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Water Industry: Financial Resilience
28 June 2023
Lead MP
Rebecca Pow
Debate Type
Ministerial Statement
Tags
EconomyTaxationAgriculture & Rural AffairsStandards & Ethics
Other Contributors: 26
At a Glance
Rebecca Pow raised concerns about water industry: financial resilience in the House of Commons. A government minister responded. Other MPs also contributed.
How the Debate Unfolded
MPs spoke in turn to share their views and ask questions. Here's what each person said:
Government Statement
Water is essential for health, wellbeing, economy, food production, and clean energy. Since privatisation in 1989, water companies have invested £190 billion. The Government’s plan for water focuses on investment, regulation, and enforcement against pollution. Ofwat, the independent economic regulator, ensures financial resilience and monitors key companies annually. Market confidence is evident through acquisitions like Pennon's purchase of Bristol Water and willingness to inject new capital. Ofwat strengthened ringfencing provisions, barred payouts if a company loses its credit rating, and requires transparency on executive pay and dividends aligning with customer service and environmental performance. In March 2023, Ofwat announced new powers for enforcement against poor dividend-linkage practices. Since privatisation, total capital investment has outstripped dividends by 250%. The Government remain committed to the sector’s financial resilience.
Jim McMahon
Lab Co-op
Oldham West and Royton
Question
Questions Minister’s Department's awareness of Thames Water's financial situation, potential bail-out costs, pension fund liabilities, Ofwat confidence, and concerns about other water companies.
Minister reply
The Secretary of State has full confidence in her Ministers. Debt to equity fell last year by 4%, making the industry more resilient. Since privatisation, capital investment is 84% higher than pre-privatisation levels. Thames Water's financial position is up to Ofwat as it regulates such matters closely with companies facing stress.
Question
Suggests installing stormwater tanks and encouraging homeowners to harvest grey water to buffer heavy rain effects.
Minister reply
Discussions are ongoing with the Department for Levelling Up, Housing and Communities on grey water harvesting. A farmer in Devon collects roof water for animal supply.
Stephen Timms
Lab
East Ham
Question
Asks about the impact on UK pension funds if a major company like Thames Water fails.
Minister reply
Ofwat works with companies to ensure resilience and reports annually. Investment in infrastructure is crucial for customer service, balancing load between customers and investors.
Robbie Moore
Con
Keighley and Ilkley
Question
Asks if Ofwat can clamp down on excessive cash payouts and ensure water companies put their customers first.
Minister reply
Ofwat gained powers in the Environment Act 2021 to hold companies accountable for linking dividends with performance, ensuring sound service delivery.
Karen Buck
Lab Co-op
Vauxhall
Question
The staggering complacency we are hearing from the Minister will come as no comfort to my constituents who were flooded out three years ago in the west London floods, which were the second 100-year event in less than a decade. If Ofwat has been doing such a good job in holding the water companies to account, as she is now apparently telling us, why are we in this situation? What exactly has Ofwat been doing?
Minister reply
It has to be remembered that privatisation occurred in 1989. We have had a succession of different Governments during that time, and it has been this Government who have accelerated clamping down on water companies and opening up transparency. The hon. Lady asks what Ofwat has done, and I will name just a few things. Since 2020, Ofwat has updated the licences so that if a water company loses its investment credit rating, it is barred from making payouts to shareholders. In July 2022, it set out additional proposals to increase financial resilience, including companies having a stronger credit rating. In March, it announced that it would take enforcement actions against water companies that do not link dividend payments to performance. We have done more than any Government before to ensure that we have a fully functioning, strong regulator.
Philip Dunne
Con
Worcestershire
Question
On financial resilience, has the Minister taken the opportunity to consider the hotchpotch of policies coming from Opposition Front Benchers on the subject? Under their prescription, they would seek to take all the profit of water companies to invest in capital expenditure. That would undermine the financial resilience of those companies that rely on private capital for investment in tackling this problem. In the one part of the country where Labour does have responsibility—Wales—has she noticed that the sewerage overflows are almost double the rate per overflow pipe as in England?
Minister reply
I thank my right hon. Friend for pointing that out; I cannot support more strongly what he said. We have a private system, and Ofwat says that it is financially resilient. We need investment in these companies to make them function properly. Obviously, we need to hold the companies to account, but we need to see enormous investment. Everything in the Government’s plan for water, including the storm overflow discharge reduction plan, is fully costed. We are not pulling the wool over people's eyes; we are telling them clearly what this will mean and how it will deliver the water services that we need.
John Cryer
Ind
Leyton and Wanstead
Question
Thames Water, which is on the verge of going under, provides a quarter of the population with their water supply. When was the Minister told about its financial plight? What is the plan if the worst comes to the worst and it does go under?
Minister reply
The hon. Member is right that Thames Water supplies an enormous part of our population. Ofwat has been working closely with Thames Water, as it does all water companies, and the Government work with Ofwat, giving it our strategic policy statement on what its priorities will be. Overall, the water companies are considered resilient, and much work is going on behind the scenes with Thames Water to ensure that customers will not be affected. If necessary, there is a process in place to move us to the next stage.
Robert Buckland
Con
South Swindon
Question
Swindon residents will be concerned about the future of Thames Water, so I ask my hon. Friend please to keep me and colleagues updated on any issues relating to that. Underlying this issue, Labour’s model will clearly never work—we must understand that only the private sector will be able to invest. [Interruption.] Labour Members bleat now, but they did nothing about it when they were in government. Is the point not that where we have in effect a private monopoly, the regulator must be as effective as possible? Will my hon. Friend do everything possible to ensure that Ofwat is working in the full interests of customers? Aspects of its operation do not seem to pass that test.
Minister reply
I thank my right hon. and learned Friend. Thames Water is a big water company that delivers on a wide scale. Ofwat is working very closely with the company on its plans, which will be looked over and submitted, and accounts will be submitted in due course, so that we have a resilient pathway. Customers, including his constituents, should rest assured that both their water and wastewater supplies will be protected.
Clive Efford
Lab Co-op
Eltham
Question
This privatised industry knows that, at the end of the day, the banker of last resort is the British taxpayer. That is exactly where we are with Thames Water, which has been taking profits for the last 35 years and not investing for the future. Regardless of what went on before, we must have investment in what is in front of the industry, but Thames Water has failed to plan ahead. It has taken money but not done the job expected of it while being in charge of such an essential public service. What will the Government do to protect consumers and ensure that we plan ahead for the industry?
Minister reply
Ofwat is the independent regulator and, as the hon. Member will know, the Government direct it through the strategic policy statement. It is Ofwat’s job to ensure that in the price review, when the water companies submit their plans—they are going over the draft plans now—they demonstrate that they will deliver on the Government’s targets on storm overflows, leakage and demand reduction. It is for Ofwat to ensure that companies will be resilient in delivering that infrastructure. There is a firm structure in place. Ofwat also constantly monitors companies’ gearing—debt-to-equity—levels, and the Government are confident that the regulator is taking reasonable measures to challenge companies to reduce those gearing levels where appropriate.
Richard Fuller
Con
North Bedfordshire
Question
About a quarter of the country’s economic output is in sectors under regulators, including the water industry. With Ofwat and in other sectors with Ofgem and the Financial Conduct Authority, we have seen regulators not performing to the standards that the public, or indeed industry, would expect. If we are honest, we in this House and in Parliament do not have the toolkit to assess regulators’ performance on a systemic basis year in, year out. Will my hon. Friend work with ministerial colleagues to see whether we can improve the regular oversight of regulators such as Ofwat so that we can take a more rounded view on such issues, rather than have them come through urgent questions as brought by the Opposition?
Minister reply
I thank my hon. Friend for that. It is essential that we have fully functioning regulators. Since the Government came to power, Ofwat has done an enormous amount to streamline what it does, improve transparency, change licences and make changes so that dividends are not paid if any environmental damage is being caused. The Government have directed that through the strategic policy statement. Indeed, our targets will ensure that the regulator enables the water companies to put the right measures in place. He is right, however, that one should never be complacent, and if things need to be improved through the regulators, they should happen. But I assure him that a big effort is being made.
Seema Malhotra
Lab Co-op
Feltham and Heston
Question
Many of my constituents are hugely worried about reports of Thames Water being on the brink and what that could mean for their bills. Thames Water has been managed appallingly: leaks have not been dealt with, sewage has been continually dumped and the former chief executive officer Sarah Bentley needed to be asked to forgo her bonus. All the while, the Government have been missing in action. Why are the Government yet again running to catch up—nothing in the Minister’s statement gives confidence that they have a grip—with our constituents paying the price?
Minister reply
Where water companies underperform and do not meet their targets, a process is in place whereby basically they have to credit the money back to their customers. Last year, £143 million was credited back in that respect. So the regulator does have the tools to do that. It has tightened up so many of its measures, all of which will affect all the water companies.
Robert Courts
Con
Wantage
Question
The Minister will not be able to comment on Thames Water’s finances in detail, but can she assure my constituents, who will be really worried, that, whatever happens, their day-to-day services will be protected and the much-needed upgrades will still be delivered?
Minister reply
I thank my hon. Friend for that. He is right that customers come first, and Thames Water customers will be assured their water supplies and wastewater services. I am happy to meet him to discuss that.
Munira Wilson
Lib Dem
Twickenham
Question
Residents in Twickenham, Teddington and the Hamptons will be extremely worried to hear that Thames Water is on the brink of collapse, but they are also fed up to the back teeth with this company. Not only does it pump sewage into our precious River Thames, but recently we have seen sewage flooding our streets at times of flooding from rainfall, and there are now plans to pump treated sewage into the Thames at times of drought. That is indicative of the company’s underinvestment in fixing leaks and being stripped to the bare bones while lining executives’ pockets. All the while, the Government have been missing in action and the regulator has failed. Will the Minister back the Liberal Democrats’ proposals to reform water companies into public good companies, transforming their boards and priorities in the interests of the environment and consumers?
Minister reply
I will highlight the Thames super-sewer—it will be ready to open in the not-too-distant future—which is a tremendous project for the people of London, including many of her constituents. We have a privatised system, whose financial resilience, as I have reported, has increased rather than decreased in the last year. These companies attract money from investors so that we can get what we need. The Government have costed plans. The Liberal Democrats have no costed plans for what they suggest they might do with the water companies, nor plans for where the money will come from.
Duncan Baker
Con
North Norfolk
Question
93% of UK coastal bathing waters meet good or excellent conditions, but three blue flag beaches in North Norfolk lost their status due to natural phenomena. The MP seeks assistance from the Minister and the Environment Agency to get these beaches back to blue flag status.
Minister reply
The minister thanked Duncan Baker for raising concerns about bathing water quality and assured him that they will work closely with the Environment Agency on specific cases highlighted by local areas to improve beach conditions.
Andrew Slaughter
Lab
Hammersmith and Chiswick
Question
Many constituents of Andrew Slaughter have little or no water supply, and in previous years hundreds were flooded with raw sewage. Thames Water is failing its customers while rewarding its management and shareholders excessively.
Minister reply
The minister acknowledged the issues faced by Thames Water’s customers but highlighted the government's plan for water to address pollution incidents, water supply problems, and future investment needs.
Angela Eagle
Lab
Wallasey
Question
Water companies started privatisation with zero debt but have since borrowed £53 billion, much of which has been used for dividends. This is leading to over-leveraged companies and potential financial instability.
Minister reply
Rebecca Pow clarified that Thames Water hasn't paid dividends for six years and emphasised the government's actions through Ofwat to regulate company performance and ensure investment in infrastructure.
Question
Water companies, after privatisation with no debt, have borrowed £53 billion largely used for dividends. Southern Water is considering raising bills significantly due to past underinvestment.
Minister reply
The minister defended privatisation as enabling clean water and unlocking investment but acknowledged the need for improvement through regulatory measures such as storm overflow plans.
Question
Water companies have taken on significant debt to fund dividends, and Ofwat's scrutiny of these companies is questioned due to potential conflicts of interest.
Minister reply
Rebecca Pow assured the MP that the government wants value for customers and clean water. She mentioned measures such as a storm overflow plan and increased regulatory transparency.
Clive Betts
Lab
Sheffield South East
Question
Residents on Westfield estate have experienced flooding with raw sewage, and Yorkshire Water is not taking responsibility for clean-up costs.
Minister reply
The minister indicated that water companies are required to invest in infrastructure improvements and offered to meet the MP to discuss this issue further.
Dan Jarvis
Lab
Barnsley North
Question
Does the Minister still think that the current system of regulation is fit for purpose?
Minister reply
Yes, the minister affirmed her belief in the current regulatory framework's adequacy.
Salford
Question
Water companies were privatised with no debt and a green dowry but have since borrowed extensively to fund dividends, leading to increased water bills for consumers.
Minister reply
The minister explained that investment in the industry requires long-term funding secured through debt or equity to avoid drastic bill increases. She highlighted the regulator's role in ensuring system resilience.
Kerry McCarthy
Lab
Bristol East
Question
Companies are considering a 25% increase in bills for their business plans from 2025-30, leading to concerns about value for money and service improvements.
Minister reply
Rebecca Pow assured that all company business plans will be thoroughly scrutinised by Ofwat to ensure infrastructure investment without undue impact on customer bills.
Question
Water monopolies have borrowed extensively for dividends while failing necessary infrastructure investments. If forced into public ownership, should Thames Water remain in public hands?
Minister reply
The minister responded that Ofwat is closely working with Thames Water to ensure the business remains viable and resilient without undue impact on customers.
Richard Foord
Lib Dem
Honiton and Sidmouth
Question
We have seen bonuses and dividends put ahead of investment in infrastructure or maintaining sufficient reserves. Our area of Devon and Somerset is covered by South West Water; the company has paid out £112 million in dividends this year, despite having just £144 million in reserves, which is £2.5 billion less than it had two years ago. This week, a water firm chief executive officer has resigned, but no Conservative Minister has ever taken responsibility. When will a Conservative Minister finally take responsibility and get a grip, or step aside?
Minister reply
As the hon. Gentleman knows, Ofwat has announced new measures to enable it to take action against water companies that do not link dividend payments to performance. That is just not happening. I think he needs to look again at some of the stats he has just quoted, because I think they might relate to the wider Pennon Group. I have just visited South West Water to have a really forensic look at its systems and how it delivers water. That is what we do with our water companies. It is Ofwat’s job to hold water companies to account, and it has just got measures through the Treasury so that it has another £11.3 million to tackle enforcement.
Jim Shannon
DUP
Strangford
Question
I thank the Minister for her answers. We are ever mindful that house building is important, and development opportunities are critical to the future as well, so with developers being charged more and more to connect to the network but facing delays in those connections being installed, what plans does the Minister have to make the connection system for new developments more affordable?
Minister reply
The hon. Gentleman raises an important issue. We always have be mindful of costs, not just to customers through their bills but to developers building houses. We are working closely with the Department for Levelling Up, Housing and Communities on a range of measures and on its planning guidance, so that we can tackle a range of issues connected to water, working with developers on things like rainwater harvesting and sustainable urban drainage systems, which will really help the whole of our water infrastructure.
Shadow Comment
Jim McMahon
Shadow Comment
The Secretary of State's absence is concerning given Thames Water's potential collapse. Last year, £1.4 billion was paid out to shareholders as raw sewage was pumped out across the country. Debt stands at £60 billion. Privatisation allowed vital investment sacrifices for shareholder profit and resulted in leaks leading to shortages, sewage polluting water bodies, and increased debt. The cycle of privatising profits and nationalising risks is unsustainable and unfair. Water infrastructure was sold off entirely without safeguards, unlike rail privatisation. Questions raised include awareness of Thames Water's financial situation, potential taxpayer-funded bail-out costs, pension fund liabilities, confidence in the regulator Ofwat, and concerns about other water companies.
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