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Baroness Grender
To ask His Majesty’s Government what steps they are taking to ensure that fines paid by water companies are used to repair the damage done by sewage pollution.
Baroness Grender (LD)
My Lords, I thank the vast number of Peers participating in this debate. Some, having discussed culture, felt a bit too squeamish to stay for this debate, which I understand.
In particular, I thank the Minister for responding, particularly given all the discussions already held in the context of the Water (Special Measures) Bill and the various attempts by others, including by Liberal Democrat colleagues, such as Tim Farron MP in the other place and my noble friends Lady Bakewell of Hardington Mandeville and Lord Russell, as well as the noble Duke, the Duke of Wellington, and the noble Baroness, Lady Jones, to put a water restoration fund in the Bill. It is the principle of ring-fenced spending of fines to clear up the mess that we will explore in this debate, while acknowledging the real progress of the Bill, which contains so many things, including, for example, the addition of an environmental duty for Ofwat.
I appreciate the Minister responding to this debate, but perhaps wonder whether she could have put her feet up and instead insisted on leaving this debate to colleagues who answer for the Treasury. If the media reports are correct, it is the Treasury that has blocked the progress of the first wave of applications for the water restoration fund and that needs to explain why that is and what the implications are for other fines and clean-up funds.
Regardless of the discussions around the Bill, there remain some central questions I would like to explore today, prompted by two articles in the Guardian by Sandra Laville, Rowena Mason and Helena Horton. In both articles, the first on 19 January, the second on 22 January, it would appear that the Treasury intends to keep all fines, rather than use them to restore our rivers, lakes and coastlines. The articles go on to reveal that the small sum of £11 million is delayed. It is a small sum but a very important one to many organisations that want to help return our polluted rivers and seas to their natural state.
No doubt, the Minister is well aware that £11 million is less than 0.1% of the much talked about £22 billion black hole. I focus on that sum, which is small for a Government but large for charities and community groups, because of what it suggests will happen next with other fines and future funding. I appreciate I am labouring the point about it being only £11 million, which, of course, is much less even than the recent £168 million in fines to Thames Water, Yorkshire Water and Northumbrian Water for pollution breaches—and doubtless it is those very large sums that have caught the eye and perhaps imagination of the Treasury.
How will the Government meet the principle that the polluter pays if the fines to water companies are not used to repair the damage done by sewage pollution? Will the fines be used for the clean up? I particularly ask the Minister to answer why the first wave of funding for the Water Restoration Fund has been delayed for six months, leaving in limbo all the small charitable and community organisations which are willing and ready to help. What are the implications for future projects such as this? I thank the Wildlife Trusts, the Rivers Trust and the Lords Library for their briefings for this debate today.
The Liberal Democrats recognise the significant sewage pollution legacy that this Government have inherited from the previous Government. I am sorry to pull us back to creative industries once again, but if anyone has seen the recent superb Channel Four docudrama “Brian and Maggie” with key long-form interviews of Prime Minister Thatcher by journalist Brian Walden, they will recall that the water companies and their current state are clearly part of the Thatcherite legacy and—for the avoidance of doubt—not in a good way. At the time of their privatisation, the water companies were debt free but 35 years later they are mired in debt with borrowing that has grown to £68 billion with scandalous payouts of dividends to shareholders of an eye-watering £78 billion—easily more than three times the Government’s current black hole—with negligible levels of investment. I look forward to the speech from the noble Baroness, Lady Jones, who will, I think, talk a bit about the current legal proceedings being taken by our colleague Charlie Maynard MP against Thames Water.
These debts and payouts have all happened while these water companies have presided over the biggest scandal of all: the often illegal and regular dumping of sewage. There were, for example, 1.5 million uses of storm overflows for a total period of over 11 million hours from 2020 and 2023. Indeed, in 2023, sewage spills into England’s rivers and seas more than doubled, leaving our natural environment and unique features such as our chalk streams struggling to survive and an Environment Agency without the financial and regulatory strength to act.
The Labour Party promised in its 2024 general election manifesto to put failing water companies under special measures to clean up water but, to do that, they surely need to use the fines and see through the applications from local communities to help. The Water Restoration Fund was set up in 2022 and Defra at the time said:
“ringfenced funds will go to Defra and will be invested directly back into environmental and water quality improvement projects”.
I refer the Minister to the letter written to the Minister, Emma Hardy MP, on 31 January by the Rivers Trust which asked why she has criticised the scheme for achieving nothing, given that this Government had not allocated the grants at that point. The trust said:
“The fact is that not a single penny of the Fund has been allocated to projects; decisions on round one funding were expected in July, but despite consistent requests for more information, the Rural Payments Agency has not been in contact with applicants for months. This is not simply a legacy of the previous Government, as decisions have remained outstanding for 6 months of the new Labour Government’s tenure”.
In Tim Farron MP’s constituency of Westmorland and Lonsdale, local charities are ready to be put to work, including the South Cumbria Rivers Trust, the Save Windermere and Clean River Kent groups, and the Eden Rivers Trust. Luke Bryant, assistant director of the West Cumbria Rivers Trust, has applied for two projects worth about £260,000. He told the Guardian that the cost to his organisation to prepare the bids had been substantial and said:
“This is a small amount of money for the Treasury. It has not been raised from taxpayers. It has come from fines for environmental damage water companies have caused, if money is not spent at local level on environmental restoration it would go against what people were led to believe was going to happen”.
Another scheme quoted in the Guardian is Supporting Wounded Veterans, which was waiting for news of two bids, for £250,000 in total, from water company fines. Both projects were due to start last summer. One of the schemes—still waiting—involves supporting six veterans who are suffering from PTSD and intend to work on a restoration project on the River Dart in Devon. The veterans have already received the training, but the whole project is now on hold. In the words of the CEO:
“There is outrage that this money could now go to the Treasury. It is a total breach of trust by the government”.
What will happen with future fines and will the polluter, in the end, pay? If the Treasury keeps these fines, the inevitable answer is surely that the polluter has been let off the hook. Local communities will not be funded, while the taxpayer and water consumers will end up either paying off government debt or having increased water bills. I have not come empty-handed but will hand over to my noble friend Lord Russell, who will lay out a possible compromise for the Minister, on what is quite a vexed and difficult issue, through the commission. I ask the Minister to strongly consider the option that he will put in front of her.
While Minister Emma Hardy has made it clear that a final decision will be made on water company fines and penalties, and water improvement, in the spending review, it is already clear that the Minister here has a great understanding of the urgency of this matter. She recognises that our polluted rivers, lakes and seas simply cannot wait. As Wildlife and Countryside Link puts it
“the restoration of Treasury control over water company fines would mark an environmental regression”.
I hope that the Minister, in her response, will be able to reassure us that, on this, the polluter in the end will pay.
Lord Browne of Ladyton (Lab)
My Lords, it is a pleasure to contribute to today’s proceedings and an equal pleasure to follow the opening speech of the noble Baroness, Lady Grender. I am as interested as she is in the questions that she has posed to my noble friend the Minister, whom I am glad to see in her place. I am grateful also to the noble Baroness for affording your Lordships’ House a fresh opportunity to examine this question and to my noble friend Lord Sikka, who is unable to be in his place today, for providing me with some briefing materials on this subject. Characteristically, they anatomise forensically the behaviour of water companies and the regulator over the last few years in respect of the public, government and, it would appear, their own self-interest.
As I told your Lordships’ House yesterday in another context, earlier this week I was witness to an exchange on the UK’s priorities in respect of national security. One party to the conversation asked the other for an assessment of the UK’s highest priority challenges in the current geopolitical context. The latter, an expert on national security, responded by asserting strongly that we live in an age of impunity. To some extent, that phrase reflects a wide and growing public sense that many water companies are acting on just that basis too.
We heard some statistics from the noble Baroness, Lady Grender, but perhaps I may add to them. Since privatisation in 1989, customer bills have risen by 363%. Between £52 billion and £85 billion has been paid in dividends, while the same companies paying out to shareholders have accrued what I thought was about £70 billion in debt—I now know that it is exactly £68 billion. But this debt is not the consequence of investment into infrastructure; no new reservoirs have been built while this industry has been in private hands, for example, but that is only one of many condemnatory statistics.
That is the context in which your Lordships’ House is debating this subject today and in which fines of £168 million against Thames Water, Northumbrian Water and Yorkshire Water were proposed by Ofwat on 6 August last year. As my noble friend Lord Sikka mentioned in his Oral Question on 29 January, there are two key contextual factors in assessing the proportionality of that response. The first is that these three companies have over 400 criminal convictions between them, and the second relates to the fact that these fines were proposed rather than imposed. It is difficult to imagine another context in which three individuals or organisations with a record of such malfeasance would be permitted to negotiate the extent and timing of their punishment.
I understand that there is a process and legislation which Ofwat must follow, which my noble friend the Minister alluded to in her response to my noble friend Lord Sikka’s Question, but surely we must consider changing that process and the provisions that mean that Ofwat and a company in breach of its obligations can reach a regulatory settlement. A promise of future good behaviour and compliance is surely difficult to accept in lieu of a fine, given that all precedents suggest that these companies have acted, as their criminal conviction rate shows, with blithe impunity. I count myself an optimist, but as Disraeli once said:
“A precedent embalms a principle”.
All precedents suggest these companies are careless of their obligations, have a record of putting the interests of their shareholders above those of their customers and have neglected the environment and infrastructure for which they are responsible and on which we depend.
I will close my brief remarks with two specific questions for my noble friend the Minister, but before I do that, I will say that I am with those who believe that any fines, when actually levied and collected, should be channelled into a hypothecated fund, whether the Water Restoration Fund or something similar, in line with the “polluter pays” principle. I understand the pressure on public finances—I was the Chief Secretary for a period of time—and the temptation to divert this money towards the Treasury, but this money is badly needed to undo the damage done by the mismanagement and irresponsibility of the water companies.
I have a short question from my noble friend in relation to this. I know from public sources the record of proposed fines. How much money has actually been collected from fines since this process started? This is an issue of public equity. These companies are leveraging the strength of their own self-inflicted weakness. Companies, including Thames Water and South West Water, pollute our waterways, mismanage themselves to the point of financial collapse, demand permission from Ofwat to increase bills by 44% and simultaneously announce their decision to increase dividend payments to shareholders. That sounds to me more like corrupt self-indulgences by the medieval church than a modern industrial practice.
In closing, I ask my noble friend the Minister two further questions. First, during the passage of the Water (Special Measures) Bill, the Secretary of State said that the Government will
“ban bonuses if water company executives fail to meet high standards”.—[Official Report, Commons, 16/12/24; col. 79.]
Last week, Thames Water said it will circumvent that ban by increasing basic executive pay. What is the Government’s response to that, and how will they enforce any ban? If I understand the answer my noble friend the Minister gave to that Question when asked at col. 253, the responsibility for ensuring that bonuses are not paid or performance is poor lies with Ofwat. Is she able to point to any occasion when that power has been exercised against a poorly performing company? How do the Government intend to ensure that this sanction is not circumvented by simply increasing executive basic pay?
Secondly, do the Government have any plans to end the practice whereby, in lieu of a fine, a company can agree a package of investment which has the ancillary benefit of increasing the value of the company itself and results in increased dividend packages for shareholders?
Baroness McIntosh of Pickering (Con)
My Lords, I congratulate the noble Baroness, Lady Grender, on securing this debate, and I am delighted to follow the noble Lord, Lord Browne. I welcome the Minister as ever to her position. I am delighted that the noble Baroness, Lady Grender, has given such a warm welcome to the outgoing Conservative Government’s Plan for Water and the water restoration fund. I declare my interest as on the register: I am an honorary vice-president of the Association of Drainage Authorities; and I co-chair the All-Party Parliamentary Group for Water.
We were fortunate enough to hear this week from Sir Jon Cunliffe, who has been charged by the Government to produce a report for the water commission by the end of June this year, and I very much look forward to his conclusions. In the meeting of the All-Party Parliamentary Group for Water, he told us that the model that was introduced by the then Conservative Government for water privatisation factored in a level of debt, and I think that is something to which he will refer. He has not been asked to review the water privatisation model in that sense of nationalising the water sector, and I think we should recognise that in the debate today.
I repeat my request to the Minister: when does she imagine that Schedule 3 of the Flood and Water Management Act 2010 will be introduced, so that there will be an obligation for all major new developments to have sustainable drains? That will help the situation and reduce flooding.
Some of the project bids invited by the previous Government are still on the table. For example, farmers were invited to make environmental improvements to prevent flooding downstream by slowing the flow, as we saw in Pickering in North Yorkshire, by creating dams, including by planting and felling trees. Can she confirm that such projects will benefit?
As I had long called for them, noble Lords can imagine my welcome for the Plan for Water and the subsequent launch of the water restoration fund as precisely the types of measure that would benefit farmers and local communities under ELMS and other schemes such as the SFI. A number of groups applied for these schemes to bolster their capacity and capabilities to deliver such on-the-ground projects, and they were invited to put forward bids by June 2024.
They were applied for by farmers and landowners—I imagine in Yorkshire, Northumbria and other parts of the country—but they never heard any more. Can the Minister say what has happened to those projects? As the noble Baroness, Lady Grender, asked, what has happened to the water restoration fund? Farmers, landowners and the environmental organisations working with them were led to believe that these were just the types of projects that the water restoration fund was meant to help.
I have read only the one report in the Guardian to which the noble Baroness, Lady Grender, referred, but if these reports are to be believed, it would be entirely inappropriate for the Treasury to hijack these funds and allocate them to other—I am sure very worthwhile—causes. The fact is that, as the Minister will know, it takes time, resources and money to put a bid in for such schemes as the projects invited through the water restoration fund did. They were invited in good faith to put in these bids in April 2024. I understand that the bids closed in June 2024. They were very exciting bids; they ticked a number of boxes for wildlife and the environment, and they were also appropriate to be conducted by farmers and landowners.
I have long believed that, if the ELM and SFI schemes and the water restoration fund are to work successfully, they should benefit local communities and reward farmers for the work they are already doing. The noble Baroness will be aware of the work of drainage boards in low-lying areas such as Lincolnshire, North Yorkshire, possibly Cumbria and other parts of the country.
It sends out a very bad message from Parliament if one Government invite people to apply for these schemes and the next Government then do not allocate the money. I hope the Minister might be able to share the Government’s thinking in this regard and can confirm that these schemes are still viable and may still go ahead in short order this year.
Baroness Jones of Moulsecoomb (GP)
My Lords, I congratulate the noble Baroness, Lady Grender, on this very topical Question. It is such a pleasure to see a Labour colleague, a Lib Dem colleague, a Conservative colleague and, I have no doubt, a Bishop colleague standing up and saying things that I completely agree with—it is so rare.
I am going to take a slightly different tack from my colleagues. It is very hard to convey the anger felt by not just hundreds of thousands but millions of people at the mess the water companies have made over the past 30 years. I say “mess”, because that is what the public have had had to deal with. This is about sewage-filled seawater, dirty beaches, polluted rivers, chalk stream ecosystems destroyed and sometimes even E. coli in our water supply. Of course, water companies have been amazingly efficient at siphoning off money for shareholders and employees. But this week, the public are fighting back.
I will focus on Thames Water, not least because last week I had a letter from it demanding £19 extra per month on my bill to pay for the work it should have been doing over the past decades and has not done. But my anger with it pre-dates that by quite a long way. Thames Water has £17 billion of debt and is at the centre of a public backlash against Britain’s privatised water industry, which created monopolies, so customers have no choice. It has increasingly polluted our environment with sewage amid justified accusations that profit has been prioritised over the environment.
Windrush Against Sewage Pollution is one of 34 clean river groups involved in a legal challenge in the High Court this week, in an attempt to push for temporary nationalisation of Thames Water. Obviously, I strongly support this. In court, the campaign groups will argue that Thames Water should be put into a government-handled special administration. The court hearing will decide whether to approve the £3 billion in emergency funding that Thames Water has been allowed so far. The judge will hear campaigners argue that the emergency loan will be far too costly for customers. I would add: why should we pay twice for goods and services that we have not had? Again, let us remember that Thames Water already has a debt of £17 billion.
The High Court judge will also hear from Britain’s biggest water supplier and groups of rival creditors on Monday before deciding whether to approve the rescue of this close-to-bankrupt company. Without the debt lifeline, Thames Water has said it could run out of cash by March. Last month, Thames Water was granted Government approval to seek the £3 billion cash loan, which the troubled company said was crucial to ensure that it had enough money to stave off temporary nationalisation.
Clean river campaigners led by Charlie Maynard, the Liberal Democrat MP for Witney, have made a written submission to the court. The case is closing today, with the decision in mid-March. Charlie Maynard, whose constituency has been at the centre of mounting anger over raw sewage pollution being pumped into the River Windrush, is backed by other MPs in the water company region, and 28 parish councils. Maynard said in the submission that he was opposed to the restructuring plan in the interests of the company’s 16 million customers and argued that servicing the emergency fund would not be financially sustainable in the mid or long term for the company, and that it did not make appropriate provision for the company to fulfil its legal obligations to provide water and sewerage services and not to pollute rivers. Ultimately customers will be forced to pay for the emergency loan, which comes with a 9.75% interest rate—absolutely staggering.
Thames Water said it was confident that its plan would succeed as it had the backing of creditors holding more than 90% of its secured debt, despite opposition from a group of much lower-ranked creditors. The judge must decide whether the dissenting creditors would be no worse off in the most likely alternative to the plan, which Thames Water has said is that the company is placed in special administration. Under government proposals, Thames Water would get access to additional funding, cash reserves and debt extensions, giving it breathing space to secure its survival in the long term. A lot of people would say that it did not deserve that, and that it actually deserves to go bankrupt.
Evidence provided to the court by Dieter Helm, professor of economic policy at Oxford University, said that Thames Water had failed on the capital maintenance of its assets and had
“profit maximised by gearing up its balance sheet at the outer limits of what was sustainable”.
He added:
“Thames used the balance sheet to mortgage the assets and pay out the proceeds in special dividends and other benefits to shareholders”.
Then, only today, another Thames Water fail: bottled water is being delivered to homes in parts of Surrey, after residents have been left without water. Supply problems in the area are said to have been caused by “multiple bursts” on the same pipe. People in that area may have low pressure or no water, Thames Water has said. In its latest update, it said:
“We remain on site, working to fix the pipe that has been damaged during the bursts”.
That is a considerate statement to its customers, who are quite used to it failing them completely. But it has promised that
“additional supplies of bottled water are available”.
There is absolutely no doubt that Thames Water did this damage, so presumably it has to pay to clean it up—in which case, the money that it pays in fines really has to go to the clean-up. It is not possible to repair all the damage to nature and people, because ecosystems have been destroyed. I really hope the Minister can explain to the Treasury just how annoyed millions of people are that this has not yet happened.
I very much support the whole idea of the restoration fund, and I hope that this Government go for it.
The Lord Bishop of Norwich
My Lords, I am grateful to the noble Baroness, Lady Grender, for securing this timely debate. It is a scourge on us all that sewage pollution is damaging so many of our watercourses and coastlines—damaging their ecosystems but also our enjoyment of them. I remember my first experience of such pollution when, as a young lad, I caught sticklebacks in my hands from the ditches around our Yorkshire village. One day, I went to my usual place of good stickleback hunting to find it putrid, with a storm drain leaking sewage and items—at the time, I did not understand what they were—floating in the ditch. The sticklebacks were gone for over a year.
The Rivers Trust reports that none of our rivers are now in good overall health. Its 2024 report, State of Our Rivers, notes that 54% of our nation’s rivers are impacted negatively by the water sector, mainly through sewage effluent. Surfers Against Sewage reports that there were 604,833 discharges of raw sewage into UK waterways in 2023, with the water in 75% of UK rivers posing a serious risk to human health. A BBC investigation 18 months or so ago found that three water companies illegally discharged sewage on dry days. Thames Water, Wessex Water and Southern Water collectively released sewage in dry spills for 3,500 hours in 2022. All three spilled on the hottest day on record.
Surely, with the right effort and the right pride in the boardroom and among shareholders and the workforce—and with the right investment in infrastructure—none of this needs to be the case. The American poet and writer Wendell Berry gave a twist to the golden rule, suggesting:
“Do unto those downstream as you would have those upstream do unto you”.
Boardrooms should perhaps have that as their inspirational quote on the wall.
So, as well as stopping the sewage pollution, the fines must be used to restore our rivers and damaged habitats. We need the polluter pays principle to be taken incredibly seriously, with the right level of fine, not only to prevent but to give enough funding directly through grants—to farmers, communities and conservation groups, as we have heard—to restore our rivers and damaged habitats and to enable our watercourses to begin to thrive again with the right interventions. It has been argued that it is cheaper to pay the fine after a discharge than to do the right thing in the first place. But the cycle of polluting, fining and restoration—and polluting again, fining again and restoring again—will not ultimately enhance our aquatic ecosystems, and it will do us, as people, no good at all.
As well as the fines, we need to embed culture change and good leadership. Allowing sewage pollution should be as damning an indictment on those responsible as not taking seriously their health and safety duties to their staff or the contamination of drinking water. There needs to be a culture of pride in our boardrooms to compete to have the least sewage released among their competitors. Investors need to take pride in supporting having the right infrastructure in place and the right investment in infrastructure, not in maximising financial returns at the expense of the environment.
St Francis of Assisi gave water a priority in his great canticle, “Song of Brother Sun”. He wrote:
“Thou flowing water, pure and clear,
Make music for thy Lord to hear,
Alleluia, Alleluia”.
When we finally take sewage pollution seriously, we might be able to add our own Alleluia. Until then, will the Minister agree with me that the choking of our river courses with sewage and swimmers and surfers dodging floaters need not only our lament but a culture change in the industry to give the highest protection to the intrinsic value of our nation’s seas, lakes, lochs, streams and rivers, those liquid threads of the water of life that wind their way through our landscapes and memories?
Lord Berkeley (Lab)
My Lords, it is a great pleasure to follow the right reverend Prelate. I do not think some of his quotes would apply to the beaches and rivers of Cornwall. They are a mess. I do not think South West Water knows the difference between a storm water pipe and a sewage pipe because it does not seem to be able to act on it.
I have a quick question for the Minister. South West Water is planning to build a desalination plant in Par because there is not enough water around. Noble Lords might laugh because it rains a lot in Cornwall, but apparently this desalination plant will solve all the freshwater problems. Why is South West Water allowed to spend a lot of money on building a desal plant, which could have serious effects on the marine and air environment and, of course, consume a lot of electricity, when it cannot even spend the money on sorting out the beaches and the drains?
I am told that it is because Ofwat allows water companies to spend as much money as they can find on capital projects, but they are limited on what they can do on maintenance. That seems absolutely crazy, especially in a part of the world where it sometimes rains more than the sun shines. My noble friend might not be able to answer the question because I have only just told her about this, but it would be good to have a letter at some stage to hear whether there are any rules that could possibly dissuade South West Water from building a desalination plant in one of the wettest parts of the country.
Earl Russell (LD)
My Lords, I declare my interests as set out in the register. It is a pleasure to speak in this debate, and I thank my noble friend Lady Grender for bringing it and all who have spoken today. At heart, this debate is about broken promises: broken promises to small and medium-sized charities working to help clean up our polluted rivers, small charities that stand ready to help, that made funding applications in good faith to help undertake the work of beginning to restore our polluted rivers and streams some eight months ago, that have not heard a word back and that have not been treated with the respect that they deserve.
This Government need the good will of the third sector to help meet the challenges coming over the horizon, particularly the 30 by 30 targets. The last election was driven by anger at the wanton pollution of our rivers and streams by water companies that seemed immune to caring and to being held accountable. The noble Lord, Lord Browne, made it clear that these criminal activities have upset everybody, across all sides.
Between 2020 and 2023, England’s water companies used storm overflows more than 1.5 million times for more than 11 million hours. The Labour party’s election manifesto said:
“Labour will put failing water companies under special measures … give regulators new powers to block the payment of bonuses to executives … and bring criminal charges”.
Labour promised automatic and severe fines for wrongdoing, to deliver for nature and, most importantly for this debate, to
“work in partnership with civil society, communities and businesses to restore and protect our natural world”.
Much in the Water (Special Measures) Bill is welcome, but we still have the water commission to come for the longer-term solutions that Labour plans. I thank the Minister for her open and constructive engagement on that Bill. During that debate, I moved an amendment on behalf of my noble friend Lady Bakewell that sought to require all funds from the fining of water companies for environmental offences to be ring-fenced for the water restitution fund and spent on freshwater recovery. I said that,
“the Bill could be used to bolster the water restitution fund—the pot set up by the previous Administration to channel environmental fines and penalties into projects that improve the water environment”.—[Official Report, 30/10/24; col. 1199.]
In retrospect, I should have done more to ensure that we moved that amendment on Report, but I am pleased that we pressured our MPs in the other place to raise it, and I thank Tim Farron and other MPs who spoke on those matters.
I have a huge amount of respect for the Minister. Indeed, I sympathise with the position that she finds herself in today. As my noble friend Lady Grender has already said, it really should be the Treasury that is answerable for this debate today, as it is really the Treasury’s failures that are causing these problems. The Chancellor appears to have forgotten that she is supposed to be the greenest one ever.
It is not difficult to imagine how we got here. The Conservatives brought forward the water restitution fund but failed to impose any fines to make it do anything. Labour then won the general election and brought about legislation that raised the number and the values of fines over time. No doubt, the Treasury had concerns. Worries were probably expressed that if the first tranche of the £11 million promised was paid, that would set a precedent, and that the next tranche of £168 million would need to be paid afterwards, with maybe even greater fines after that. No doubt at some point, paralysis set in, and the argument between the Minister’s department and the Treasury was just not capable of being resolved.
The money involved in the first round of the water restitution fund is only £11 million. The Government did not remove the fund when they came into power, and the applications were made in good faith. I believe this Government are under a contractual obligation to meet those payments. I hope that this debate can help to sharpen the elbows, so to speak, of the Minister in her negotiations with the Treasury, but what we need today is absolute clarity on the £11 million pending in grant payments. Are they going to be paid? If so, when, and if not, why not?
Further forward, of course I would argue that all future funds should be provided to the charities to help with restitution, but I understand that this may not be possible. If there are further issues going forward, I suggest to the Minister that the commission that this Government have set up is tasked with looking at future fines and how those fines should be used, and that, in the meantime, all fines that are levied are made available for the charities that need this money.
This Labour Government need good co-operation with civil society on nature; it is our ally and partner in getting this stuff done. I strongly encourage this Government to think seriously about those working relations and to make that argument to the Treasury because we need this to be done, whether it is action on fly tipping, the protection of our SSSIs or our watercourses.
Finally, can the Minister please say what is happening to protect our chalk streams? Chalk streams should be getting a share of this money. I understand that the chalk stream protection fund is not happening, so can the Minister please say a word about the Government’s plans for the protection of chalk streams and when we will hear something further?
The Earl of Effingham (Con)
My Lords, I thank the noble Baroness, Lady Grender, for securing this important debate. I also thank the noble Baroness, Lady Jones of Moulsecoomb, because she highlighted the work of Windrush Against Sewage Pollution. I had no idea she would make this reference, but the River Windrush runs through the village I live in.
I believe that under our watch we committed to cracking down on pollution by water companies. We continue to work collaboratively and constructively with the Government to help guarantee that the country has effective measures in place both to tackle water pollution and ensure that water companies are properly held to account when they do not abide by the rules.
It will not surprise the Minister to hear that we believe government can always do better, whether that is His Majesty’s Official Opposition or the current Administration. We are proud of our record. We increased the number of storm overflows monitored across the network from 7% in 2010, to 100% today. The Thames Tideway Tunnel is now complete—a £4 billion project that happened because we stood up to opposition to guarantee the scheme by an Act of Parliament.
Aided by improved monitoring, we took firm action against persistent polluters, delivering the strictest targets ever for water companies to reduce pollution from storm overflows. The Environment Agency can now use new powers to impose unlimited penalties for a wider range of offences. On that note, how does the Minister plan to ensure that the Environment Agency will chase all perpetrators? I understand, from a freedom of information request, that there remain outstanding around 465 illegal sewage charges that the Environment Agency is aware of, none of which has led to fines or enforcement action beyond warnings. Will the Minister commit to act on these?
We agree with His Majesty’s Government that much more must be done to tackle water pollution, which is why we have engaged constructively on both their Water (Special Measures) Bill and the wider review and legislation to which they have committed. My understanding is that the wider review will be completed this year and that the Government will bring forward the resultant legislation in 2026. Can the Minister confirm that this is still Defra’s expected timetable?
At this point, I should say that we are disappointed that we have been unable to secure agreement with His Majesty’s Government on the amendment put forward by the noble Lord, Lord Roborough, to strengthen parliamentary oversight of the remuneration and governance rules which will be established under the Water (Special Measures) Bill. I know that my noble friends Lord Roborough and Lord Blencathra will continue to work constructively with the Minister on that.
As mentioned by the noble Baroness, Lady Grender, my noble friend Lady McIntosh, the noble Baroness, Lady Jones of Moulsecoomb, and the noble Earl, Lord Russell, we established the water restoration fund in order to ensure that water company environmental fines and penalties are ring-fenced to directly improve our water system and prevent sewage overflows. Does the Minister agree that the water restoration fund, for spending on freshwater recovery, will help improve the quality of water in the UK? Can she please give a commitment today, as other noble Lords have requested, that all fines levied against water companies will go directly into the fund?
When this was debated in Committee on the Water (Special Measures) Bill, the Minister recognised that it was the previous Government that had established the fund in 2024 but she was unable to give your Lordships’ House more detail because the Government are still working on their spending review. Can the Minister please give the House an assurance that we will not be waiting much longer for these details?
The Environment Secretary from the other place has written to the chief executives and chairmen of every water company, setting out the performance improvements that he expects in 2025. Can the Minister say what percentage benchmark of improvement on sewage spills the Government will insist the water companies have to meet before they face fines and repercussions for non-compliance?
To finish, I thank the Minister for her tireless work to tackle this issue. We look forward to hearing her response on this most important subject.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I am pleased to be able to respond to this Question on the fines paid by water companies. I thank the noble Baroness, Lady Grender, for raising this important matter and noble Lords for their interesting and valuable contributions and suggestions.
As we have heard in this debate, for too long water companies have discharged unacceptable levels of sewage into our rivers, lakes and seas, with 2023 seeing record levels of sewage discharges. We have been absolutely clear that we will not allow poor performance within the water companies to continue. This is why we are taking forward a substantial reform programme to deliver better results for the environment, customers and wider society.
I reassure the noble Baroness, Lady Grender, and others who have raised this that Defra is committed to the “polluter pays” principle. We have taken a number of actions already. In his first week in office, the Secretary of State secured an agreement from water companies and Ofwat to ring-fence money for vital infrastructure upgrades, so that it cannot be diverted to shareholder payouts and bonus payments. We are also placing water companies under special measures through the Water (Special Measures) Bill. I thank the noble Earl, Lord Russell, for his particular support in this debate for that work.
The right reverend Prelate the Bishop of Norwich mentioned the need for culture change, with which we absolutely agree. That is why the Bill is designed to drive meaningful improvement in the performance and culture of the water industry, as a first important step to enabling wider, transformative change right across the sector. I will not go into the detail of the Bill, as we have debated it so recently, and all noble Lords who have taken part are aware of what it includes. Collectively, its measures will provide the most significant increase in enforcement powers for the regulators in a decade. They will give them the teeth that they need to take tougher action against water companies in the next investment period as well as ensuring that they are able to recover costs for a much greater range of enforcement activities. I am afraid that I do not have the detail of those costs and fines at my fingertips.
On top of that Bill, last October, the Secretary of State, in conjunction with the Welsh Government, launched the independent commission on the water sector regulatory system, chaired by Sir Jon Cunliffe. Noble Lords also referred to that today. It is designed to be wide ranging and look at ways to fundamentally transform how our water system works and to clean up our rivers, lakes and seas for good. It is expected to be the largest review of the water industry since privatisation. It will look into many of the concerns that noble Lords have raised today, including those from the noble Earl, Lord Effingham, and my noble friend Lord Browne.
Last month, leading voices from the environment, public health and investment were announced as the new advisory group to the commission. We will publish a call for evidence in the next few weeks to bring in views from all parties on how we can reform. As the noble Baroness, Lady McIntosh, said, Sir Jon has also been meeting with interested groups. As noble Lords have said, we will get a report from the commission by the end of June, which will have recommendations that we can look at how best to take forward. I intend them to form the next piece of legislation that attracts further long-term investment and cleans up our waters for good.
Agriculture, road run-off, physical modifications and chemicals also significantly impact water quality and availability. These huge challenges will require a much broader approach to water management that goes beyond addressing a single issue. The independent commission is going to examine the strategic regulatory frameworks that underpin the water system, including the water framework directive and river basin management plans.
Importantly, the commission will also look at catchment-based approaches. I do not believe that we can resolve this without looking at these approaches to address the full range of demands on the water system and at how we can resolve things in an integrated and holistic way.
The public are, of course, rightly concerned to know where the money that they pay for their water bills is actually going. In December 2024, Ofwat published its final determinations for price review 2024, which sets company expenditure and customer bills for 2025-2030. This will deliver substantial, lasting improvements for customers and the environment, and will bring an approximately £104 billion upgrade for the water sector. This investment will mean clean rivers, seas and lakes across England and Wales. It will also create more jobs and provide more investment. This increased investment will fund the improvement of river water quality by improving more than 1,700 wastewater treatment works. It will also improve or protect more than 15,000 kilometres of rivers across England and Wales. Water companies will also invest £12 billion—a record amount—into improving more than 3,000 storm overflows across England and Wales. This will reduce bills by 45% compared with 2021 levels.
Beyond these measures, since 1 January, water companies are required to publish data relating to discharges from all storm overflows within one hour of discharge. This means that all storm overflows—of which there are more than 14,000 in England—are now monitored, with discharge data being published in near real time. Importantly, this will provide the crucial information that regulators need when they are making their investigations. It will also create an unprecedented level of transparency to enable regulators and the public to see where and how often overflows are discharging, and better enable water companies to be held to account. Combined with the measures in the Water (Special Measures) Bill to require monitoring of all emergency overflows, this will meet the Government’s commitment to ensure the monitoring of every sewage outlet.
Much of the debate was around the future of the water restoration fund. I will ensure that the department is aware of the strength of noble Lords’ feelings on this issue. The noble Baroness, Lady Grender, mentioned a number of specific projects. At this point, I need to declare an interest: my husband is a trustee of West Cumbria Rivers Trust, so I am very aware of local concerns in this area. Again, it enables me to represent noble Lords’ concerns to the department.
I reassure noble Lords that Defra is currently evaluating how water company fines and penalties can be reinvested in improvements to the water environment. We will announce a final decision on this in due course. It is important that the Government do not let companies get away with any illegal activity. Where breaches are found, the Environment Agency must not hesitate to hold companies to account. The regulators, the Environment Agency and Ofwat, have launched the largest ever criminal and civil investigation into water company sewage discharges at more than 2,200 treatment works. The EA has a dedicated team of more than 30 staff working on this. Where companies fail to meet their statutory or licence obligations, Ofwat has the power to take action through an enforcement order or financial penalties of up to 10% of the company’s annual turnover. The cost burden for water company fines is borne by their shareholders, not by charging customers.
I must keep an eye on the time but, before I conclude, there are a few questions I must answer. I thank my noble friend Lord Berkeley for his question but, as he said, I do not have the answer in front of me. I will need to write to him with the detail of the specific issue that he asked about.
The noble Earl, Lord Russell, asked about chalk streams. The Government are committed to restoring chalk streams. We are continuing to invest in priority local projects to restore them—for example, through the water environment improvement fund, the Government are funding more than 45 projects during this financial year to improve chalk streams. This is worth £2.5 million of government investment, and each has an injection of private investment.
We are also committed to ending the damaging abstraction of water from rivers and groundwater wherever possible. Through the Environment Agency’s restoring sustainable abstraction programme, which was launched in 2008, so far a total of 110 licences that would affect chalk streams have been revoked.
The noble Baroness, Lady McIntosh, asked about Schedule 3. This Government are strongly committed to requiring standardised sustainable drainage systems in any new developments. I apologise to her, but I am unable to say more at this stage, other than that a final decision on whether to progress implementation of Schedule 3 at this time will be made in the coming months. I am afraid that I cannot offer any more specific information on that at the moment.
I thank the noble Baroness, Lady Grender, once again for securing this debate. The speakers were not hugely numerous, but the passion was there—it is very important to note that. It is very clear from the regular number of questions and debates that we have in this House—and, no doubt, in the other place as well—that the concerns about the water industry, and the pollution from it, must be government priorities. I assure noble Lords that the Government are absolutely and fully committed to fixing the broken water system that they inherited. I reaffirm the Government’s commitment to ensuring that the damage caused by sewage pollution is repaired.