25
Examination of witnesses
Thérèse Coffey MP and Davide Minotti.
Q131 The Chair: Good afternoon and welcome to this final session of our inquiry into the water industry and Ofwat. I am delighted to welcome this afternoon the Secretary of State for Defra to give us her take on affairs in the water industry.
We have taken evidence from the regulators, water companies, local communities and activist groups, and we have received a considerable amount of written evidence, which is on our website. It will not surprise you that there is dismay, anguish and, indeed, some anger from all the respondents, not so much the regulators, about the state of our waterways and the apparent failure to get to grips with the problem.
In our conversations with both the Environment Agency and Ofwat, a number of things rather surprised us. It was only two years ago that they started measuring the pollution in rivers, which many local communities have been measuring for a lot longer. They seem to lack a database and be unable to enunciate and implement a series of policies and programmes to rapidly address these problems.
It has become clear to us that these problems are of rather long standing and will take a considerable investment to resolve. It would be very useful to hear your view on how we got to this position. Over the last 10 years, the pollution has got worse. The cries from the public have got louder. Why do you think we have got into this position, and what lessons can be learned? One or two people formerly from the regulators gave us a very candid view of what had happened and what had not, which helps us to think about the future and inform future policy. It would be interesting to get your thoughts, as a relatively new person in this role, on why we have got to this unhappy pass.
Thérèse Coffey: It is a pleasure to come. The scope of the inquiry is supposed to be about the work of Ofwat, not broadly about the water industry. Ofwat has a very specific role in relation to the water industry. You will be aware that, more generally, there is a split with, in effect, Ofwat as the economic regulator, but of course it has a role in the improvement of the environment and quality of water.
It is the regulator that works to some extent in partnership with the Environment Agency in a number of ways. We are seeing that with the ongoing collaboration in a very live investigation, where Ofwat has penalty powers and the Environment Agency has perhaps stronger powers in that it can fine and pursue criminal offences. I cannot comment on those live investigations, partly because I am not involved in them. Rightly, the regulators are doing that.
It is important that Ofwat is also there on behalf of the consumer. On things that are in the WINEP, the plans get worked up. We provide, as government, strategic policy statements to Ofwat on what we want to see, recognising the monopoly status that water companies have.
You will have seen, especially with some of the monitoring that started only within the last 10 years on aspects of pollution, that that has then informed government policy, as that has evolved, to do things. In particular, in the SPS 2022, there was a much stronger emphasis on the environment, building on what had come before. That is what has then led to other duties that we have expected of water companies. Some of it has been legislated for. Again, Ofwat cannot stop the bills being increased for those purposes, where appropriate.
The environmental permitting is a different regulator, the Environment Agency. Then there are two other sets of people involved in the industry: the Consumer Council for Water and the Drinking Water Inspectorate. It is complicated, potentially. I actually think that it works pretty well. You have different regulators for different purposes. It is still important to make sure that they work effectively together, guided by things such as the strategic policy statement and legislation. We then see that reflected in things such as the price review.
There are different ways in which the machinery works together, and I want that to continue. We expect a significant amount of money to come through in the price review. In the price review 2019, it was about £51 billion of capital investment in the end. Just under a billion of that was due to drinking water. The rest was for the other requirements being put on water companies in that way.
The Chair: It seems that the mechanism you have described, which, as you say, has a degree of complexity around it, has failed to make any serious inroads into the pollution problems over the last decade.
Thérèse Coffey: No, not necessarily, because a lot of this was not measured before. It was Lord Benyon, when he was Minister. We do not actually have any data. We could do quite a lot of modelling, I suppose, to work out that change, but it was the awareness. It was what led to Lord Benyon, then Richard Benyon MP, making that requirement to get water companies doing certain measures. We will have the full monitoring outlets by the end of this year. I think that information has to be made public by the end of 2024 or 2025.
That information along the way is what led to government policy, in effect, instructing Ofwat on what to do and the WINEP approach, which Ofwat works through to come up with the investments that can be done. Again, Ofwat will use its different powers. Think about the way it has introduced the DPC model to try to get best value for money. It is in those ways that Ofwat is there to make sure that appropriate investment can go ahead but consumer bills are not overwhelmed.
The Chair: The collection of data to measure the performance of regulated companies is one of the first things that a regulator should do. Certainly MPs were well aware of the problems of pollution that were being complained about by their constituents, so it can hardly be a shock and horror that two years ago they started measuring and, lo and behold, there is too much pollution. This was known about.
Thérèse Coffey: Measuring started to come through, from my recollection, in 2015. We went from about 5% to about 95% now, and we should be complete by the end of the year.
The Chair: Should that not be a term and condition of the licence—that you have to report on whether you are polluting the rivers?
Thérèse Coffey: Perhaps a Labour Government could have considered that in all the time that they were in power. It came to us as an issue. Richard Benyon did something about it and it is coming through. The WINEP is how we use the mechanism for this regulated industry in order to secure different investment.
The Chair: As a department, surely Defra has to consider the wider issues. As you say, planning and statutory documents could be issued. Why were they not?
Thérèse Coffey: They have been issued.
The Chair: Why has nothing happened?
Thérèse Coffey: It has.
The Chair: Pollution is running at the same levels. There was an article in the newspaper yesterday, I think, about 200-odd temporary permits, some of which were issued in 1989.
Thérèse Coffey: That is a question for the Environment Agency, which is a fair question.
The Chair: Are you not the sponsoring department for the Environment Agency?
Thérèse Coffey: Yes, indeed, but, as I say, today’s inquiry is supposed to be about the work of Ofwat. That is where action has been taken, through Ofwat—through strategic policy statements and price reviews—and that is growing. In a separate element, through the Environment Act, there is the storm overflows discharge reduction plan. The Government produced an elimination report and the approach. That is where the progress will be made.
The Chair: I think you have been misinformed about our remit. If you look at the remit for this committee’s work, it says, “The committee will also consider the regulator’s relationship with the Government and other regulators”. The other regulators you are responsible for are Ofwat and the Environment Agency.
Thérèse Coffey: I am explaining the relationship between Ofwat and the Environment Agency, and how they interact. I think they are interacting.
The Chair: It is disappointing that you are not able to give us your explanation as to why Defra has been so ineffective over the last decade.
Thérèse Coffey: I do not think that Defra has been ineffective. It has taken action. We are seeing change. We have opened up the spotlight. It has made it transparent, which is something a Labour Government never did. That is okay. I am not going to blame them for it, but I do not see why a Conservative Government should get the blame for realising that there is a problem, doing something about it and getting on with it.
In terms of how government operates, the relationship between the regulators is there. There is that process. The process has been opened up for more investment, and that is what is happening.
The Chair: You have put your finger on an important issue, which we will explore later. There is a bit of a trade-off between water bills and levels of investment, because that actually goes to the return. The returns that the water companies have enjoyed over the last 20 years have, in the words of some investment analysts, been spectacular, as have the rewards that have gone to the executives that run them.
It is only through one lens that, possibly, this has been managed, which is to keep bills down. We understand why that should be. On the other hand, if it puts at risk the health of the environment and the population because there is not enough investment in clean water, surely that is a bad trade‑off. That is a trade-off that can be made only by Defra.
Thérèse Coffey: There has been an increase of about £170 billion since privatisation. I am not aware that the Labour Government made any changes to that. I do not know; I have not gone back entirely in history to look at how they decided to use their strategic policy statements or similar.
On the dividends aspect, Ofwat came to us a few years ago and asked for elements, which is why, in the Environment Act, powers were given on dividends and similar things. Ofwat identified that it thought there was an issue, the Government agreed and we have acted. It is about taking steps along that way to make those changes, just as the courts upheld that Ofwat was getting on with the job when an external body tried to get a legal case against it and was not successful.
The Chair: Do you not think there was a case for politicians to take a more active interest in this and to try to deal with the concerns of their constituents?
Thérèse Coffey: Yes, absolutely.
The Chair: To be blunt, as far as I can see, Defra has left consumers—to coin a phrase—up shit creek, with little prospect of doing anything or of any remediation over the next 20 or 30 years, because there is a lack of investment.
Thérèse Coffey: I do not think that is true. If you identify different policy statements or different WINEPs, stuff is happening. I appreciate that you might want it to happen at a quicker pace. I understand that entirely, but we are in that situation.
The Chair: Some of the evidence we have taken says that the Government’s storm overflows discharge reduction plan, which I think is what you have been referring to, has been criticised for lacking in ambition and allowing companies to continue discharging sewage for decades to come.
Thérèse Coffey: As you are aware, in the Environment Act it was passed that a stormflow elimination report should be published. That was published by the Government. The estimated cost of that would be about £600 billion, which would be an average of about £850 extra on people’s water bills. We walked through that at the time—I was not the Secretary of State—and came up with the approach that has been given, which will still require, we estimate, about £56 billion of investment to tackle that problem. It is what we have basically legislated for. It is what we have progressed, and work will get under way.
Q132 Lord Cromwell: I would like to talk to you a bit more about money. I have some sympathy with the fact that objectives have shifted over time from cheap, clean water to the environment. That is a fair point to make. As you identified in your letter to us on, I think, 13 January, the cost estimate for eliminating the problem was somewhere between £200 billion and £600 billion, which you describe as completely unrealistic. I do not want to put words in your mouth, but I think that would be a fair summary.
You just mentioned £56 billion. Perhaps we can come back to that. I think, in your letter, you say that £3.1 billion will be spent on storm overflows. One desire of politicians is always instant solutions, and this will take a long time. I would like to know how long it will take to spend that £3.1 billion. I have heard estimates of a couple of decades. That is my first question. My second one, which elides into it, is whether that will be all private money, public money or a blend. If so, how much public money is allocated?
Thérèse Coffey: On the former, the £3.1 billion includes the money that has already been spent by Thames Tideway, which is about £1.9 billion. The £3.1 billion is over 2020 to 2025, so we are looking at aspects coming through. There is an element of a lot of planning to be done on some of this. This is where perhaps Davide could come in with some more detail in that regard. What needs to be done will vary around the country.
In terms of public funding, we shifted some time ago to the model, in essence, of having a consumer bill-driven approach to the funding investment. Of course, financing will be required. We are having discussions, recognising the scale of capital that needs to be invested in this industry more broadly to see the benefits of what happened with the RAB model, which has significantly reduced the cost of financing.
That means that the bills start to have a levy, in effect, before the facilities are available, but I see potential for that, recognising the scale of capital investment that is needed. I do not pretend that the Treasury will give money to do this water infrastructure when we are already spending money in different ways, through things such as flood defences, in our area. There is also capital investment going into our Armed Forces, our hospitals, our schools and so on. I am not going to suggest that the Government will use taxpayers’ money to fund this, but we will continue with the existing model.
Lord Cromwell: Can I clarify, because it is important that people understand this? This will take 20 to 25 years to do. It is not going to be done in this Parliament, to coin a phrase. I am still not quite clear. Perhaps your colleague can explain to us where the £3.1 billion will come from.
Davide Minotti: Good afternoon. I am deputy director for water services in Defra. To clarify the number, the Secretary of State is absolutely right. The £3.1 billion is in this current price review period, covering 2020 to 2024.
Thérèse Coffey: That is just on storm overflows.
Davide Minotti: That includes the £1.9 billion for the London tunnel.
Thérèse Coffey: It is not about other wastewater treatment and so on.
Davide Minotti: The impact assessment for the storm overflows discharge reduction plan indicates £56 billion between 2025 and 2050. Over five price review cycles—the five-yearly processes run by Ofwat—the total amount is £56 billion.
Thérèse Coffey: We have said that we will review the targets again in a few years’ time.
Davide Minotti: Yes, in 2027.
Thérèse Coffey: I am keen—of course, I am—and I expect them to make progress in this. But there is a certain element of having these longer-term capital changes. As I say, the issue will vary area by area on the challenges they face. Some of it is about groundwater table issues. There are other issues. We have announced that we will introduce some sustainable drainage for new buildings, so there are different things coming along the way that will help aspects of that, such as design, connection rights and similar.
Lord Cromwell: Who knows what technology will be available by 2050? We do not know, do we? There is £56 billion. It is getting bigger; this is good. Is the £56 billion all money raised privately, through water bills or by Treasury from taxpayers? I am not clear on that. I am not trying to be funny.
Thérèse Coffey: I am pretty clear that there will not be any money coming from Treasury.
Lord Cromwell: That is clear. There has been some suggestion to us that there are various funding sources and various sources of policy. It might make sense to pull these together and have a holistic national water plan. Is that worth doing?
Thérèse Coffey: Yes, how we pull all that together is under very active consideration. I am conscious of that intertwining that we were talking about earlier, where the regulators have very different roles. I understand how it could make sense to try to give the overall picture.
Q133 Baroness Taylor of Bolton: Can I follow up on one thing that you have just mentioned? You talked about sustainable drainage for new building as part of your overall package. Does that mean that you would alter the automatic right to connect for new build?
Thérèse Coffey: Yes.
Baroness Taylor of Bolton: What would the timescale be?
Thérèse Coffey: I cannot remember. We have announced that we will go ahead with it. I will see whether somebody behind me will pass me a note on what we said and the consultation response. It is Schedule 3 to the 2010 Act. I appreciate that we are now in 2023. I was very pleased to come back into the department, because I spent three years there and had responsibility for water. That is why I am very happy for Minister Pow, who is doing a good job, to continue leading on that in order to get the cross-government agreement to start implementing it.
Baroness Taylor of Bolton: Why do you think it has been so delayed, though? A lot of people have been talking about this for a very long time.
Thérèse Coffey: I genuinely do not know. There is often a concern: does this add to the cost of houses, for developers and similar? I do not think there needs to be. It is about making sure that we get that, because otherwise the cost will come later, as we can see. I do not quite know what the tipping point has been. I am just glad that I have been able to come back, being told that we should have this ask around government, and government has agreed to get on with it. I do not know what has happened in between.
I was very pleased when the Treasury responded to our request recently for us to be able to hypothecate the Environment Agency fines and the Ofwat penalties. That is also good news, but we now need to devise a policy on that.
I have just been told that apparently it will come into effect by the end of 2024. Perhaps it is not moving quite as quickly as I would like, but there we go. As people who have served in government, you will know that sometimes consensus is what endures.
Q134 Baroness McGregor-Smith: Hello, Secretary of State. In terms of my register of interests, I am on the board of Thames Tideway, so I know a little bit about the industry.
On the challenges the industry will face, particularly the constant trade‑off between capital investment and water bills, do you think today that Ofwat’s statutory objectives are clear and appropriate for where they currently are?
Thérèse Coffey: Yes, I do. We had the opportunity in the Environment Act to consider that. There have been other changes to the duties expected of Ofwat over the years since the original powers and duties were given in 1991—so a long-lasting Act. As I say, we made some changes in the 2021 Environment Act that respond to that. There have been some aspects of the Competition Act. Ofwat shares some of the enforcement powers in that way. We made some changes with regard to non-household customers a few years ago to see whether there could perhaps be some aspects of competition.
By and large, using the power of the strategic policy statement and the WINEP approach is a reasonable way to keep going with this, as opposed to constantly having to wait to change primary legislation all the time. It is why I am a huge fan of Henry VIII powers, although I think we should rebrand them Elizabeth II powers, because there are some amazing ones in the 1990 Environmental Protection Act. When I was a Minister in Defra, we used them pretty effectively to change fines and to update things. I appreciate that your Lordships’ House is less keen on them, and I understand why, but they are designed to try to keep things up to date.
Q135 Lord Burns: I should also declare a tentative interest, as I was chair of Welsh Water between 2000 and 2010. I was also involved in setting it up as a not-for-profit company.
We have heard from witnesses that the references to the environment in the latest strategic policy statement are very welcome. They are seen as an improvement on earlier versions of the strategic policy statement. We also had suggestions from a number of witnesses that they still regarded some of the language as vague and prioritisation between the objectives as insufficient, particularly on the issue that Baroness McGregor-Smith has mentioned. Do you see any merit in that point of view?
Thérèse Coffey: That opinion came from people involved in fishing. I know that, in particular, there are concerns about the chalk streams. I used to live in Hampshire and I am very aware of the importance of things such as the Test and the Itchen. It is not exclusive to Hampshire of course; Hertfordshire has a lot, too. The statement is very good. It was before my time. It is less than a year old and the understanding of the expectation from it is perfectly clear.
Lord Burns: How far is this issue about the trade-off between bills and investment a matter for Ofwat? How far, in the end, is it really a matter for the Government and the legislature? I realise that it is a very tricky issue and one needs to know a good deal about the detail of it, but many people believe that it is such a difficult trade-off that quite a lot of the responsibility for this will have to fall on government to decide how far one can go in coming to a conclusion on that.
Thérèse Coffey: This is where Ofwat cannot stop the investment into things that government has directed. That is our influence in having an involvement in the bill-setting process. We are not involved directly in the bill-setting process, but the water companies will go away, saying, “We need to spend this much to achieve that outcome”.
There are other aspects where Ofwat can do a back and forth. For example, some water companies are allowed to put metering in, because they are in a state of low water resilience or drought elements. Even then, they have to go back to Ofwat on value for money in how they implement those meters so that customers are not ripped off.
I am pretty happy with how that process happens. Of course, there has been some back and forth. I remember it from when I was in the department last time; I think it got resolved when I was away. Ofwat ended up being found against by the Competition and Markets Authority in the approach it had taken on some of the weighted average cost of capital methodology. By and large, there is a fair balance, and of course we have the Consumer Council for Water, which does an effective job in representing consumer interest to some extent, in a very different way from Ofwat, which is much bigger scale in what it achieves.
I am being very open and clear about this. I do not anticipate there being any direct government funding. I think it will continue to happen in that way and that we will achieve the outcomes that we want to achieve. We have set out why we did not go for that; I have this £600 billion figure in my head. I appreciate that we may have written anywhere between £200 billion and £600 billion, showing how difficult it is to evaluate. We showed, by what happened in Parliament, that we were not prepared to go to that level, because we did not think that, in government policy terms, getting bills to that level was the right thing to do.
Lord Burns: I notice that the storm overflows discharge reduction plan, which I thought was very interesting, mainly addresses objectives for 2035 and 2050. I wondered whether there should not be more immediate objectives that could be monitored slightly sooner than waiting until 2035 to see whether the water companies were on track with the job that you had set them. Why is there not one for each of the price review periods, for example?
Thérèse Coffey: It will vary company by company, but we said that we will review the targets in 2027, so about five years after the initial plan. Davide’s colleague probably deals more with this on a day-to-day basis, but Davide might be able to help me a bit on where some of the choices were made about the timeframe.
Davide Minotti: The SPS—strategic policy statement—to Ofwat makes it very clear that Ofwat should consider investment over a longer period. We have set objectives for ourselves, whether it is the storm overflow plan, which has targets in 2035 and 2050, or getting to net zero by a future date. We want the price review process to consider those long term. We want some of the investment of that £56 billion—if indeed it turns out to be £56 billion, because we want Ofwat to challenge on efficiency, as the Secretary of State has said—to happen regularly, throughout the five price review periods between 2025 and 2050. We are certainly not going to wait until 2050 to make the investment. We want it to be spread over that period, and we said as much in the SPS.
Lord Burns: On this basis, though, we have to wait until 2035 to know whether they are on track. It seems a long time.
Thérèse Coffey: We said that we would review it in 2027, so we do not have to wait until 2035. To be very clear about this, if we could do it a lot more quickly, without it being massive on bills, of course I would want it done more quickly. It is not good; it is not acceptable. Some companies are a lot better than others, which is important for Ofwat when it is doing its performance rating. Before Christmas, I met with Minister Pow and chief execs of water companies that Ofwat, in its latest report, considered to be lagging. That covers a wide variety of measures, but environmental aspects are part of that.
This may be news to you, by the way. Some of this might be helped by innovation, and although I want the water companies to invest in that and do similar, I am considering whether there is stuff that we can spend some of our research budget on, perhaps in collaboration, to see what other improvements we could make, perhaps more quickly, or what innovation there could be in that regard. Defra has a pretty substantial research budget. In trying to get potential projects, it could well be a very good use of taxpayers’ money to help to accelerate that.
Lord Burns: I will not press this, but my immediate concern was not so much about seeing it done quickly, although we would all like to see it done quickly. It was how to monitor whether the actions that have been taken were actually on track and, therefore, to have some signposts before 2035 as to what we would hope to achieve by then.
Thérèse Coffey: It is Ofwat’s role to monitor that what has been set out gets done. Are they spending the money?
Q136 Baroness Donaghy: Good afternoon, Secretary of State. We have heard from many of our witnesses and the regulator that even greater investment will be required at the next price review. You yourself mentioned the danger of massive bill increases. During a cost of living crisis, do the Government still intend to introduce a single social tariff or water affordability scheme? Is it difficult to draw the line at who should receive support? Is it fair to ask other consumers to bear the cost of such support?
I think we last spoke at a briefing on universal credit in your previous life, so you will be well aware of the different challenges for people on different incomes. I am sure that the Government are giving some thought to that, whether it is appropriate regionally or nationally. How far has that got in the Government’s thinking?
Thérèse Coffey: Ofwat has a duty to protect consumers. On government policy, I am not intending specifically to engage Ofwat in that. When I was in the department before, we basically insisted that all the water companies have a social tariff, which not all of them did. That happened, but it varies significantly from company to company. I am more minded not to have one tariff for the entire country but to try to get consistency, water company by water company. That is the direction I have asked officials to follow up in that regard.
Elements such as the WaterSure approach are still very valid and useful. I know there is still a lot of resistance—“anxiety” is a better way of putting it—about moving to water metering, even though, on average, most families reduce their water bills when they go on to a water meter. That is where the WaterSure scheme is very useful.
I am still finalising my thinking on that, but, as it stands, my current instinct or steer is not to move to just one approach, one single scheme, right across the country. It gets very complicated. You have a water-stressed part of the country that is doing a lot to reduce the water consumption of people in a different way to what may be happening elsewhere in the country. A more localised approach will, in my view, almost certainly have better outcomes.
Baroness Donaghy: In that case, I assume there have to be some criteria that everybody can recognise to ensure fairness. Who would be doing that? Where would that be done?
Thérèse Coffey: In terms of policy development, this is where we can be informed by elements such as the Consumer Council for Water. I must admit right now that I am not going to say it is my top priority. However, I have given a steer, and Minister Pow, as part of our considerations on water, as I was saying earlier, has lead responsibility on that. Right now, I am not conscious of where we are in that process.
Baroness Donaghy: I understand that you have been very clear and very open, if I may say so, about the unlikelihood of the Treasury intervening on any of the increased investment that is required. The onus will be on the consumer to pay for this over a length of time. I would have thought that it is pretty urgent to try to get some safety net or, if not a safety net, to find out in more detail what the current arrangements are doing to protect people.
Thérèse Coffey: There is a safety net already. At one point, and I do not know when, there was an idea basically to cross-subsidise from different parts of the country to other water companies. For a variety of reasons, a more localised approach is better. I am seeking a more consistent approach. I cannot give you an example off the top of my head. I happen to have a separate water company and a separate sewerage company doing mine, but the scheme for eligibility, for example, involves pension credit and other aspects of eligibility for support. Then you are in different parts of the country and it may be a different scheme. The steer from me is to try to get consistency across the country on how that support is done.
Baroness Donaghy: Is it possible for the committee at some stage to have more information about government safety nets?
Thérèse Coffey: I can ask the Consumer Council for Water, which I am sure has this beautifully summarised, to share with you the approach of each water company today. If Water UK is listening, I am sure it would send it in tomorrow.
Baroness Donaghy: I meant about plans for the future.
Thérèse Coffey: We are not at that stage yet. We are still in policy development. It is quite rare for Ministers to share with Parliament stuff that is still in development, but everybody relies on water. I remember, back in the whole Brexit preparations, the No. 1 priority for the Government with regard to movements across the channel being chemicals needed for drinking water, because it is critical to everyday life and public health. It is important that we continue. It is why water cannot be disconnected. It is critical in that regard.
Q137 Lord Reay: Good afternoon, Secretary of State. I wanted to ask you about Ofwat’s price review process. Given the scale of sewage discharges and the state of water infrastructure, do you believe that Ofwat’s price review process has delivered sufficient investment in the sector? Can it deliver the step change in investment that is required going forward? Should strategic, significant infrastructure projects be delivered outside the price review process?
Thérèse Coffey: Since privatisation, we estimate that there has been about £170 billion of investment in real terms. I think Ofwat even suggested the other day that it would be up to £190 billion. There have been important investments in the improvement of the network.
On the approach taken, the Thames Tideway tunnel, where one of the committee members has particular insight, has been shown to be effective, as well as the way Ofwat deployed the competition approach. It was to have that identified need. In the original proposals it was considered that we might end up with an extra £70 to £80 per annum on customers’ bills. As I say, in my previous role I, with Rob Jenrick, used to hold Thames Tideway to account on this. The actual outcome is certainly below £30, and the average has been about £25. It shows that the competition works in that regard. Ofwat was very effective.
On other aspects of the direct procurement approach, using the market to get infrastructure providers is helping. It is being used right now. There will be a 25-year contract for the building of a new aqueduct between Manchester and the Lake District. Again, taking that competitive approach has been effective for consumer bills.
Lord Reay: On facilitating more large water infrastructure projects in a similar vein—you mentioned the aqueduct—will you publish an updated national policy statement for water resources infrastructure that designates a number of strategically significant water infrastructure projects, allowing them to be opened up to competition through special purpose vehicles?
Thérèse Coffey: Yes. Is there anything about special purpose vehicles in that? I have signed something off.
Davide Minotti: DPC—direct procurement for customers—is the current route, but yes, the NPS will specify that.
Thérèse Coffey: Okay, so we are using DPC. Building on the success of Thames Tideway and some of the other elements, I am pretty keen for Ofwat to be open to other approaches to reduce the cost of financing. You told me that it was not called RAB but some other approach, Davide.
Davide Minotti: Yes, it is the special infrastructure project that you were referring to.
Lord Reay: You will not consider amending the designation process to enable this model to be used more frequently.
Thérèse Coffey: I am very open to it, yes, but I know that I have signed off a document. The policy should be coming out once it has gone through the usual cross-government processes.
Q138 Baroness Taylor of Bolton: We have recently seen quite substantial fines of water companies for bad behaviour. Witnesses have explained to us why some companies think that the fines are just part of doing business. Is the current system of penalties and fines adequate? Does it push water companies into compliance, or are they able to shrug their shoulders and say, “That’s just the cost on a day-to-day basis”? Should we be harsher? Should we have stronger sanctions and, in particular, should we consider debarring directors who are there when significant problems have arisen because of their lack of oversight?
Thérèse Coffey: Ofwat can fine water companies up to 10% of their turnover if they are in breach of statutory duties or licence conditions. It can undertake performance penalties, and those performance penalties then go back into customers’ bills. Some stuff goes off to the Treasury, although the Chancellor very kindly agreed to the hypothecation, and quite often, sadly, to customers, because the companies have not been performing. Thames Water is probably the most significant one recently, and customers got a rebate of about £80.
On other aspects, Ofwat has the power to change the licence conditions. It used to have to get the agreement of the water company to do that. That came up as an issue. We changed the law with the Environment Act, so that can now proceed. Indeed, in quarter 3 last year, Ofwat consulted on a range of licence modifications to strengthen aspects such as financial resilience or the dividend approach, and I am expecting Ofwat to publish the outcome of that consultation pretty soon.
Ofwat does not have the powers to debar companies or executives, but the Environment Agency does, where appropriate. There are actions, under the conditions on the licences, where it can use enforcement orders to achieve that.
Baroness Taylor of Bolton: Do you think those are adequate to determine good behaviour?
Thérèse Coffey: I think so. We have listened to Ofwat. That is why its powers were enhanced, and now it is taking the first steps to using those powers.
Baroness Taylor of Bolton: Directors are being left out of the loop there.
Thérèse Coffey: The Environment Agency, which is responsible for the environmental aspects rather than the financial approach, has criminal powers. As you will be aware, the Environment Agency has a live criminal investigation into water companies right now. I cannot tell the Environment Agency to place criminal charges against others, but I am very keen for it to use the powers that it has.
More broadly, now that I am Secretary of State, having used ministerial directions in the past, not to civil servants but to councils on things such as air quality, I am very keen that we start to make more use of our powers to see general improvements on the environment.
Baroness Taylor of Bolton: Your predecessor announced plans that the Environment Agency would be able to increase the civil sanctions. Are those still going ahead?
Thérèse Coffey: A consultation is being prepared at the moment, and I know there are some views on what is in it. The Environment Agency can take people to court and, indeed, under those approaches, unlimited fines are possible, but the judge decides what the fines will be. To date, the largest fine a judge has given has been about £5 million. There are approaches that can be taken. We have a route to unlimited fines, if that is the way to deploy it, but we are still working through some of the other finer details before we launch the consultation.
Baroness Taylor of Bolton: Your predecessor said that they should be able to levy £250 million themselves without going to court. Is that figure still valid?
Thérèse Coffey: I anticipate that that will be in whatever submission comes forward for Ministers to consider. I have not yet seen the proposals for the consultation.
Baroness Taylor of Bolton: We have been told, and not by just one source, that the cuts in the Environment Agency’s budget over recent years have hampered its ability to take the kinds of actions that it would like to on some occasions, and that it cannot really afford to go down the criminal sanctions pathway, so it is dependent on civil penalties. Are we likely to see a reversal in the budget there?
Thérèse Coffey: You are taking me into the role of another regulator, not Ofwat, but I am aware that the EA’s budget has certainly increased in order to do aspects of that. Anglian Water has very recently been fined in court for something, so it is certainly still taking prosecutions forward as well as using other powers. It is usually not the default for regulators to go straight to prosecution, but you will be aware of that more substantial investigation already under way.
Q139 Baroness Donaghy: I want to press you a bit more on this, Minister. I appreciate that the burden of proof is different for the Environment Agency. In fact, we have had the Environment Agency before us as part of this inquiry, because although it has improved a lot recently, there appeared to be gaps in the relationship between what Ofwat was doing and what the Environment Agency was doing. This allowed water companies to get away with more than perhaps they should.
We are very aware that the burden of proof is different for the Environment Agency, and that it is time-consuming and costly to take any case. As Lady Taylor said, the budget consideration is quite important, but we found a tendency to, if you like, negotiate settlements rather than take a case to court. One could argue—as a former chair of ACAS, I would probably approve of this—that it is better to deal with things by negotiation, but in some ways this was also an easy way out for the water companies, because they were able to pile lots of money into defending their position against any Environment Agency cases. It was not necessarily a battle of equals.
The budget consideration is really important, and it did not sound to me as if the improvements had been sufficient in the Environment Agency to make that step change in its attitude towards prosecution.
Thérèse Coffey: We are in the process of recruiting a new chief executive. That has not been raised with me so far in any of the meetings I have had. It will not surprise you to hear that every organisation funded by taxpayers often wants a lot more money than they have, and there we are. It is often a case of choices made by Governments as to whether we have a record amount of money going into the NHS or have done this in different ways. It is a department, it has objectives, and it has a full range of powers. It is for them, through the strategies they set out, how they will try to achieve their objectives.
There are routes for unlimited fines available for that serious nature. So far, historically, judges have not applied fines in the region of £250 million. That is not to say that we may not have some of that in the future. I just have not had that consultation put to me yet, but it is something that we are intending to do this quarter, or perhaps stretching into just the other side of Easter.
Q140 Lord Agnew of Oulton: Good afternoon. I just wanted to explore your views on the calls to Ofwat and the Environmental Agency for a shift from output-based infrastructure programmes to outcome-based. Just to explain what I mean, output is a very specific form of hard infrastructure to solve a problem, whereas outcome is the ability to solve the problem without spending the huge sums of money that we talked about earlier with Lord Cromwell.
The problem when these huge sums are brought up is that it is an excuse to kick everything into the long grass. Whether it is £200 billion or £50 billion, no one has that money and it will never happen. If it were to be outcome-based, such as using agricultural land for winter storage of flood water, you would not have to put the pressure on storm overflows, saving a huge amount. I just want to know where you are on this.
Thérèse Coffey: Ofwat consulted on its methodology recently, which included an outcomes-based approach. The intention is new incentives on carbon reduction and similar things. The Environment Agency looks at the water company plans and proposals for environmental improvements, and then aspects of how they comply with their environmental obligations, so there is an interplay. This is a change for Ofwat, and I welcome it.
Lord Agnew of Oulton: So you would support a shift in the thinking.
Thérèse Coffey: It is always better to have an outcomes-based approach. I am also conscious that sometimes not all the things that you are trying to do are in your control. We are about to launch the environmental land management schemes. There will be a lot of things where we are driven, in effect, by outputs. The intention is to get outcomes, but if somebody will be reimbursed only on the basis of things that are not entirely in their control, you may have more hesitation. I like the approach where it is moving, but I understand that this may seem rather novel.
Lord Agnew of Oulton: One justification that the Environment Agency offers for not getting more fully behind this is that it claims to be limited by retained EU law. Will you ensure that that obstacle is removed?
Thérèse Coffey: Just to repeat, we do not intend to weaken any environmental standards through the process that we are going through. I know that, for the next WINEP, the Environment Agency, Ofwat and Defra are working together to try to get a methodology so that we can try to include that outcomes-based approach in the investment programme that is needed to achieve the outcomes there.
As government, we will work with the Environment Agency to see how changes to the WINEP have supported those wider environmental outcomes and whether that needs to change again in the future. This is a novel approach. Let us not pretend that everything will work perfectly first time. That is why we have to be agile. If we keep changing the rules every second, we will not get proper investments. I do not want to make perfect the enemy of the good.
Q141 Baroness Taylor of Bolton: Can we turn to future water supply? Given climate change and last summer’s experience, I do not think anybody doubts the potential for significant problems in future supplies, so some overall strategic solution or strategic approach is necessary. I wonder where you are coming from on this. Do you think the transfer around the country—the approach of regional and multiregional grids—will be sufficient, or do you see a need for new reservoirs? Your predecessor said that the Government were going to make it easier to get planning permission for new reservoirs. Does that remain the situation?
Thérèse Coffey: A lot of my experience on this is driven by being the MP for Suffolk Coastal, probably one of the most water-stressed places in the country. I see the challenges that local farmers have, never mind water companies, for getting planning permission for reservoirs. I am hoping that you will see stuff coming in the new NPS that will help with clarity for the planning process. It should be a key enabler for water supply options.
More broadly, the water companies are best placed to work out the best way to get that consistent water supply. At the same time, there are objectives on reducing leakage and trying to change consumer behaviour in certain ways. Just under £500 million is being spent by water companies in this current price review period to investigate the strategic water resources needed.
The RAPID—Regulators’ Alliance for Progressing Infrastructure Development—approach is working alongside that to try to facilitate the development of this new, large-scale water supply infrastructure. So far, in the east of England, Anglian is looking at reservoirs in Fenland, and there is stuff in south Lincolnshire and Oxfordshire. My note says that 20 strategic themes are being considered, and five of those are reservoirs.
Clearly, some water companies have decided that that is the best approach, but others are consulting right now on their water resources management plans, which set out the need for new water resources infrastructure as well as demand options, taking us right through to 2050. There will be representations. Regulators, including Ofwat, will look at that, and they will come to Ministers for decisions later this year. I do not want to predetermine this, but I am open to understanding what the water companies think is best.
Baroness Taylor of Bolton: Is it enough to leave it to water companies? Should the Government not be taking the responsibility for getting the right strategic approach to what will be a very long-term problem?
Thérèse Coffey: We have a process to address that. The experts on water engineering are the water companies. We have our regulators. We will be able to judge whether the plans are sufficient.
Baroness Taylor of Bolton: Should the Government not be leading rather than just receiving information?
Thérèse Coffey: I think the approach that we take is fine; otherwise, we will have to get shedloads of water engineers in to work as civil servants of the Government. Then what would be the point of bringing professionalism in a different way into that? I think the approach is fine.
Baroness Taylor of Bolton: The water companies have different priorities, and they are not necessarily the priorities that a Government would lay down.
Thérèse Coffey: The point is that Ministers have to agree with them, and, if we do not agree, they will have to go back to the drawing board. Do you want to add a bit more, Davide?
Davide Minotti: Water companies have a duty to supply water, so it is in their interests to make sure that they have enough and that the balance of supply and demand is in the positive. That is why they are required to produce the water resources management plan. They look ahead 25 years and identify what measures they need to take. Some might consider water efficiency and improved demand, and many of the companies have scope on that, but there are a number of large infrastructure projects that are currently being considered. As the Secretary of State said, there are about 20 of them, five being reservoirs.
Baroness Taylor of Bolton: They have had that responsibility for quite some time now, and we are still seeing that a crisis can arise from time to time that they cannot cope with.
Thérèse Coffey: I am conscious of elements that happened last summer. There were some places on standpipes; I get that. We have seen some significant and record extremes. That is why this process is important, and we will start to see some of the changes. Reservoirs have been created within the last decade. Pipelines have been created, moving water from the Fens down to Essex. There is already work actively under way around the country, but it reinforces the importance of the resources management plan.
Q142 Lord Burns: Secretary of State, we have heard that consumers also have a role to play in helping to meet future demand. Have you given consideration to further initiatives such as compulsory metering to encourage people to reduce their consumption, or any other ideas that might work on that side of the demand and supply balance?
Thérèse Coffey: One approach we have taken is how we can make certain kinds of products far more water-efficient, such as labelling to inform consumer choices. Targets have been set for reducing leakage, some near term and some long term. I am a great believer in trying to increase public awareness.
I understand why the public are saying, “Well, if there’s water leaking left, right and centre, why should we care?” but it does matter, and that is why, in the Environment Act, we have those targets. They have gone through the House of Commons today and I hope they will all go through your Lordships’ House by next Monday. There are elements there. Careful use of water is a really important educational approach to take.
Lord Burns: What about compulsory metering?
Thérèse Coffey: Water companies already have the power to install water meters in homes and businesses anyway, and they have the power, where there is water stress, to mandate them. I do not believe the Government are at a stage yet to mandate it for every household across the country. As you know, they are automatically fitted into any new developments. All I will say is that I personally benefit from a water meter. I noticed that my water bill went up massively when I had not fixed a particular thing. It prompted me to take action and my water bill came back down, so there we are.
Lord Burns: You mentioned the paradox that most people’s water bills decline when they move to metering. Is there a worry on the part of water companies that compulsory metering will mean that their revenues fall? Is Ofwat also concerned about that?
Thérèse Coffey: No, I do not think that is the motivation.
Lord Burns: Since I was involved, which is now 25 years ago, this whole thing towards metering seems to have moved very slowly.
Thérèse Coffey: I have not looked at the research done on why people will not proactively move to metering. In my former department, a significant number of people would have been better off, in our estimate, if they had chosen to move to universal credit than they would by staying on legacy benefits. There is hesitancy. There is an element of certainty, in that people know what they will pay out, so I understand. In particular, people may feel that they will use a lot more water or that they will not be able to use as much water as they do now.
There is a consumer element here, but, again, the water companies have powers where there are stresses. I am very keen for them to address their leaks in particular, but it would open up people’s awareness of where water is being used. I had it in my own house, as I just said, where it prompted me to take action to get something fixed.
Lord Burns: We had evidence of the fact that quite a significant part of the water leakage takes place within the property boundaries of houses. There is an issue as to whether metering would help that, or maybe it should be part of the companies’ responsibility to help people when these leaks occur.
Thérèse Coffey: I will be interested to see what recommendation you make. As for the way Ofwat is involved in this, if water companies want proactive water meter installation, they have to get best value for money. Davide, does Thames have a programme? Just remind us and inform the committee about that.
Davide Minotti: Yes, it has installed 1 million smart meters and is planning to do the same next year.
Q143 Lord Cromwell: Secretary of State, earlier you helped us to talk about money and how it will be spent over what time periods, so thank you for that. I want to move now to ownership and management, and the people who are deploying this money. We touched on the fact that, as you will be aware, there has been quite a bit of flak over the high levels of dividends and executive pay for companies that are lambasted for poor environmental performance. I do not want to get into the politics of whose Administration it was under, but one could argue that, if we are now going to spend 20 to 25 years of investment, that probably should have started 20 to 25 years ago so that we were not in a pickle today.
Could you perhaps share with us some thoughts on private equity ownership, which, rather than perhaps doing that investment programme, has loaded up debt, has paid off dividends, and has introduced some complex financial structuring? Can you just give us a view on how you see the benefits of having private equity involvement?
Thérèse Coffey: It is a long time. I studied a bit of economics at university, but, in theory, the financing model is supposed to be neutral on the outcomes aspects of return. There are eminent economists or former Treasury officials who may see where that has or has not worked.
Average dividend yields across the sector last year were just under 4%. I know that some companies did not pay dividends during Covid and then paid higher dividends this time. To a large extent, I am not convinced, with regard to the funding approach, that government needs to decide whether it is private equity or the FTSE 100, which the three public companies are. The scale of investment required is significant. You tend to get private equity working in a variety of ways, on almost a turnaround approach or a long-term approach, and that is why you are seeing different kinds of investors in the water companies. Some of these are pension funds. The university pension fund is a significant shareholder in some of these.
We talk about trying to get more private investment more generally into infrastructure, and they will do that for a return. It is that unlocking of the private capital, or capital one way or another, that has led to investments. Investment started very early on with privatisation, but I recognise some of the issues and dividends seeming to have been prioritised. That is why Ofwat asked for more powers, which we gave it in the Environment Act, and that is what it is consulting on now in relation to pay schemes, for example. We have responded to the concerns, and it is now over to Ofwat to deliver any changes that it thinks are necessary.
The most popular, in terms of consumer satisfaction, is 100% owned by a Malaysian investor. Other investors have a multiple of infrastructure investments in this country and continue to do so in a variety of utilities, as well as other elements. I am not going to decry private investment, but there is the FTSE 100 approach, and at one point it seemed to be the thing of the day to combine electricity, which then split off, because they are regulated in very different ways.
I want to make sure that we continue to have that, but I do want—and this is very much the job of Ofwat—to hold those companies to account in delivering what they are supposed to deliver. The onus is particularly true because, and I am very conscious of this, this is a monopoly. People cannot choose to go to another water company.
Lord Cromwell: I will come back to that in a moment, if I may.
Thérèse Coffey: That is why the onus is much more on price reviews and different controls, and that is there for a purpose.
Lord Cromwell: Perception is reality. There is definitely a perception of high dividends, high executive pay, golden handshakes, et cetera, contrasted with the environmental performance. That is a sociological fact rather than necessarily an empirical one, perhaps. In the checks and balances, is there a role here for reviewing the licence conditions—for example, requiring these water companies to be listed on the LSE and perhaps to have a quarter of their shares publicly traded? Would you contemplate that?
Thérèse Coffey: I do not think so. I do not think that we should force companies to be publicly traded. What matters is the outcome. Severn Trent is in the FTSE 100 and has a four-star rating on its environmental performances. There are other companies on the FTSE 100. Pennon, which owns South West Water and Bristol, has a one-star rating. Those are two examples. United Utilities is the other FTSE 100 company. Other aspects of where you see good improvements or good changes include Northumbrian Water, which has a four-star rating on the environment. It is substantially owned by a Hong Kong investment as part of the Li Ka-shing empire. There is a role for both approaches.
Lord Cromwell: You touched on the monopoly point. Do you feel that Ofwat should be a bit more assertive or proactive in using its special administration powers to change or to remove ownership of water companies? On a related question, rather than giving people ownership or access to this opportunity more or less in perpetuity, should there be a more regular competition basis for alternative bidders to take over contracts? You cannot do that in very short periods, but it does not half focus the mind of a business to know that it does not have this for life.
Thérèse Coffey: We have seen water companies taken over by others, so there have been changes in those elements. Sometimes investors have come in and not realised quite the demands that may be made on them, and that has then moved around. We have seen people dilute the value of their investment to bring in new capital, again because they were not meeting expectation.
There have been elements there. I really think it is for Ofwat to decide how best to use its powers. It requires my role’s agreement to use the special administration power, but I certainly have not been approached since I have been Secretary of State. I am not aware of other Secretaries of State having been approached in the past.
Lord Cromwell: Perhaps this is an unfair question, and you will tell me if you think it is, but is it your sense that Ofwat is reluctant or insufficiently proactive? Is it perhaps holding a sword of Damocles over the companies and exercising it from time to time?
Thérèse Coffey: I do not know. There are clearly some companies that have been particularly struggling. We have seen some changes in ownership. I read some of the evidence that has been given before. Macquarie was in charge of Thames. I have to say that it did not feel like that went very well, and now it is back in the industry. It has come back into a water company that has been in distress. It has brought new money and it knows what it is expected to deliver. It is for Ofwat to hold it to account to do that.
Lord Cromwell: It is for Ofwat and the Environment Agency, because their objectives must not be purely what you might expect a private equity house to be driven by.
Thérèse Coffey: Sorry, yes, but, where investors are coming in, they know the approaches that are taken with the combination of the regulations. Bringing fresh capital into the industry was needed, and that is what happened.
Q144 Baroness Donaghy: What would you say to the statement that it is NGOs, civil society groups and individuals—as well as the media, to some extent—that have drawn attention to the state of our rivers and to the delayed action on sewage overflows, and that it was not the action of Ofwat or the Environment Agency at all? It was just the fact that these campaigning groups managed to get the public’s attention on these areas of neglect. I am thinking of fish preservation, diving or boating groups—a lot of individuals who have been taking action and raising these issues.
Thérèse Coffey: Yes, and I understand why. Our rivers and our seas are precious. I am pleased that, since 2010, we have seen the quality of bathing waters increase significantly. Last year, just under 3% were considered poor. One, Dunster beach, was considered poor because there was dog mess on it. Some aspects can be done locally, but there is also a national push, and we have seen changes there. In 2009-10, 11% of bathing waters were deemed poor. The excellent have risen from just over 50% to over 70%, so there have been significant improvements in the quality of our waters that people use for that sort of enjoyment.
That has not happened by accident. It has happened because changes are being made and approaches taken to try to improve, very specifically, the quality of things such as bathing waters that people enjoy. I am very conscious that there is a lot more data out there, and there are a lot more elements, but we will also get other issues. Recent social media comes to mind about sediment. It is not great to have sediment pouring out, but it was not sewage. An investigation was done pretty quickly.
I am delighted that people are passionate about the quality of the water. I am pleased that Richard Benyon took action a decade ago to start to get these changes in monitoring. We will complete that by the end of this year. Thames Water in particular has decided proactively to make that data available now. We are requiring water companies to do it by the end of 2024 or 2025; I cannot remember which.
I am a great believer in opening up transparency, and I have no doubt that that will improve matters further, but I am also conscious that some of the changes that need to be made are pretty significant, and that is why, going back to the very start, through our strategic policy statements, through our legislation and through our different things, the Government are giving clarity to Ofwat. That then flows through into the investment that is needed, and that is where we will make improvements.
Q145 The Chair: I just want to come back to the point that you have made a couple of times and that has come up in some of the questions, which is the challenge of regulating a monopoly. Competition, on the whole, tends to improve performance. It is very interesting to see the differential performance; you have referred to the number of stars that various companies have. Clearly, some companies are able to deliver a service with much greater efficiency.
I wondered whether there was any work going on in the department or with the Treasury in coming at the problem from another direction—in other words, to put incentives into the business model, which reward companies, for instance, based on outcomes, as you have both talked about. The poor minority of people who live adjacent to or in the community where there is a great deal of pollution would like to see some active involvement from the Government to incentivise the water companies to invest more money, to do this more quickly, and to find different ways of getting the outcome needed.
Should a different approach not be considered here? Part of it is that, if you do not come up to snuff, you lose your licence. I have been in many businesses in my career where you get a licence for a time, and if you do not perform you lose the licence. There will be ways of doing this. Is this on the agenda for discussions with the Treasury?
Thérèse Coffey: I am not aware of any discussions with Treasury on that. The previous time I was in the department I did not support the idea that somehow opening up the market would produce the miracle that seemed to have happened with electricity prices. That was much more in customer service.
Electricity is still provided through a limited number of organisations—the only one I know is the one that covers London and the east, which is UK Power Networks—and then distributed by the grid. That does not change, and it will not change for water either. The differential in opening up competition and prices was more around aspects of customer service and how they bought electricity. Dare I say it, but we have seen some impacts of that in the last year or two. We opened up the non-household market a few years ago. I am not sure that it has had quite the impact that may have been hoped for, but that gives me even more reason not to move to a model for households to be open or to be straightforward.
On incentives, I understand what you say, but if a company is delivering the outcomes effectively and efficiently, it will generate the profit. If it does not, it will get the penalty. I am afraid that, at the moment, it is probably more of a stick, but there is sufficient carrot for a company to be effective in providing water and sewage.
The Chair: The Thames Tideway, which we have referred to, is a good example of major infrastructure to deal with the pollution problem. It is a very significant investment in infrastructure that may be best done by third parties rather than by the water companies that are running it. You agreed that that might be a way forward. Is that something that you can put in place, so that the companies are relieved of big infrastructure projects that they may not have the management skills to do?
Thérèse Coffey: Thames Water will still own the asset of the Thames Tideway tunnel. The approach that was taken in its construction—making sure that we got value for money—was what drove some of that, as well as spreading the cost of that project using the RAB model, which massively reduced the cost of capital.
There is an incentive to make some of these changes, but that is why there will be different approaches around the country as to how quickly they will be able to work on what needs to be done to effect the changes to sewage. You can already see the improvement in the environment generally in the Thames. We are starting to see changes. It is good.
The Chair: Finally, on a different point, it was clear when we took evidence from both Ofwat and the Environment Agency that their working relationship had not been as close in the past as it is today. Are you satisfied that those two are intimately involved in dealing with a lot of the challenges that we have been talking about and are now working together effectively?
Thérèse Coffey: The evidence I have seen is the joint investigation that is under way. It is important. They have different roles in their regulatory approach, but, through the policy statement and legislation, the Government have made clear how important it is to get this improved. The job of regulators is to make that happen in the way they work with the water companies.
I hear what you say about whether there have been improvements in the last few years. I really hope that there have been and that you are seeing that. We will have a new chief exec of the Environment Agency fairly soon after Sir James retires in a couple of months’ time, and I would hope that any relationship there continues to get stronger.
The current chair of the Environment Agency was recently appointed. He used to be chair of the Consumer Council for Water. Government choices in appointments have certainly helped with some aspects of that, but, more clearly, the incentive there is to improve water quality. I have taken great confidence from what has happened with bathing water statistics. We can get this right, but I know that it will need a lot of investment, and we have set out the approaches to how we expect that to be delivered.
The Chair: Secretary of State, thank you very much for joining us this afternoon and for your full and frank answers. Thank you, Mr Minotti, for chipping in when necessary. It was very helpful.
Thérèse Coffey: Thank you.
