The Lords amendments relate to the subject of market reform, and in particular to retail exits. By that I mean allowing an incumbent water company to exit from the market for retail services to non-household customers.
Lords amendments 15 to 30, 43 to 48, 101 to 103 and 107 to 147 are minor technical or consequential amendments to the market reform provisions in the Bill—for example, changing wording from “a code” to “the code”. Some are minor and technical amendments relating to cross-border pipes. Lords amendments 32 and 33 ensure that the Consumer Council for Water is consulted on water company charges schemes. The Government are keen to ensure that customers are protected, and are grateful to Opposition Members for highlighting the important work done by the council on behalf of customers. We expect it to contribute to all discussions about the future of the industry, and we are pleased to have been able to enhance that in the Bill.
Lords amendments 49 to 52 would implement recommendations made by the Delegated Powers and Regulatory Reform Committee in another place. We are very grateful for the Committee’s scrutiny of the Bill. I do not propose to refer to the amendments in detail, but I shall be happy to respond to any specific queries.
Lords amendments 53 to 64 deal with the issue of retail exits, which we have discussed previously in the House. The Bill seeks to introduce a range of reforms that will enhance and extend competition in the water sector. The Government believe that the development of competition in the sector will bring real benefits to customers. They listened to, and acted on, well-argued contributions to the debate on market reform, especially the calls for incumbent water companies to be able to choose to exit from the non-household retail market.
I think it would be appropriate for me to expand on the retail exit amendments, as the House is not familiar with the clauses involved. The amendments differ in some crucial ways from amendments on the subject that Members have seen before. When drafting the amendments, we were particularly careful to ensure that customers were protected, both the non-household customers who will be transferred to a different retailer and the household customers who will remain with the incumbent. Non-Government amendments tabled by Members here and in another place have not reflected those safeguards fully.
The Lords amendments relating to retail exits contain three core principles. Exits must involve non-household customers only, they must be undertaken voluntarily, and they must ensure the ongoing protection of customers. Any exit will be possible only with the consent of the Secretary of State. Other amendments that the House has considered did not grapple with those key issues. These amendments create broad, permissive powers in what will be a very complex area. Further work will be required to consider the practical implications of exits, and to develop the detailed policies that will underpin the use of the powers. We will therefore be consulting widely with all interested parties as we develop our approach and produce exit regulations.
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So what do the Lords amendments actually do? They give the Secretary of State powers to establish, through regulations, a framework that permits incumbent water or sewerage companies—with the consent of the Secretary of State—to stop supplying any retail services to current or future non-household customers in their areas of appointment. The services will then be provided by one or more retail licensees. Any incumbent water company whose area is wholly or mainly in England will be able to apply to the Secretary of State to exit from the non-household retail market for that area.
This approach reflects amendments tabled by parties in both Houses, but builds on them by increasing safeguards. These amendments ensure, for example, that in allowing retail exits we will not make forced separation possible, which an amendment tabled by the hon. Member for Dunfermline and West Fife (Thomas Docherty) would have done. We do not want to take risks with a successful model, given the challenges that we face in building the resilience of the sector, which is a crucial aim of the Bill and our programme of water reform. We cannot risk damaging investor confidence.
The amendments are enabling only, and we are committed to full public consultation on how best to implement the provision for retail exits. We will consult on the content of draft regulations by the end of the year. We will work closely with incumbent water companies, Ofwat, the Competition and Markets Authority, the Consumer Council for Water and others as we develop our approach and produce the regulations. We will also send a copy of the draft regulations to the Environment, Food and Rural Affairs Committee to give it an opportunity to comment. In addition, Ministers will make themselves available to Members of both Houses for further discussions as we develop the regulations, given the limited opportunities for parliamentary scrutiny of this part of the Bill.
Let me explain some key elements of the regulation-making powers. They provide for the protection of both household and non-household customers who are affected by the exit. As I have said, it is of paramount importance that we ensure that customers are protected. The regulations may provide for the transfer of customers, and set out what will happen in an area where a company will no longer be providing retail services for non-household customers. They must ensure the protection of any non-household customers who are subject to a transfer, as well as household customers who remain with the incumbent. The amendments enable the Secretary of State to make regulations that establish strong safeguards.
That extends to requiring the exiting incumbent to take certain steps before making an application, such as consulting its customers.
Our intention is that any exit must be voluntary, and must be delivered in a way that ensures continued protection both for non-household customers and for householders who will not be able to switch their suppliers. In order to prevent forced separation or exit, the amendments require the Secretary of State to consent to any application to exit.
Lords amendment 54 also sets out some of the grounds on which an application to exit could be refused—for example, if the company could not demonstrate that exit was in the best interests of customers or in the public interest. Lords amendments 59 and 61 also underline our intention that exits should be voluntary. In developing the exit regulations, we recognise the regulatory independence of the competition authorities, and the provisions are not intended to undermine it.
The Enterprise and Regulatory Reform Act 2013 reaffirmed the importance that the Government ascribe to an independent competition regime. Lords amendment 61 enables the Secretary of State to make a statement about the Government’s policy on voluntary exits. Any statement issued would fully reflect the Government’s wider approach to competition and the independence of the regulators. Lords amendment 62 provides a power to make changes in the duties and powers of a number of public bodies, including Ofwat and the Competition and Markets Authority. The amendment is necessary because the exit regulations are likely to involve changes in the existing legislative regime. Its scope is limited to the necessary adaptations of the framework governing the exit arrangements in the water sector. Any changes will be very specific to retail exits.
Let me end by welcoming the hon. Member for Penistone and Stocksbridge (Angela Smith) to her new position. While we may disagree on matters of policy from time to time, I have the greatest respect for the contribution that she makes in the House—and it is good to have someone of Cornish descent facing me across the Dispatch Box.