MPs on an influential House of Commons Committee have strongly criticised the Government for failing to act swiftly on flood issues and dragging its heels on implementing the Draft Water Bill.

The criticism comes in the publication this morning of the report by the Environment, Food and Rural Affairs Committee. While the MPs have welcomed the Draft Bill as the next step to introducing much needed reform to the water industry, the Report reiterates the Committee’s concerns about successive Governments’ failure to implement several of the recommendations in the Pitt Review and certain provisions in the Flood and Water Management Act 2010, in particular provisions relating to sustainable drainage systems, reservoirs and the provision of household flood insurance.

The Committee commented:

“We find it frustrating that successive Governments have lacked the tenacity and resolution to implement important recommendations outstanding from the Pitt Review and provisions in the Flood and Water Management Act 2010. That frustration is made more acute as legislative time is a scarce resource. We recommend that Defra set out in its response a full list of the outstanding issues from the Pitt Review and Flood and Water Management Act together with a clear timetable for their full implementation. “

The Committee said it was “greatly concerned” by the further postponement of the implementation of the Flood and Water Management Act’s provisions on Sustainable Drainage Systems to April 2014. It now expects the Department for Environment Food and Rural Affairs (Defra) to set out which particular elements of the regulations have caused such difficulty to implement and to explain the steps it is taking to address those issues so that the regulations can come into force at the earliest possible opportunity.

The Committee said that during the course of the inquiry, the critical importance of managing water effectively was thrown into sharp relief by first widespread drought and then several episodes of flooding during 2012.

The Committee criticized the Government for failing to act on a number of key issues it had previously raised, saying that in 2013, several of its recommendations, such as those relating to risk-based standards for public sewerage systems and unifying flooding legislation in a single Act still remain unimplemented.

On flooding, the Report draws particular attention to the fact that recommendations made in the Pitt Review have still not yet been fully implemented. The MPs said that several of the Shoreline Management Plans, which contribute to the Environment Agency’s national overview of flood risk, and local authority local flood Risk Management Strategies have not yet been signed off.

The Report also says that local government and the Environment Agency do not pay sufficient attention to dredging and maintenance of water courses, which could have a significant impact on the risk of flooding.

The Committee said that although it has pressed the Government on its failure to commence provisions in the Flood and Water Management Act 2010, several of those provisions are still not in force, including those related to the automatic right to connect to the public sewerage system, dam and reservoir safety and Sustainable introducing a Water Bill to Parliament.

The MPs also expressed their disappointment that the Draft Bill does not provide provisions to improve resilience, either in relation to flood defence or tackling water stress.

Government must implement changes to reduce flooding - many recommended nearly five years ago

Launching the report on the pre-legislative scrutiny of the Draft Water Bill, Committee Chair, Anne McIntosh MP, said,

"The Government has been too slow to implement changes that would protect homes and businesses from the shattering effects of flooding. New laws will increase competition in the retail water market - while we welcome those changes, Government must get on with implementing changes that would reduce flooding - many of which were recommended nearly five years ago."

In response to the report,Shadow Water Minister Gavin Shuker said:

"This Tory-led government now needs to get a grip. They are yet to implement six provisions of the 2010 Flood and Water Management Bill[1], and are failing on flooding. Getting agreement to guarantee universal flooding insurance and protect homeowners should have been the top priority for Defra – but nearly three years in, there is no deal.

This government has cut spending on flood defences and will protect homes at half the rate of the previous Labour administration. And, as the select committee confirmed, we lack the computing power to predict where flooding will occur."

More detail in Bill would provide greater certainty for investors

Currently the Water Bill that follows from the draft Bill is unlikely to become law before the end of 2013. It will provide a framework with much of the detail of how its provisions will work in practice left to guidance and secondary legislation. The Government’s intention is that the Water Bill will be introduced in the next Session, which starts in May 2013. It is therefore likely that a new Water Act will not be enacted until the Autumn at the earliest.

In the Committee’s view as it stands, the Draft Water Bill relies too heavily on establishing the broad framework for future reforms while leaving the details to be decided by the regulator Ofwat or through secondary legislation, with the likelihood that these will receive less scrutiny. Provision of greater clarity on the face of the Bill would not compromise the industry’s ability to attract investment, rather it would provide the certainty needed by those planning to invest.

Anne McIntosh MP said:

"The lack of detail in the legislation leads to uncertainty for investors which could result in higher financing costs for water companies and higher water bills for customers. We want the Government to put enough meat into this legislation that investors and water companies can have the confidence to invest. We want to see provisions in the legislation that protect consumers and we do not accept the Government's arguments that those protections would undermine investors' confidence in the water industry."

On opening up competition in the water sector, the Committee said that while it welcomed the Government’s commitment to opening the retail market in 2017, the Bill must make clear that householders will be protected from cross-subsidising the business market. On introducing reform in the upstream water market, it concludes that further work is needed before the Government embarks on this stage of reform.

In order to ensure a level playing field in the competitive retail sector, especially for new entrants, the committee recommended that the Draft Bill be amended to include a requirement for the functional separation of incumbent companies’ wholesale and retail arms. Furthermore, incumbent companies should be allowed to voluntarily exit the retail market.

The Committee has recommended that the Government publish statutory guidance to the regulator in draft alongside the Water Bill, saying that this would provide a greater level of certainty for market regulators and participants which would greatly assist them in the operational development of the competitive retail market.

The Report says:

"We are concerned by the levels of uncertainty in the proposals for reform of the upstream markets and we do not believe that the case for these reforms has yet been fully made out. Given the potentially serious implications of the reforms both for customer bills and for national resilience in the face of climate change and population growth, we believe that further work must be undertaken to establish how upstream reforms can be introduced in a way that will preserve investor confidence, ensure that customers do not face increased bills, and maintain resilience in the sector."

There was concern n evidence sessions held by the Efra Committee from water companies and watchdogs of upstream reform leading to de-averaging of prices. The Committee wants to see Defra make clear on the face of the Bill the key principles that will underpin upstream reform and a clear commitment that these reforms will not lead to any further deaveraging of prices.

The Committee has recommended that Defra revisit the issue, and invite evidence from water companies, consumer representatives and other interested parties both on the likely impact of the reforms and on the detail of their implementation. It also wants the Bill to set target dates for the final decision on the form and scope of upstream reforms, and the opening of the upstream market.

Government pursuing "an ideologically driven shake up of the water industry"

In response, Shadow Water Minister Gavin Shuker MP commented:

"By commissioning Martin Cave’s review, we began the process of opening up the industry to greater market pressure. But, as the select committee has said, the government has failed to make the case for their upstream changes.

This government is pursuing an ideologically driven shake up of the water industry that could result in higher bills for customers and worse outcomes for the environment.

Ministers must now decouple their half-baked upstream reforms from the bill, so we can pass the legislation – and get a proper retail market for water in place by 2017."

Defra lacks sense of urgency on abstraction reforms

On abstraction, the MPs said that reform was an important objective and the Government must demonstrate how it would be achieved by the target date of 2022. It was not appropriate for the details of abstraction reform to be left to secondary legislation and the necessary provisions should be included in the primary legislation that Defra intends to introduce in 2015. The Committee says it remains concerned that “Defra appears to lack the necessary sense of urgency to press on with reforms” and has urged the Department to redouble its efforts and to set out in response to this report how it will meet the Committee’s target date for a new abstraction regime of 2022.

The MPs said that given increasing pressure on water resources, it not been persuaded by Ofwat’s arguments that the duty to encourage sustainable development should not be elevated to primary status. The Report recommends that the Water Bill should include provisions to elevate the pursuit of sustainable development to a primary duty of the Regulator.

The MPs are also urging the Government to implement existing provisions relating to bad debt and those which encourage greater use of water meters since these would lower customers’ water bills.

The Committee has recommended that the Government publish statutory guidance to the regulator in draft alongside the Water Bill, saying that this would provide a greater level of certainty for market regulators and participants which would greatly assist them in the operational development of the competitive retail market.

Time running out to do a deal on insurance

On the current discussions between the Government and insurers about provision of adequate cover when the current agreement expires, the Committee said:

“Whilst we understand the Minister’s reluctance to provide a running commentary on negotiations with the Association for British Insurers and the possible solutions that are being considered, we are conscious that the current Statement of Principles will expire in less than six months, well before Royal Assent to a Water Act can reasonably be expected.”

The Committee now wants to establish more details of the legislative solution(s) that are being considered should it prove necessary to go down that route; and in particular what consideration has been given to the basis on which flood insurance would be provided during the period between the expiry of the Statement of Principles and Royal Assent to a Water Act. The MPs expect Defra to provide these details in its response to the report.