaining once again his concerns to your Lordships. I laid out the government position on this matter clearly during Committee, and I confirm to my noble friend Lord Deben that I do indeed take this matter very seriously. I am happy to clarify the position for your Lordships again this afternoon.

My noble friend’s Amendments 2 to 29 and 31 to 36 would break the link between upstream and retail. While I know that this is not my noble friend’s intention, it would have the practical effect of derailing the reforms which this Bill seeks to introduce. The amendments would introduce a market where incumbents would tender for new water resources under the so-called single-buyer model. That is extremely incumbent-friendly, and would seriously undermine the competition that we are seeking to extend in the Bill.

The single-buyer approach, with decisions resting with the incumbent, will provide fewer rights and less flexibility for new entrants. These amendments would allow incumbents to dictate the future direction of upstream markets. This would, I suggest, present a considerable barrier to entry for new entrants. Only licensees who were able to bid for and win contracts under the terms set by the incumbent would be able to enter the market. Most importantly, it would not lead, I suggest, to a better outcome for customers. For example, there would be an increase in charges if incumbents introduced overly burdensome standards in tenders or made poor decisions over which bids to accept.

As I have said, I know that my noble friend’s intention was certainly not to undermine the market reform provisions of the Water Bill. I have heard his argument that this approach would mirror arrangements being introduced in Scotland, but this is not Scotland. The Scottish Government have taken a policy decision not to introduce upstream competition in Scotland, and that is their prerogative, but that does not mean that is the right approach for England. We face a more challenging water resource situation than our friends north of the border, and we are legislating here for a regime in England. Reducing the scope for innovation and entry into the market is not going to help deliver the change we need. I hope I have explained why I cannot accept the tabled amendments.

I know that my noble friend’s concern is about de-averaging in a more general sense, so perhaps I can take this opportunity to provide some comfort on that issue. The averaging or de-averaging of charges refers to the extent to which an individual customer’s bill reflects the direct costs associated with serving that customer. Some would suggest that a de-averaging of charges will somehow be a direct result of increasing levels of competition in this sector. However, there is no evidence to support this view. Averaged charges are a common feature across the networked utilities and, indeed, in all sorts of industries that are subject to market pressures. We think it is right that network charges should continue to be averaged, and the regulator has stated, repeatedly, that it has all the tools necessary to control the effect of de-averaging on customer charges.

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The Government’s charging principles are unambiguous on this. Ofwat must not allow de-averaging that is harmful to customers, and that includes rural customers, to which my noble friend specifically referred. Our charging guidance will follow soon. I am happy to commit, as I have done before, to making it plain in that document that there must be strong, definitive boundaries on the scope of any de-averaging and that households, in particular, must be protected. There are powers in this Bill which the Government will not be afraid to use if Ofwat’s charging rules are not consistent with our charging guidance. I thank my noble friend Lady Parminter for her words.

However, we should not be simplistic. There is no doubt that there are areas where better cost-reflectivity could have substantial benefits for the environment and for the resilience of our water supplies. It must be right that the new upstream markets should reflect the environmental costs of supply. It must also be right that there are economic incentives for business users that use large volumes of water, and it must be right that water companies should seek to identify the most environmentally efficient sources of water. The Bill is all about opening the market, encouraging new entrants and increasing the resilience of our supplies. Better cost-reflectivity in the competitive part of the non-household market is a crucial part of this.

My noble friend suggested that new entrants will not focus on value-added services. He may not have put it like that, but that was the intent behind one of the points he made. New entrants already in the market, such as Business Stream, are very clear that they see value-added services as the best way to maximise profit, so I cannot accept that the way the Bill is designed makes that less likely.

My noble friend raised an important point about fears that the Government’s charging guidance and Ofwat’s charging rules might be overridden by competition law. I draw your Lordships’ attention to paragraph 5 of Schedule 3 to the Competition Act 1998. This provides for an exemption from competition law where an agreement is made in order to comply with a legal requirement imposed by or under any enactment in force in the United Kingdom. Ofwat’s statutory charging rules will take the form of a legal requirement imposed under such an enactment. The Bill provides the Secretary of State with the power of veto over the charging rules in order to ensure that regulatory practice remains well aligned with government policy. I can also confirm that there is no general prohibition in EU law against average pricing.

My noble friend raised the case of Shotton and Albion Water as a legal precedent to support the case that de-averaging is a real risk. This was a complex and long-running case. However, it is a misunderstanding to describe it as a case of de-averaging. Shotton was a very unusual case from which it is not useful to extrapolate more widely. For example, it concerned a discrete system that serves only two customers, one of which was served by Albion Water. This is very rare. To give some context, the case represented 0.01% of Welsh Water’s turnover. At the time of the dispute, this agreement was not subject to regulation by Ofwat. The Bill includes measures that would bring all such

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transfers within the scope of the regulatory regime. Ministerial guidance and Ofwat’s charging rules will therefore set out how charges between water companies and inset appointees such as Albion Water should be determined in the future.

3.45 pm

The necessary safeguards are already in place. The Bill will put in place a robust, binding framework for the regulator as to how charges will be set, and when they may or may not be averaged. We are confident that these tools are fit for purpose. Customers will be protected, and that includes rural customers; our charging principles are explicit on that. I have said before that this view is supported by competition experts, to which my noble friend Lady Parminter referred. For these reasons, I hope that my noble friend will be reassured and feel able to withdraw his amendment.

The Earl of Selborne: I am most grateful to my noble friend the Minister and, indeed, others who have participated in this short debate. I agree with my noble friend Lord Deben that “de-averaging” is about the ugliest word one could imagine. The fact that it was not in any of the amendments, of course, rather confused those who did not know what the thrust of the amendments might have been.

I hear what the Minister says about these amendments derailing the whole competitive base of the Bill. I do not agree with that. It is perfectly possible to keep the undertaker as part of the competitive agreement while introducing competition at both ends of the spectrum. The real issue is whether we are satisfied that Ofwat does indeed have the powers to prevent the insidious creep of the removal of the averaging of charges. Clearly, most of the advisers take the view that it does and Ofwat itself thinks it does. I only hope that they are right.

There will be an opportunity, on a later amendment, to look at some rather more specific proposals as to how averaging might be protected. For the moment, however, I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

Amendments 3 to 5 not moved.

Schedule 2: Water undertakers’ duties as regards water supply licensees

Amendments 6 to 29 not moved.

Amendment 30

Moved by The Earl of Selborne

30: Schedule 2, page 141, line 32, at end insert—

“(c) the costs which would be incurred by a water undertaker in performing any of the duties to which the section 66D agreement relates are also recorded”

The Earl of Selborne: My Lords, here we come to two much more specific and modest proposals to address the potential threat of de-averaging.

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In Schedule 2 on page 141, in proposed new Section 66EA of the Water Industry Act 1991, there are rules set out which make provision about the reduction of charges. These provide for the circumstances in which discounts can be allowed. Amendment 30 would additionally allow a discount only where overall costs to the network are reduced. This should prevent a discount in price which discriminates against other participants on the network. Highly desirable discounts—for example, for direct debit, for advance payments or paperless billing—which are available to everyone would in no way be precluded. If, however, a discount is offered to a customer which effectively loads costs on to other users, then this must be unacceptable. The thrust of the amendment is an attempt to ensure that the charges are not slanted in favour of one customer at the expense of another. Likewise, Amendment 37 makes the same provision for discounts on sewerage services. The sewerage undertaker must be able to offer discounts to all on the network who are sharing the facility, or to none.

Amendments 59 and 60 propose a change to the proposed rules about charges schemes. As drafted at present, subsection (6) of proposed Section 143B of the 1991 Act says:

“The rules may make different provision for different cases, including different provision in relation to different, or different descriptions of, persons, circumstances or localities”.

I accept the case for different rules for persons and circumstances. However, I am very concerned that localities should also be a reason for different rules. That seems to be a hostage to fortune. It will hamper the ability of Ofwat to prevent geographic difference in charges, which could lead once more to charges for rural customers being higher than for urban ones. Amendments 59 and 60 would therefore explicitly rule out different rules for different localities. I beg to move.

The Lord Speaker (Baroness D'Souza): Page 141, line 32, at the end insert the words as printed on the Marshalled List, with the proviso that the last word in that amendment is “reduced” rather than “recorded”.

Lord Cameron of Dillington (CB): My Lords, I declare an interest for the purposes of Report, in that I am a farmer with abstraction licences on my farm. I support Amendments 59 and 60, which ensure that de-averaging on the basis of geographic location is outlawed in the Bill.

The delivery of water in a civilised, developed country should be a universal right. That is not to say that it comes free for anyone, but that all the costs of the necessary infrastructure, such as large pipes running across farms and small pipes running to farms, should be shared between all the parties. In the same way as Royal Mail has a universal service obligation, so should water.

The Minister said in Committee that Ofwat has the powers to prevent this sort of de-averaging, and he repeated that in response to the previous group of amendments. However, he also said that the Government’s charging guidance will say that any de-averaging must occur only where it is in the best interests of customers;

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but which customers—urban or rural? It is important to set out firm rules here against de-averaging on the grounds of location in the Bill. That is because there is no doubt in my mind that the Bill is merely the first step in a more comprehensive reform of the water industry, which will happen in due course. Like John the Baptist, the Bill is not the light but the precursor of the light to come.

The next Bill will undoubtedly bring in a comprehensive and sustainable abstraction reform—we know that that has been virtually admitted by Defra—while at the same time it will herald a sustainable consumption reform in the form of introduction of universal metering. I know we are coming to that; everybody knows that that is essential and only political games seem to be preventing it happening this time around. Moreover, as a result of these reforms at either end of the supply chain, I envisage a gradual move to the introduction of competition in the water industry in both the commercial and domestic water supply marketplace. At this stage the important principle of preventing de-averaging for different locations, which these amendments achieve, is absolutely paramount.

I am slightly suspicious of the Government’s reluctance to endorse these amendments in Committee, but I get a hint that they might move a bit further at this stage. If they do not, frankly, the writing will be on the wall for remote rural customers. To use the Minister’s words, it will undoubtedly be in the interests of customers —that is, urban customers, who are in the majority—if the minority of remote customers can be charged more. If that were to happen, it would be a major betrayal of the rural consumer. I say that as the person who has been asked by Defra itself to rural-proof government policies.

Lord De Mauley: My Lords, my noble friend Lord Selborne has tabled Amendments 30 and 37, which would amend provisions in Schedules 2 and 4 allowing Ofwat to produce the charging rules that enable licensees to apply for discounts, where the licensee, its customer or anyone else, takes action to reduce pressure on water or sewerage networks. These amendments would restrict such discounts to situations where the incumbent water company’s costs are also reduced.

I agree with the sentiment behind the two amendments, but let me explain why they are not necessary. Ofwat’s powers to make rules on discounts are wide-ranging and can take into account impacts on an incumbent’s costs. They must also be consistent with ministerial guidance. It goes without saying that a discount should not result in an increase in costs for the incumbent or its customers. The sorts of things that we are looking for are agreements where customers commit to take positive actions, such as investing in water recycling facilities or agreeing not to take water during peak periods or during a drought. It might also involve a discount in wholesale charges, where a customer or licensee agrees to invest in an upgrade of a network where the incumbent is also making an investment. But my strong concern is that making a reduction in an incumbent’s costs a condition of such discounts protects the competitive position of the incumbent and risks stifling innovation in the sector if a proposal

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results in a one-off increase in an incumbent’s costs or if a small investment is needed by the incumbent to help the licensee.

I note that the amendment is similar to a provision in Scottish legislation, which also allows licensees to apply for discounts against charges made by Scottish Water. As far as I can determine, no details have been published of any discounts being applied in Scotland, and I do not wish to place such constraints on the system in England. I am confident that ministerial charging guidance and Ofwat’s charging rules can address issues relating to an increase in incumbent’s costs and what may or may not be passed on to other customers not benefiting from a discount.

Amendments 59 and 60 would prevent an incumbent making any charges within its area based on a location of premises. I know that my noble friend seeks to address issues relating to de-averaging, which we have just debated, but these two amendments could result in a significant impact on charges for all customers across England and Wales. It is sometimes necessary for an incumbent to set different charges within its area of appointment, particularly when it is merged with another incumbent. It may be necessary to maintain separate charges for different parts of a merged incumbent’s areas, even after the merger is complete. For example, Affinity Water provides services in three different parts of the country. The charges are different in each of those three areas to reflect the local costs of supplying water.

We are hoping to stimulate more merger activity through Clause 14—for example, to take advantage of economies of scale for the benefit of customers, who could lose out if the merged incumbent had to average its charges across a merged area. There will be winners and losers, but it will mean that the true costs of providing water and sewerage services may no longer be reflected in customers’ charges. Ofwat and the Secretary of State share a statutory duty to protect the interests of customers. The Water Industry Act 1991 provides that this duty should be discharged when appropriate by promoting effective competition. The Government are clear that the purpose of introducing competition into this sector must be to benefit consumers.

I know that noble Lords will be concerned about the potential for impact on rural and vulnerable customers. The noble Lord, Lord Cameron, referred to that. I share those concerns, and I know that noble Lords will be concerned about household customers who cannot switch suppliers. The Secretary of State, Ofwat and the Consumer Council for Water all have specific duties to have regard to the interests of rural customers and those who are unable to switch their suppliers, such as household customers. These duties are already clearly reflected in the charging principles which we have produced to inform these debates and will flow through directly into our charging guidance and Ofwat’s charging rules.

My noble friend referred to discounts for direct debits. To be clear, the discounts covered by the Bill are not discounts offered by incumbents, such as direct debit discounts for charging payment methods, but discounts for novel or innovative proposals which help all customers.

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My noble friend was also concerned that charging rules could be different for different localities. This will allow Ofwat to provide extra protection—for example, for rural customers—as supported by its duty to have particular regard to certain classes of customers, such as, indeed, rural customers. Given these comments, I hope that my noble friend will be prepared to withdraw the amendment.

4 pm

The Earl of Selborne: I am grateful to my noble friend for those observations. I am pleased that he at least agrees with the sentiments behind my amendments. However, I remain worried that where discounts are allowed by Ofwat for a section of the customer network, this could in certain circumstances impact unfavourably on others. If that occurs to non-householders or house- holders in rural areas, as so often could be the case, I fear that that is a slippery slope.

My noble friend said that the proposal to limit the reasons for having different rules might stifle innovation. Again, I simply do not understand why that should be the case. It is simply a proposal to try to ensure that we do not use the remoteness of a locality as an excuse to charge people more than their urban counterparts where, of course, service costs are, indeed, cheaper.

However, I suspect that I will not persuade my noble friend to change his mind. Therefore, I beg leave to withdraw the amendment.

Amendment 30 withdrawn.

Schedule 3: Sewerage licences: authorisations

Amendments 31 and 32 not moved.

Schedule 4: Sewerage undertakers’ duties as regards sewerage licensees

Amendments 33 to 37 not moved.

Schedule 5: Extension of licensing provisions in relation to Wales

Amendment 38

Moved by Baroness Northover

38: Schedule 5, page 171, line 42, at end insert—

“ In section 158 (powers to lay pipes in streets), in subsection (7)(a), the following words are repealed—

(a) “or (b)(i)”;

(b) “or laid in pursuance of section 66B(4)(b)(ii)”.”

Baroness Northover (LD): My Lords, I beg to move government Amendment 38 and will speak also to Amendments 39, 73, 75 to 77, 79 to 86, 88, 92, 94 and 95 to 97. This group of amendments consists of changes to Clauses 37 and 39, following the recommendations of the Delegated Powers and Regulatory Reform Committee, as well as various minor and technical

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amendments to correct drafting errors in Clauses 49 and 80 and Schedule 12, and consequential amendments to Schedules 5 and 7.

We welcome the scrutiny of the Bill by the Delegated Powers and Regulatory Reform Committee. Following its recommendations, the Government have decided to amend Clause 37 on appeals relating to revision of codes so that the power to make regulations under this clause will be subject to the affirmative resolution procedure. This will apply to the first exercise of these powers only. On reflection, we agree with the committee that it is important for Parliament to have a further opportunity to scrutinise these regulations, and we have therefore tabled Amendment 73.

We have also followed the recommendations of the committee for amending Clause 39 on the exercise of adjudication functions in routine cases. The Government have left the choice of adjudicator open as we have not yet decided whether the relevant functions should be taken on by an existing body. However, we are grateful for the committee’s suggestion that this relatively wide power should be subject to the affirmative resolution procedure, and we have tabled Amendments 75 to 77 accordingly.

I would be happy to explain any of the minor and technical amendments to the House if there is anything that needs clarification. I beg to move.

Amendment 38 agreed.

Amendment 39

Moved by Baroness Northover

39: Schedule 5, page 172, line 11, at end insert—

“ In section 213 (powers to make regulations), subsection (1ZA) (inserted by Schedule 7) is repealed (if not previously repealed by an order under section 3).”

Amendment 39 agreed.

Amendment 40

Moved by Lord Moynihan

40: After Clause 7, insert the following new Clause—

“Facilitation of licensed functions

Power to make regulations

(1) The Secretary of State may, by regulation, make provision (including provision for the making of transfer schemes or similar arrangements) for the purpose specified in subsection (2).

(2) The power conferred by this section shall be used for the purpose of enabling any company holding an appointment immediately before the passing of this Act as the water or sewerage undertaker for any area of England and Wales to transfer such of its assets and undertaking to—

(a) an associate which holds a water supply licence with a retail authorisation; and/or

(b) an associate (which may be the same company as that specified in paragraph (a)) which holds a sewerage licence with a retail authorisation;

as may be necessary or desirable to facilitate the carrying on by relevant transferee(s) of the activities authorised by its (or their) licence(s).

(3) For the purposes of this section, a company is an associate of the transferor if—

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(a) the transferee is a wholly owned subsidiary of the transferor;

(b) the transferor is a wholly owned subsidiary of the transferee; or

(c) the transferor and the transferee are both wholly owned subsidiaries of another company.

(4) The references in subsection (3) to a wholly owned subsidiary shall be construed in accordance with section 1159 of the Companies Act 2006.”

Lord Moynihan (Con): My Lords, I seek to assist the House, first by defining the concept of exit that my amendment aims to address, and then by responding to the concerns raised by the Minister in Committee about this important issue.

My interest in this matter began when I was one of the Ministers in another place who was responsible for the privatisation of the water industry, working at that time with my noble friend Lord Howard and the late and much missed Nick Ridley. Our aim was to introduce competition into the industry, to improve services and water quality, and to ensure that, through access to the capital markets, the industry could undertake significant, long-term investment into much needed new infrastructure. The fact that in the six years after privatisation the companies invested £17 billion, compared to £9.3 billion in the six years before privatisation, with higher-quality water, demonstrates the benefits of that measure.

My amendment seeks to take competition further by recognising the distinction between the wholesale process of delivering key water and sewerage on the one hand, and, on the other, encouraging the 18 incumbent water companies to separate off their retail services. These retail services are customer-facing. They are likely to include water efficiency advice and implementation—including benefit sharing—water harvesting and sustainable drainage, and more efficient and effective billing and payment options.

In Scotland since April 2008, non-household customers have been able to choose their supplier and/or renegotiate the terms of their supply. During that time, levels of service have improved considerably and there has been a much clearer focus on environmental services. Some two-thirds of customers have actively opted for a better deal, and the safeguards that have been put in place ensure that no customer, household or non-household, is worse off as a result of the introduction of competition. Indeed, in Scotland, Scottish Water opted legally to separate its non-household activities from the rest of its business by creating a new subsidiary company called Business Stream.

My amendment echoes government policy to allow the most efficient companies to merge or new companies to enter the market to provide customers with better service. The amendment goes further and allows those companies that are inefficient or in favour of exiting the market to apply to the Secretary of State to leave. This proposed move away from vertically integrated, private sector monopolies is to be welcomed. It allows companies that want to specialise in major long-term infrastructure to do so. However, it also allows others—such as the Singapore company Sembcorp, which owns Bournemouth Water, one of the world-leading facility managers for large industrial companies with process management skills—the opportunity, if they so choose, to offer retail services to a far wider base of customers

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than they do now. For today, they can compete only under current legislation by buying every customer, one by one.

The Bill takes a leap forward from 25 years of supply-driven legislation to a focus on much needed, demand-led service. In Scotland, such legislation has worked well since its introduction in 2008. However, it is deeply concerning that, unless we amend the Bill, we will create a competitive market but we will also create a market that prevents those participants that wish to exit the market doing so. For example, if, hypothetically, the board of Thames Water and its investors wanted to exit the retail business and specialise in the very different skill sets required for its core business—major infrastructure projects, which cover more than 90% of its current business—the company would not be allowed to do so. All the incumbent companies today would have to keep offices, keep the staff, keep the IT systems, pay rates and rent, and build up a cost base to be passed on to their customers, even if the board and shareholders wanted to exit the market and, in extremis, even if the company had only a handful of customers.

Only last week, Oxera published a study on the potential cost of passing the Bill without a provision for exit, and came to the view that this measure could amount to around £190 million in NPV terms over a 10-year period. Of course, this is not surprising. If we continue to insist in this legislation that the non-household, retail divisions of the incumbents have to maintain the capability of running the infrastructure systems needed and lose market share, they will end up with rising costs relative to their revenues, they could see losses increase and continue, and no cost synergies would be possible.

Exit is based on straightforward market efficiencies. The Defra Select Committee supported exit. An increasing number of water companies advocate exit. The Scottish experience is a case study for the benefit of exit. The Water Industry Commission for Scotland has come out in support. Macquarie has published a research note and it supports exit. I quote some investors with whom I have been in touch. One says, “Companies should be allowed to exit”. A second says, “If loss-making, it will be detrimental to regulated business to be forced in keeping them”, whereas a third says that it is eminently sensible to be allowed to do so. A final one states, “Anything that promotes competitive tension to improve the customer experience is positive”.

The chief executive of Ofwat, Cathryn Ross, on 3 December last year gave the following evidence to the Water Bill Public Bill Committee:

“Our view is that retail exit for incumbents is a critically important element of a functioning, effective retail market. Particularly important is the fact that if we do not allow incumbents to exit, essentially we are mandating inefficient retailers’ remaining in the market. That will basically be baking in cost that customers will have to pay for, which we can easily avoid”.—[Official Report, Commons, Water Bill Committee, 3/12/13; col. 7.]

Even in your Lordships’ House in Committee there was harmony, agreement and support between, on the one hand, my noble friend Lord Crickhowell— the first, and indeed outstanding, chairman of the National Rivers Authority, appointed during privatisation —the noble Lord, Lord Whitty, and the Labour Benches

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behind him, and the noble Lord, Lord Cameron, from the Cross Benches, who would in fact go one step further in enabling exit and competition between householders as well as non-householders.

Lord Crickhowell (Con): I am grateful to my noble friend for giving way and for the kind things that he has just said about me. I strongly supported him when he made an immensely powerful speech in Committee. The case he has made this afternoon is equally powerful and, in my view, unanswerable. I hope that the Government, even at this late stage, will listen to that argument. I assure him and them that, if they do not, I will support him in any further action that he deems necessary to get this matter through.

Lord Moynihan: I am very grateful to my noble friend for those comments. Indeed, I hope that through his intervention and through the remarks that I made, and indeed through the remarks that the noble Lord, Lord Whitty, made in Committee, my noble friend will determine to join these eminent ranks in support of creating an effective, competitive market for retail services with the intent of providing low-cost improved services to non-householders, because today we are focusing on businesses.

My amendment does not seek to persuade the Minister to introduce competition at this stage to householders, although there are those in your Lordships’ House who hope that, once successfully tested in the business sector, such a transition to competition in the householder market will be fully reviewed. I am proposing that the Secretary of State begins work on preparing regulations not in haste but ready for market opening in 2017. I hope that in so doing—this emphasis is really important—the Minister will provide customer protection and take into account the need for further work to ensure that the Consumer Council for Water is able to maintain its position whereby customer confidence in the water industry is significantly higher than in any other utility sector.

I met the council’s chair, Dame Yve Buckland, and its CEO, Tony Smith, yesterday and I listened carefully to their request to work with customers directly on retail exit—an area which, they freely recognise, requires far more work to be undertaken by them. They wish to review the experience in Scotland. They want to make sure that their customers—particularly the small businesses —are consulted and protected. They are right to do so. In accepting either of our amendments, the Secretary of State will have the time and opportunity to listen to their concerns, for he will need to ensure that all consumers are protected from unnecessary increases in price and from service reduction.

Perhaps I may help my noble friend with examples of the measures available to him to protect the business customers under consideration. He can insist on the full army of tools which already exist. Default tariffs can be set through price controls, ensuring price and service protection. New codes can be drafted to contain all necessary customer protections and to keep the system as simple as possible. Powers of the Enterprise Act can be used for consumer protection should issues go awry—for example, through a failed merger.

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4.15 pm

Powers in extremis could be used through the licence process. The appointed licence of retail entities already has special merger provisions. It is both likely and, in my view, necessary that the Secretary of State would consult the economic regulator, the Consumer Council for Water and Citizens Advice. I know that my noble friend could sign off each and every request made by an incumbent water or sewerage company to transfer its retail business to a third party. It is really important to emphasise that this approach does not require or compel incumbents to transfer any or all of their non-household customers. The amendment to permit retail exit, which I am proposing, simply provides the incumbent companies with the opportunity to apply to the Secretary of State to request that they do. It is an option—nothing more.

Exit has become a much debated issue—the most important issue that remains to be debated, although the others that we will hear this afternoon may contest that thesis. Nevertheless, exit is absolutely critical. In that context I place on record my thanks to my noble friend the Minister and his officials for having held a series of meetings with me and colleagues to discuss the implications of what I believe is a much needed and important amendment to improve the Bill.

Finally, my noble friend has expressed a wholly understandable concern, as has the Consumer Council for Water, about the effect of a transfer of non-household customers to a third party to its remaining household customers. The empirical evidence is to be found in Scotland. To assist the Minister I will quote from the head of the Water Industry Commission for Scotland, who states:

“Ministers have expressed a concern that ‘exit’ could strand household customers with a company that would have less interest in its customers. This is contrary to experience in Scotland where Scottish Water’s focus on its household customers has sharpened markedly since the non-household customers were transferred into its Business Stream subsidiary. Operational performance has also improved at least in part due to the pressure being applied to the wholesale operation to ‘up its game’ by retailers. Such improvements in operational performance (whether in terms of costs or levels of service) benefit households as well as non-households”.

That is compelling evidence.

Business customers have been promised competition for 15 years. With appropriate customer protection they should wait no longer. I hope that the Minister will agree to provide for exit and thereby create an efficient market mechanism. In so doing I hope that my noble friend will commit to ensuring that all business customers receive improved services and that the country will be provided with an efficient, demand-led mechanism which will help reduce wastage, protect consumers, increase smart metering, save water through demand management measures and provide confidence to the market to continue to invest in this vital industry. I beg to move.

Lord Whitty (Lab): My Lords, I, too, have an amendment in this group which argues for retail exit, but adds a few provisos. The noble Lord, Lord Moynihan, has once again made a tremendous speech in favour of his amendment, which I would certainly support. I will not repeat the full range of his arguments. If he

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has not convinced all noble Lords, I am sure that I will not manage it, but it sounded pretty convincing to me. It boils down to the fact that if this Bill provides for orderly entrance to the market it needs to provide for orderly exit as well for a proper market to function.

In a sense it is pretty straightforward, and I find it difficult to understand why the Government have hitherto been resistant to this. In Committee the Minister’s objections were largely about investors’ uncertainty, which I never really bought. I felt that most investors in these fields would be more inclined to support a system of regulation which allowed them to exit from failing parts of the business rather than be put off by it. Indeed, that has been borne out by a number of potential investors writing to us since the Committee stage, including the one to which the noble Lord, Lord Moynihan, referred.

Since Committee, the Minister seems to have shifted to a concern for consumers, both business and domestic, who might be left stranded in certain circumstances. Indeed, as has been said, the Consumer Council for Water has expressed concern on that front. Amendment 54 attempts to meet those objections by making explicit some of the matters to which the noble Lord, Lord Moynihan, referred and puts a proviso and a brake on the implementation of those before they have been thoroughly examined. Of course, Ofwat already has the duty to ensure continuity of supply, so the likelihood of anyone being left stranded is remote. The requirement in my amendment is that the regulations should provide safeguards for all classes of consumers. It also provides a brake in the sense that the Secretary of State would have to approve any specific withdrawal. If the amendment of the noble Lord, Lord Moynihan, were to be accepted by the Government and the regulations drafted under it, we would certainly support that.

The Government have to think carefully now. In Committee there was a fair degree of support for the principles of these amendments. Given that widespread support, the support of the regulators, the support of many of the companies within the industry and the support of potential investors in the industry, the Government need to think where they are going to take it from here. Basically, they have three choices. They can accept the amendment of the noble Lord, Lord Moynihan, and promise to tidy it up a bit—and I hope incorporate parts of my amendment—for Third Reading; they can resist the amendment but promise to come back with something on Third Reading, which may be a more attractive proposition; or they can resist the amendment outright, in which case the noble Lord, Lord Moynihan, would have the support of these Benches if he decided to press it.

The ball is well and truly in the Minister’s court and I hope that he makes the right decision.

Lord Hope of Craighead (CB): My Lords, perhaps I might intervene.

Lord De Mauley: I think I might be able to help the House. When it is my turn to speak, I will explain that the Government have recognised the strength of feeling

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in the House and are carefully considering the difficult issue of retail exits. I plan, as the noble Lord, Lord Whitty, suggested, to return to this issue at Third Reading. I will expand on that in a moment.

Lord Hope of Craighead: I am grateful. I intervene as a domestic consumer of the services of Scottish Water in Scotland merely to confirm that the passage the noble Lord, Lord Moynihan, read out at the end of his speech—from, I think, Scottish Water—conforms entirely to my own experience. Scottish Water has become much more visible in the past two or three years and, in my experience, provides an interesting and active service, not only in supplying water but in considering ways in which householders might be benefited by the services it can offer in support of that supply. I merely wish to make it clear that it is not only Scottish Water which says these things. Some of its consumers are very satisfied with its performance as well.

Lord De Mauley: My Lords, that is a helpful intervention.

I thank my noble friend Lord Moynihan and the noble Lord, Lord Whitty, for their amendments. We once again have two amendments seeking to allow retail exits but with slightly different approaches. Both amendments would allow the Secretary of State to make regulations that would allow an incumbent water company to transfer its customers to a person holding a licence. Amendment 40, tabled by my noble friend Lord Moynihan, would allow for transfers to a licensed associate of the incumbent, while Amendment 54, tabled by the noble Lord, Lord Whitty, would allow for transfers to any company that holds a water supply licence. Amendment 54 does not allow for the exit of the retail sewerage market but I assume that the intention is to allow incumbent companies that provide both water and sewerage retail services to exit those markets. As with other amendments we have seen, both these amendments allow for non-household customers to be transferred through powers laid out in regulations, but do not allow us to fill in any gaps relating to who will provide retail services to new customers following a transfer or how we would treat transferred customers, including those who wish to return to the incumbent.

Allowing customers to be transferred does not mean that the incumbent has completely exited the retail market. The incumbent will still have certain responsibilities to non-household customers in its area of appointment and will therefore remain very much within that market unless certain duties are removed from it or transferred to the licensee which takes over the customers. It is a halfway house that does not benefit anyone, least of all the incumbent which wants to avoid dealing with non-household customers completely. The value of exits to incumbents would be limited unless the ultimate duty of supply is also removed. Household customers who remain with the incumbent may even end up funding this residual capacity of the incumbent to serve the remaining non-household customers.

But, as I hinted earlier, I have listened carefully to the thoughtful and well informed contributions to the debate on retail exits both today and in Committee.

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It is clearly an issue on which many noble Lords hold strong views. There is widespread support for enabling voluntary exit from the non-household market, subject to the approval of the Secretary of State. We remain convinced that such approval would be critical to avoid any perception that this will permit forced separation, given the impact that that could have on investment in the sector. I therefore propose to take this issue away and consider it very carefully before Third Reading. I will aim to table an amendment that will build on the objectives of Amendments 40 and 54 in the names of my noble friend Lord Moynihan and the noble Lord, Lord Whitty, respectively, which seek to provide a means for voluntary non-household exit.

I should like to put on the record now that the only practical way of delivering what the noble Lords are seeking would be to take a very wide-ranging power. Extensive changes to the Water Industry Act 1991 would be needed, not least to address issues relating to the incumbent’s duties to supply and its other statutory obligations to customers. Given this commitment to respond to the mood of the House on this important matter, I ask my noble friend to withdraw his amendment.

Lord Moynihan: My Lords, I thank the noble Lord, Lord Whitty, and his colleagues for their support for the series of amendments we have debated on this issue as the Bill has progressed through your Lordships’ House. I also thank very much indeed the officials at Defra who have worked on this Bill. It is highly complex and it has gained far more prominence than I believe they expected at the outset. Not the least of that is because of the appalling weather we have had over the past three months and the focus now on the Flood Re insurance proposals, which have understandably generated a huge amount of interest across the country and has resulted in a greatly increased workload for the officials. They have been responsive, helpful, polite and informative at all stages, and I am grateful for that.

I thank my noble friend the Minister for his comments. I am pleased and not a little surprised to hear that he intends to come back at Third Reading with a government amendment along lines that I would strongly support. I thank him for his consideration of the importance of exit. I hear the relevance of the consequential amendments that will be forthcoming if we do not give a fairly broad-based power to the Secretary of State, but it remains my view that in order to have a competitive and effective market, we need exit. In the circumstances, I believe that it is appropriate to grant that power through this Bill. Again, I express my thanks to the Minister and to all noble Lords who have supported me on this issue. I beg leave to withdraw the amendment.

Amendment 40 withdrawn.

4.30 pm

Amendment 41

Moved by Lord Whitty

41: After Clause 7, insert the following new Clause—

“Abstraction reform

(1) The Secretary of State may by order appoint a day on which section 1 is to come into force.

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(2) The Secretary of State may only make an order under subsection (1) if—

(a) new primary legislation on the licensing of abstraction has been passed; and

(b) 5 years has expired since the passage of any legislation under paragraph (a).”

Lord Whitty: My Lords, in moving Amendment 41 I will also comment on the government amendments in this group. I am pleased to see that the Government have at last recognised the importance of this issue and brought forward some amendments of their own. I will listen carefully to what the Minister says, but my first take on them is that although they are very welcome, they are unclear in certain respects and do not yet go far enough.

This issue is one where economic and environmental regulation overlap. One of the central provisions of the Bill will allow and indeed encourage the eventual development of competitive markets, including in upstream water bulk supplies. That will not happen instantaneously—the Government have indicated that it will probably not happen until after 2020—but the legislation which will govern it happening is already the legal basis for that extension of competition into upstream areas. I am not opposed in principle to that, but there is a very basic problem. All competition, at least in the early stages, requires a surfeit of supply. However, difficult though it has been to believe over the past few weeks, there is a serious shortage of upstream water, in particular at key points in the summer. The level of water abstractions in the majority of our rivers in England—it rains rather more in Wales so I will confine this to England—is such that they have been overabstracted and at times are running dangerously low. This is the result in large part of overabstraction in the upstream areas and a shortage of water in the summer months. The reform of the abstraction regime has been talked about for a long time. Some limitation of abstraction rights is an essential prerequisite to introducing multiple suppliers with competition upstream.

Past legislation has given some powers to the Environment Agency and to the Welsh authorities in this respect, but most of the abstraction rights were embedded in the 1960s—so they are already 50 years old—at a point when there was much less concern about there being a limited supply of water. When the EA is carrying out its functions and rationalising, restricting and, in some cases, possibly taking away abstraction rights, that legislation requires compensation to be paid. That is paid out of the Environment Agency’s grant in aid and, in effect, out of Defra’s budget, so it has been very careful in using its powers. This Bill, rightly, makes one major step forward in removing from the water companies—which are the biggest, although not the only, abstracters—the right to such compensation. Although we note that the companies can, subject to Ofwat approval, recoup any loss from attenuation of abstraction rights by charging the consumer, this is a very welcome change as it means that the Environment Agency can be more aggressive in pursuing the restriction of abstraction rights in general, including those of water companies.

A further distortion and danger is that in many of the catchment areas, current abstraction rights are at a much higher level than the actual level of abstraction.

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Indeed, on average, 40% of the theoretical abstraction levels are actually drawn in most years. However, even with people taking up under half of their abstraction rights, several of our catchment areas are under severe pressure. If we have new entrants into the upstream area, some of that unused abstraction will undoubtedly, one way or another, be transferred to those new entrants. The logic is that we need a reformed abstraction regime, putting a cap on abstractions and allowing the restriction of or attaching conditions of time or place to the abstractions that are relevant to individual catchment areas. We need to do that before we introduce upstream competition.

It is clear from the amendments the Government have tabled that they recognise that. Indeed, the earlier Defra White Paper recognised that. Yet the Bill does not provide for any future legislation on abstraction reform, as it does for upstream competition. The consequence of that is that if the Bill stays as it stands, even if the government amendments are adopted, we will be able to move to competition upstream, which would almost certainly have the consequence of greater use of dormant and underused abstraction rights and therefore more pressure on our catchments. It is true that in the very long run effective competition will lead to greater efficiency upstream, but the immediate effect of introducing competition would be more drawing-down and more abstractions, and there is no adequate limit on the totality of those in the abstraction regime as it stands.

Of course, Defra is currently consulting on changes to the abstraction regime. It is quite a good consultative paper, I have to say, although it was issued well after the Bill entered the parliamentary process. What I am trying to guard against is the possibility that down the line abstraction reform has not happened and yet the number of people using water upstream for commercial purposes has increased. The government amendments give some greater powers to the Environment Agency and the NRBW to check on this, and they institute a five-year delay, but the provisions are fairly weak.

It is not enough to consult with the regulators without giving them effective legislative backing for intervening and for restricting or putting qualifications on abstraction rights. That is why we say that reform should be in place and enforced before we move to introduce upstream competition. The government amendments and the five-year gap do not mean that abstraction legislation will be in place. They call for a report to Parliament. I do not want to be too cynical in your Lordships’ House but we know that plenty of reports to Parliament never actually see their way through to explicit legislation or regulation.

The department clearly recognises the problem and has been prepared to move a bit with the amendments in this group, all of which I can support, but they are necessary but not sufficient. The Government could say to me today that they will strengthen their approach and include a requirement to have legislation in place before the upstream competition provisions are triggered. They could still bring that forward at Third Reading. Indeed, that is probably the best way of proceeding. I hope the Minister will say that but in the mean time,

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this is such a serious issue that I have to ask your Lordships to seriously consider my amendment. I beg to move.

Baroness Parminter: My Lords, along with a number of colleagues around the House, I raised serious concerns in Committee about the potential for environmental damage resulting from the upstream competition proposals being agreed in advance of reforming the water abstraction regime. I will not repeat those this afternoon. However, I am very pleased to say that the Government have clearly listened to our concerns and are proposing a number of significant amendments to address them.

First, the Government propose to report in 2019 on progress in reforming the water abstraction regime. The Government’s stated aim, following the publication of their consultation on abstraction reform last December —which the noble Lord, Lord Whitty, welcomed—is to legislate early in the next Parliament and implement abstraction reform in the early 2020s. The report will therefore give Parliament an opportunity to scrutinise the management of the interface between what should be by then the two pieces of legislation and their implementation. We can then seek to ensure that their implementation delivers the desired outcomes for both customers and the environment.

I am also grateful that specific concerns that I raised about sleeper licences and bulk trading were heard. The Government have introduced amendments to require Ofwat to consult the Environment Agency or Natural Resources Wales before they issue the codes on bulk supply agreements and before allowing a water supply agreement between relevant parties and incumbent water companies. Equally, relevant parties will be required to consult before entering into bulk supply agreements, and Ofwat will have to take into account any response from the Environment Agency or Natural Resources Wales. In that regard, I do not agree with the noble Lord on the Front Bench opposite that these government amendments are weak. I know from my conversations with Ofwat, which did not want the amendments to be tabled, that it most assuredly does not see them as weak.

In advance of the abstraction regime being reformed, the Environment Agency is already seeking to vary and remove unsustainable existing licences. It will be helped in that by the Government’s removal in this Bill of a statutory right to compensation for a water company resulting from such modifications or the revoking of a licence. The Government have therefore gone a long way towards addressing concerns that noble friends and colleagues expressed in Committee. These proposals satisfy my concern that legislating now for upstream reform in advance of reform of the water abstraction regime could lead to an unsustainable increase in abstraction. Therefore, I would not support any further amendments being tabled by the Opposition Front Bench.

Lord Crickhowell: My Lords, I want to probe a little on the timing. I agree with everything that the noble Baroness has just said. For eight years, as chairman of the National Rivers Authority, I had to try to deal with this problem with rather less adequate weapons

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than the Environment Agency now has, so I welcome the steps that the Government are taking and have taken. I also want to see rapid progress made on the competitive regime, but there seems to be a very difficult timetable. We will have a report five years out on how abstraction is going, yet there will be legislation in the next Parliament which takes us a year further forward. I do not quite see exactly how the Government envisage progress being made on these two important priorities. I confess that I have been away abroad since Committee—I have been enjoying myself in the Galapagos—so my mind has not been on this matter, but I would be grateful if my noble friend could give us a little greater clarity on the timing of these two interlocking steps, on the way in which they are likely to relate and on how the legislative timetable is likely to fit in.

Lord De Mauley: My Lords, this has been another important debate on abstraction reform. It gives me an opportunity to declare another interest: that of a holder of an abstraction licence. Noble Lords have once again emphasised the importance of rapid progress in reforming the abstraction regime and expressed concern about the linkage to implementation of the upstream reforms in the Bill. I thank noble Lords for the knowledge, experience and constructive challenge that they have brought to the debate on this important matter. I have listened carefully to what they have said and I am left in no doubt as to the strength of feeling.

First, I assure noble Lords that the Government are fully committed to abstraction reform. The proposals in our consultation document on abstraction reform demonstrate just how seriously we are taking this as well as the complexity of reforming such a long established regime. Our proposals reflect the importance of abstraction reform for people and the environment and the fact that organisations and individuals across the country are dependent on access to water to live their lives and run their businesses.

I want to see a real improvement in the quality of water bodies in all parts of the country. That means we must take action to reduce overabstraction that damages the environment now and ensure we can continue to protect the environment and ensure access to water in the more challenging conditions we will face in the future. Abstraction reform and upstream reform are both designed to help to achieve that goal. While some fear that these could be conflicting mechanisms, I can assure noble Lords that the intention is for them to be entirely complementary in both design and implementation. I hope I can provide further reassurance on this, not least through the further amendments that we have tabled to Clauses 8 and 12 and a new clause before Clause 45.

4.45 pm

I turn first to the amendment tabled and spoken to by the noble Lord, Lord Whitty. The effect of that amendment would be to introduce a new clause to prevent Clause 1 coming into force until five years after Royal Assent to future primary legislation on abstraction reform. The noble Lord seeks to address the concern about a possible increase in unsustainable abstraction as a result of upstream reform. As I sought to reassure noble Lords in Committee, I believe that

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such an amendment is unnecessary. It would delay both our upstream reforms and our retail market reforms. I am sure that that is not the noble Lord’s intention.

As I explained in Committee on 4 February, the Government and the Open Water programme are working towards retail market opening in 2017. I cannot, therefore, justify the delay that would be caused by the amendment. Our retail reforms are widely supported by customers, who will benefit from improved customer service as a result of these changes. Non-household customers will be free to negotiate the best package to suit their needs. Customers with multiple sites will benefit hugely from being able to negotiate for a single bill from a single supplier. Improved customer services will have knock-on effects for household customers too.

The upstream reforms in the Bill are important as well because they will build resilience in the sector, bring in new thinking and drive efficiency. Given the benefits they offer to customers and the environment and the powerful set of safeguards that will be in place, the case to delay implementation until abstraction reform has taken place is unconvincing. Upstream reform will help to keep bills affordable and benefit the environment. We estimate that the upstream reforms will bring benefits of up to £1.8 billion over 30 years. The current regulatory model is not delivering the kind of efficient resource use and innovation that we need.

I outlined in detail in Committee the environmental safeguards in place to guard against any risk of increased unsustainable abstraction as a result of upstream reform. Although I believe that the concerns about upstream reform and increased unsustainable abstraction have been substantially overstated, I have tabled a further set of amendments to Clauses 8 and 12 to address any residual risk. I turn to those amendments.

First, as the Bill is drafted, Ofwat must consult, as appropriate, either the Environment Agency or Natural Resources Wales before it orders, varies or terminates a bulk supply agreement under Clause 8. Government Amendments 46 and 47 require parties that freely enter into those agreements to consult the appropriate agency as well. That means that the Environment Agency and Natural Resources Wales will have the opportunity to feed into the process at the outset in respect of all bulk supply agreements.

Secondly, government Amendments 42 and 44 require that before ordering, varying or terminating a bulk supply agreement under Clause 8, Ofwat must consult the Environment Agency or Natural Resources Wales,

“in particular about whether the proposed supply … would secure an efficient use of water resources”,

in light of its effect on the environment. This clarifies that Ofwat is able to take environmental considerations into account before ordering, varying or terminating a bulk supply agreement.

Thirdly, government Amendments 48 to 50 strengthen the environmental protections in place by amending the Bill to add a requirement for Ofwat to consult the Environment Agency and Natural Resources Wales before it issues the codes on bulk supply agreements. Fourthly, government Amendments 43, 45, 51 and 52

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add an enforceable duty on the supplying party to a bulk supply agreement to provide information about the water supplied at the request of the Environment Agency or Natural Resources Wales. This could include the source or timing of the water supplied under the agreement.

Finally, we are also strengthening the environmental protections under Clause 12. Government Amendment 53 enables regulations about water supply agreements between incumbent water companies and other relevant parties to require Ofwat to consult the Environment Agency or Natural Resources Wales before ordering, varying or terminating such an agreement. This will bring Clause 12 in line with the provisions on bulk supply agreements under Clause 8.

I move on to government Amendment 87, which is significant. It responds to the concerns expressed from across the House on the timetable for abstraction reform. It signals the Government’s determination to progress abstraction reform and provides Parliament with a route to hold government to account on delivery of this commitment. The amendment places a duty on the Secretary of State to report to Parliament on progress on abstraction reform in England within five years of Royal Assent of the Bill. In practice, this will mean a written progress report being laid before Parliament no later than early 2019. Although we cannot commit to a timetable for introducing legislation on abstraction reform, our aim is to bring forward the necessary legislation early in the next Parliament.

This report will also be an opportunity to report to Parliament on the preparations for implementing abstraction reform and upstream reform, and how the two are being closely aligned. The timing will be apt. We have made clear that the earliest date at which the bulk of the new upstream measures would be implemented is 2019, so Parliament will have the opportunity to consider the interrelationship between the two regimes in advance of the new upstream markets going live. In Committee on 4 February the noble Lord, Lord Whitty, said that,

“it would be sensible to have accomplished, or at least set in train, the abstraction reform before we introduce upstream competition”.—[

Official Report

, 4/2/14; col. 159.]

The report will advise Parliament on how we are doing just that and how we plan to manage the implementation of both regimes so that they work together. As I have said, I strongly believe these reforms to be complementary, not conflicting. They are part of the Government’s wider agenda for securing the long-term resilience of our water supplies and the water environment, which was set out in the water White Paper. The report will also be an opportunity to set out other progress on moving towards a more sustainable abstraction regime. I anticipate that it would, for example, report on the essential work in advance of reform to tackle existing unsustainable abstraction and address other risks, such as unused licence volumes, which could present a risk in a reformed abstraction regime.

I assure your Lordships that the progress we are making through our current consultation and further engagement with abstractors will intensify as we work to finalise the proposals in 2015, seek to legislate early

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in the next Parliament and move to early implementation of a new and improved abstraction regime. I cannot accept the amendment tabled by the noble Lord, Lord Whitty, for the reasons I have explained and I hope that he will agree to withdraw it. I will move the government amendments to strengthen environmental safeguards and make government accountable to Parliament for progress on abstraction reform.

Lord Oxburgh (CB): My Lords, I have to confess that this is a part of the Bill that I have not followed particularly closely, but I have listened to the government and opposition arguments with great interest today and, indeed, have sympathy with both. I would just like to ask the Minister—

Baroness Northover (LD): I think the noble Lord is out of order. We are on Report, the Minister has spoken, and we are waiting for the noble Lord, Lord Whitty, to respond. The noble Lord can ask a quick question for clarification.

Lord Oxburgh: Thank you. The clarification that I seek is whether the Minister would be willing, when he brings back these amendments at Third Reading, to strengthen some of the words relating to consultation to something rather stronger and relating to an obligation.

Lord De Mauley: My Lords, it is difficult for me to respond to that point without knowing the strengthening that the noble Lord has in mind. I am, of course, perfectly prepared to meet him and discuss that between now and Third Reading.

Lord Whitty: My Lords, I thank the Minister for his very comprehensive description of the position and I reiterate that I support the government amendments as a significant move in the right direction. However, they are flawed in one serious respect which I will come on to.

The Minister referred to complementarity between the abstraction reform regime and the new competition regime. I am absolutely in favour of complementarity and I think that both are very important for environmental reasons and for reasons of preservation and effective delivery of our water resources. Therefore, in principle, we are not divided. However, the provisions in this Bill are asymmetrical. We have quite detailed provisions on upstream competition. Nothing I have said affects retail competition. Upstream competition is provided with all the legislative framework that you will need—there will need to be some more regulation, but in effect it is there. The abstraction reform has only just started on its consultative phase. Both the noble Baroness, Lady Parminter, and the Minister have said that they intend to legislate in the next Parliament, which is nice to hear but we do not quite know who will run the next Parliament and it is not normal to pre-empt the Queen Speeches of the next Government, even if they happen to be the same one. In any case, the timescale is out of kilter.

The essential flaw in the Minister’s position is that all he is referring to is a report in five years’ time after the passage of this Bill whereas my amendment says

25 Mar 2014 : Column 465

that legislation should be introduced in roughly that time and before we trigger upstream competition. That means that they are complementary; that means that the timescales are in line. The danger is that if we miss that early in the next Parliament commitment, they will be seriously out of line; and if we wait for the parliamentary report before we legislate, they will also be seriously out of line. Therefore, that essential commitment to wait until legislation is there is missing from the otherwise admirable amendment that he is proposing today.

This is so important that all parties need to be reassured that we have complementarity as an objective but complementarity along both tracks in the way in which we proceed. It is therefore with some regret that I would like to test the opinion of the House on this matter.

4.58 pm

Division on Amendment 41

Contents 192; Not-Contents 271.

Amendment 41 disagreed.

Division No.  1

CONTENTS

Adams of Craigielea, B.

Adonis, L.

Afshar, B.

Ahmed, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Bach, L.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Billingham, B.

Boothroyd, B.

Borrie, L.

Bradley, L.

Bragg, L.

Broers, L.

Brooke of Alverthorpe, L.

Brookman, L.

Brown of Eaton-under-Heywood, L.

Browne of Belmont, L.

Browne of Ladyton, L.

Campbell-Savours, L.

Carter of Coles, L.

Chandos, V.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Crawley, B.

Cunningham of Felling, L.

Davies of Coity, L.

Davies of Oldham, L.

Davies of Stamford, L.

Dean of Thornton-le-Fylde, B.

Desai, L.

Donaghy, B.

Donoughue, L.

Drake, B.

Dubs, L.

Elder, L.

Elystan-Morgan, L.

Erroll, E.

Evans of Temple Guiting, L.

Evans of Watford, L.

Falkland, V.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Filkin, L.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Gale, B.

Gibson of Market Rasen, B.

Giddens, L.

Golding, B.

Gordon of Strathblane, L.

Goudie, B.

Gould of Potternewton, B.

Grantchester, L.

Grenfell, L.

Grocott, L.

Hanworth, V.

Harris of Haringey, L.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Haughey, L.

Haworth, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollick, L.

Hollis of Heigham, B.

Howarth of Breckland, B.

Howarth of Newport, L.

Howells of St Davids, B.

Howie of Troon, L.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Hunt of Chesterton, L.

Hunt of Kings Heath, L.

25 Mar 2014 : Column 466

Irvine of Lairg, L.

Jay of Paddington, B.

Jones, L.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

Kerr of Kinlochard, L.

Kidron, B.

King of Bow, B.

Kinnock of Holyhead, B.

Kirkhill, L.

Knight of Weymouth, L.

Laming, L.

Layard, L.

Lea of Crondall, L.

Liddell of Coatdyke, B.

Lipsey, L.

Lister of Burtersett, B.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

McKenzie of Luton, L.

Mallalieu, B.

Mar, C.

Martin of Springburn, L.

Masham of Ilton, B.

Massey of Darwen, B.

Maxton, L.

Mendelsohn, L.

Mitchell, L.

Monks, L.

Moonie, L.

Morgan, L.

Morgan of Drefelin, B.

Morgan of Ely, B.

Morgan of Huyton, B.

Morris of Aberavon, L.

Morris of Handsworth, L.

Morris of Yardley, B.

Morrow, L.

Noon, L.

Nye, B.

O'Neill of Clackmannan, L.

Parekh, L.

Patel, L.

Patel of Blackburn, L.

Patel of Bradford, L.

Paul, L.

Pendry, L.

Pitkeathley, B.

Plant of Highfield, L.

Ponsonby of Shulbrede, L.

Prescott, L.

Prosser, B.

Puttnam, L.

Quin, B.

Radice, L.

Ramsay of Cartvale, B.

Rea, L.

Reid of Cardowan, L.

Rendell of Babergh, B.

Robertson of Port Ellen, L.

Rooker, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scotland of Asthal, B.

Sherlock, B.

Simon, V.

Smith of Basildon, B.

Smith of Gilmorehill, B.

Snape, L.

Soley, L.

Stern, B.

Stoddart of Swindon, L.

Stone of Blackheath, L.

Symons of Vernham Dean, B.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Temple-Morris, L.

Thornton, B.

Tomlinson, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Uddin, B.

Wall of New Barnet, B.

Warner, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Wilkins, B.

Williams of Baglan, L.

Williams of Elvel, L.

Wills, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.

Young of Norwood Green, L.

NOT CONTENTS

Aberdare, L.

Addington, L.

Ahmad of Wimbledon, L.

Alderdice, L.

Allan of Hallam, L.

Anelay of St Johns, B. [Teller]

Armstrong of Ilminster, L.

Arran, E.

Ashdown of Norton-sub-Hamdon, L.

Ashton of Hyde, L.

Astor, V.

Astor of Hever, L.

Attlee, E.

Bakewell of Hardington Mandeville, B.

Balfe, L.

Barker, B.

Bates, L.

Bell, L.

Benjamin, B.

Berridge, B.

Bew, L.

Bichard, L.

Black of Brentwood, L.

Blencathra, L.

Bonham-Carter of Yarnbury, B.

Borwick, L.

Bourne of Aberystwyth, L.

Bowness, L.

Brabazon of Tara, L.

Bradshaw, L.

Bridgeman, V.

Brinton, B.

Brooke of Sutton Mandeville, L.

Brougham and Vaux, L.

Browning, B.

Buscombe, B.

Byford, B.

Caithness, E.

Cameron of Dillington, L.

Campbell of Surbiton, B.

25 Mar 2014 : Column 467

Carlile of Berriew, L.

Carrington of Fulham, L.

Cathcart, E.

Chalker of Wallasey, B.

Chester, Bp.

Chidgey, L.

Cobbold, L.

Colville of Culross, V.

Colwyn, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Craig of Radley, L.

Craigavon, V.

Crickhowell, L.

Cumberlege, B.

Dannatt, L.

De Mauley, L.

Dear, L.

Deighton, L.

Denham, L.

Dholakia, L.

Dixon-Smith, L.

Dobbs, L.

Doocey, B.

Dykes, L.

Eaton, B.

Eccles, V.

Eden of Winton, L.

Elton, L.

Empey, L.

Falkner of Margravine, B.

Faulks, L.

Fearn, L.

Feldman, L.

Finkelstein, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freeman, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Geddes, L.

German, L.

Glasgow, E.

Glenarthur, L.

Glentoran, L.

Gold, L.

Goodhart, L.

Goodlad, L.

Grade of Yarmouth, L.

Greengross, B.

Greenway, L.

Grender, B.

Griffiths of Fforestfach, L.

Hameed, L.

Hamilton of Epsom, L.

Hamwee, B.

Hanham, B.

Hannay of Chiswick, L.

Harries of Pentregarth, L.

Heyhoe Flint, B.

Higgins, L.

Hill of Oareford, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Hollins, B.

Holmes of Richmond, L.

Hooper, B.

Horam, L.

Howard of Lympne, L.

Howe, E.

Howe of Aberavon, L.

Howe of Idlicote, B.

Humphreys, B.

Hunt of Wirral, L.

Hurd of Westwell, L.

Hussain, L.

Hussein-Ece, B.

Inglewood, L.

James of Blackheath, L.

Jay of Ewelme, L.

Jenkin of Kennington, B.

Jenkin of Roding, L.

Jolly, B.

Jopling, L.

Kakkar, L.

Kilclooney, L.

Kirkham, L.

Kirkwood of Kirkhope, L.

Knight of Collingtree, B.

Kramer, B.

Lamont of Lerwick, L.

Lang of Monkton, L.

Lawson of Blaby, L.

Lee of Trafford, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Linklater of Butterstone, B.

Liverpool, E.

Loomba, L.

Lothian, M.

Luce, L.

Luke, L.

Lyell, L.

Lytton, E.

McColl of Dulwich, L.

Macdonald of River Glaven, L.

Macfarlane of Bearsden, L.

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

MacLaurin of Knebworth, L.

Maclennan of Rogart, L.

McNally, L.

Maginnis of Drumglass, L.

Mancroft, L.

Manzoor, B.

Marks of Henley-on-Thames, L.

Marlesford, L.

Mawhinney, L.

Miller of Chilthorne Domer, B.

Miller of Hendon, B.

Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neuberger, B.

Neville-Jones, B.

Newby, L. [Teller]

Newlove, B.

Nicholson of Winterbourne, B.

Northbrook, L.

Northover, B.

Norton of Louth, L.

Paddick, L.

Palumbo of Southwark, L.

Pannick, L.

Parminter, B.

Patten, L.

Perry of Southwark, B.

Phillips of Sudbury, L.

Plumb, L.

25 Mar 2014 : Column 468

Popat, L.

Prashar, B.

Purvis of Tweed, L.

Randerson, B.

Rawlings, B.

Razzall, L.

Redesdale, L.

Renfrew of Kaimsthorn, L.

Rennard, L.

Renton of Mount Harry, L.

Ribeiro, L.

Ridley, V.

Risby, L.

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Roper, L.

Rotherwick, L.

Rowe-Beddoe, L.

Ryder of Wensum, L.

Sassoon, L.

Scott of Needham Market, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharkey, L.

Sharp of Guildford, B.

Sharples, B.

Shaw of Northstead, L.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shipley, L.

Shutt of Greetland, L.

Skelmersdale, L.

Slim, V.

Stedman-Scott, B.

Steel of Aikwood, L.

Sterling of Plaistow, L.

Stewartby, L.

Stirrup, L.

Stoneham of Droxford, L.

Storey, L.

Stowell of Beeston, B.

Strasburger, L.

Suttie, B.

Taverne, L.

Taylor of Goss Moor, L.

Taylor of Holbeach, L.

Teverson, L.

Thomas of Gresford, L.

Thomas of Winchester, B.

Tonge, B.

Tope, L.

Trees, L.

Trefgarne, L.

True, L.

Trumpington, B.

Tugendhat, L.

Tyler, L.

Ullswater, V.

Vallance of Tummel, L.

Verma, B.

Vinson, L.

Wakeham, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Walpole, L.

Walton of Detchant, L.

Warnock, B.

Warsi, B.

Watson of Richmond, L.

Wheatcroft, B.

Wilcox, B.

Williams of Crosby, B.

Williams of Trafford, B.

Willis of Knaresborough, L.

Willoughby de Broke, L.

Wilson of Tillyorn, L.

Younger of Leckie, V.

5.12 pm

Clause 8: Bulk supply of water by water undertakers

Amendments 42 to 52

Moved by Lord De Mauley

42: Clause 8, page 9, line 25, at end insert “, in particular about whether the proposed supply of water would secure an efficient use of water resources, taking into account the effect on the environment of the proposed supply.”

43: Clause 8, page 10, line 33, leave out “40I” and insert “40J”

44: Clause 8, page 11, line 2, at end insert “, in particular about whether the proposed variation or termination of the bulk supply agreement would secure an efficient use of water resources, taking into account the effect on the environment of what is proposed.”

45: Clause 8, page 11, line 37, leave out “40I” and insert “40J”

46: Clause 8, page 12, line 10, at end insert—

“(2A) A code must include provision requiring persons proposing to make, vary or terminate a bulk supply agreement to consult the appropriate agency.”

47: Clause 8, page 12, line 25, at end insert—

“( ) In this section “the appropriate agency”, in relation to a bulk supply agreement or proposed bulk supply agreement, means the body that would be consulted by the Authority under section 40(4) or 40A(2) if an order under section 40(3) or 40A(1) were being considered in relation to the agreement or proposed agreement.”

48: Clause 8, page 12, line 28, at end insert—

“(aa) consult the appropriate agency;”

49: Clause 8, page 12, line 29, after “such” insert “other”

50: Clause 8, page 13, line 30, at end insert—

25 Mar 2014 : Column 469

“( ) In this section “the appropriate agency” means—

(a) the Environment Agency, so far as a proposed code relates to bulk supply agreements to which all parties are persons mentioned in section 40(10)(a)(i) or (ii);

(b) the NRBW, so far as a proposed code relates to bulk supply agreements to which all parties are persons mentioned in section 40(10)(b)(i) or (ii);

(c) both the Environment Agency and the NRBW, in any other case.”

51: Clause 8, page 17, line 37, at end insert—

“40J Duty to provide information about bulk supplies

(1) A supplier under a bulk supply agreement must provide such information as the appropriate agency may request in relation to water supplied under the agreement.

(2) The requirement in subsection (1) is enforceable by the Authority under section 18.

(3) In subsection (1) “the appropriate agency” means the body that would be consulted by the Authority under section 40A(2) if the agreement were to be varied or terminated by an order under section 40A(1).”

52: Clause 8, page 17, line 38, leave out “40I” and insert “40J”

Amendments 42 to 52 agreed.

Clause 12: Arrangements for water undertakers to take water from other persons

Amendment 53

Moved by Lord De Mauley

53: Clause 12, page 46, line 9, at end insert—

“(aa) provision requiring the Authority to consult the Environment Agency, the NRBW or both of them before making an order;”

Amendment 53 agreed.

Amendment 54 not moved.

Amendment 55

Moved by Lord Whitty

55: After Clause 15, insert the following new Clause—

“National affordability scheme

(1) The Secretary of State must, by order, introduce a National Affordability Scheme for water.

(2) The National Affordability Scheme must include an eligibility criteria, determined by the Secretary of State, in consultation with—

(a) the Water Services Regulation Authority; and

(b) the Consumer Council for Water.

(3) An order under this section—

(a) shall be made by statutory instrument, and

(b) may not be made unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.”

Lord Whitty: My Lords, in moving Amendment 55 I will also refer to Amendment 56 in this group.

The Bill covers a wide range of dimensions of our water supply industry and its economic and environmental effects. However, it completely fails to address the social problems of those who face growing water bills and difficulty in facing growing pressures on their

25 Mar 2014 : Column 470

low-income budgets or their family responsibilities. It is estimated that for 11% of our population water bills account for more than 5% of their income, and for 23% of the population they amount to 3% of their income. That is a pretty significant cost. We have to accept that how people pay for water in this country is singularly irrational but also singularly unprogressive.

5.15 pm

The report by Anna Walker a couple of years ago into the non-metered area—although it covered all consumers—where you pay according to your council tax band, found that 40% of low-income families were accommodated in the top four council tax bands, which effectively led to a cross-subsidy that was itself severely regressive. She identified a £600 million cross-subsidy going to more well off families and households and £180 million cross-subsidy going to less well off. We therefore have a net £420 million of the bills of the water industry moving in a severely regressive direction. Nor is all perfect in the metered area, because frequently in those areas subject to voluntary metering it has been those least likely to be dependent on large suppliers of water who have chosen to go for meters.

The totality means that there is a severely regressive structure in how people have to pay their water bills. That is why it was recognised that we need, as we did in energy, some form of social tariff to be introduced in the water sector. Since the 2010 Act, companies have been able to offer social tariffs, and Ofwat has encouraged social tariffs but, as from the beginning of this year, only three companies have introduced them and they have had a relatively small take-up. Even if you add on the WaterSure scheme, which is supposed to be national, for families with disabilities or large numbers of children, fewer than 150,000 at best have taken up social tariffs to mitigate the cost, as against 2 million plus who are paying more than 5% of their income.

Admittedly, the ability to set a social tariff has been relatively recent, but it is still true that only three companies have introduced one. It is claimed that another eight companies are working on social tariffs. The Government want to encourage companies down that road, as does Ofwat—and the companies claim, when you talk to them, that they are working hard to develop those tariffs. But when the current coverage is so small and the likely coverage of any new social tariffs looks like being similar, while we hope to see progress, it appears to be very slow—and it is not likely to be sufficiently inclusive. Companies will develop according to their own demography tariffs that suit their purposes, but will not necessarily corral all vulnerable and low-income families into the ability to choose a social tariff. So we need to speed this up.

My first amendment would set up a national affordability scheme for water, to set minimum standards of social tariffs and coverage of social tariffs. Companies can then within that framework develop their own tariffs, as they are claiming to do at the moment, as long as they meet those minimum standards. It does not require a uniformity of approach but it requires an inclusivity of approach. The details of that scheme will be left with the Secretary of State and officials to devise for secondary legislation, but it would drive

25 Mar 2014 : Column 471

provision and take-up of social tariffs. If companies and Ofwat managed to achieve what they claim are their targets for bringing in social tariffs, it would mean no extra cost to anybody. So if the Government’s objective was achieved, the national affordability scheme would be there simply as a safety net but would not add anything to the cost of other consumers over and above what Ofwat and the Government are attempting to do anyway. However, we need to drive this faster and to see a faster timetable. If companies fall behind in introducing social tariffs, I am afraid that it sounds to me likely that we do need that safeguard—and that safeguard is a driver of an affordability scheme set by the Government.

I hope that the Government take this proposition seriously because it is odd that the Bill does not address the most important aspect of water supply after continuity and availability of supply—that is, cost. This is one way of doing that, the details of which can be left to secondary legislation. It would at least mean that the social dimension of the sustainability and resilience of the water industry is covered as well as the environmental and economic ones.

My second amendment requires companies to inform all consumers, both metered and unmetered, of the range of available tariffs and to advise them on the most appropriate tariff for their needs, as is now the situation with energy companies. That applies to all consumers, not simply the more vulnerable ones. As we develop new tariffs, clearly there will be more of a choice to be made by government, particularly as regards meters.

As I say, I hope that the Government take this proposition seriously because a growing number of people suffer from something close to water poverty in the same way as millions suffer from fuel poverty. Successive Governments have attempted to do something about fuel poverty in various ways but have never seriously pushed the water poverty dimension. However, a lot of people, particularly large families, those in water-stressed areas, people with disabilities, or elderly people in financial difficulties face very serious social problems.

A national affordability scheme is a limited measure which would, however, drive all companies to take up their responsibility to look after their more vulnerable consumers rather more than they have done hitherto. I beg to move.

The Earl of Selborne: My Lords, I am sure that we are all sympathetic to the proposal of the noble Lord, Lord Whitty, to protect vulnerable consumers from the escalating costs of water. Clearly, it is difficult for some people to budget for something that accounts for 5% of their income.

However, before we look at setting up another national scheme, we need to understand why water can account for such a large proportion of people’s budgets. The first thing we have to do is recognise that as well as the “can’t pays” there are the “won’t pays”. The “won’t pays” are those who recognise that it is impossible for them to be deprived of water. People have a right to water whether or not they pay their bill. The expense incurred by water companies chasing

25 Mar 2014 : Column 472

those who will not pay but are perfectly capable of doing so in the small claims courts often leads to a long, inefficient drag on resources. It would be interesting to know the national figure for those who fail to pay when their income level is deemed perfectly reasonable. Perhaps the Minister has that figure available.