First, I welcome the hon. Member for Penistone and Stocksbridge (Angela Smith) to her new position, and pay tribute to her predecessor, the hon. Member for Dunfermline and West Fife (Thomas Docherty). I understand that they have performed a job swap. The hon. Gentleman has made a big contribution to this debate and, in the past, to the work of the Environment, Food and Rural Affairs Committee. I can only apologise to both Front-Bench teams that there are not more colleagues from the Committee here today. The reason for that is that we are undertaking a farm visit this afternoon. I had to give my excuses and will be joining
colleagues later for the completion of the visit today and tomorrow. It would be churlish of me not to congratulate my hon. Friend the Minister and welcome both the outbreak of common sense in the other place and in the Department and a very welcome and worthwhile amendment.
I shall briefly go over the deliberations in the Select Committee and the earlier proceedings in this place. In our report on the draft Water Bill, the Committee strongly recommended that the Bill should include provisions to enable incumbent companies to exit the retail market voluntarily. Indeed, as the hon. Member for Penistone and Stocksbridge mentioned, the Committee tabled a new clause in my name on Report to provide for retail exit. Also, during the course of the inquiry both regulators—Ofwat and the Water Industry Commission for Scotland—the incumbent companies and new entrants were united in calling for the Bill to include an exit route. WICS provided a welcome and helpful explanatory note, and I hope the amendment it proposed during the Commons stages of the Bill will bear fruit today.
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In the Public Bill Committee, Opposition Members proposed a new clause to allow the incumbent companies to choose to provide to the retail market or wholesale market only, subject to approval by the Secretary of State. Regrettably, that amendment was lost, but we heard some powerful arguments in favour of allowing retail exit, which include the following: an exit clause is needed to allow the market to function as a normal competitive market; a company should be able to organise its business in the way it considers best for the interests of shareholders and customers; and an exit clause facilitates entry by new entrants, particularly larger ones, into the water and sewerage retail market, as they would not have to win one contract at a time. Without today’s amendment, economies of scale would work against new entrants, either preventing them from entering the market or, at the very least, reducing the benefits they could provide to new customers because of the higher costs of entry. It is also not in the interest of the companies or customers to force companies to stay in a market when they have no or very few customers. It is, therefore, entirely appropriate that the amendment recognises that this is about the proper functioning of the market.
Many of the amendments in the group are technical and I do not propose to comment on them, but I believe they go some way towards resolving issues with the drafting of the Bill or addressing concerns expressed during the Lords stages of the Bill. Clearly the amendment on retail exit is the most substantial. I echo the hon. Lady’s concerns, as I am sure other hon. Members would, about the lateness of the hour of this move, but the amendment is before us today and we should welcome its content. I believe the Minister recognises that there are a wide range of views in the industry on this subject, and all companies will wish to have the opportunity to provide input on the detailed arrangements that would be needed to ensure that any option for companies to exit voluntarily the non-household retail market did not have unintended consequences. Therefore, we should welcome the positive development of the amendment providing appropriate opportunities, as he explained,
for full engagement and consultation with all interested parties and for consideration of all potential implications of allowing voluntary exit from the non-household retail market. I particularly welcome the role that will be played by the Consumer Council for Water, because it has, certainly in my area, a positive role to play.
I ask the Minister to elaborate on one comment made by Lord De Mauley in the other place when these amendments were discussed on Third Reading. He said that regulations made under these provisions on voluntary exit would be subject to an “enhanced affirmative” procedure, whereby draft regulations would be laid before the House. I have not heard that expression before, so I would welcome any clarification the Minister can provide on it. The right for companies to exit in this way reflects market conditions and it can only enhance investor confidence, because anything else would have been an intolerable situation, as a company would not have been allowed to exit, thus placing both company and its customers in a difficult position. Obviously, it is pleasing to note that the draft regulations will be subject to the full scrutiny by the Select Committee on Environment, Food and Rural Affairs, and our having the earliest sight of the regulations will permit us to perform that scrutiny within the timetable he has set out. I also welcome the fact that the Department has allowed a full consultation. With those remarks, I welcome this small group of amendments, as I recognise that allowing a voluntary exit can only enhance the Bill’s provisions in this sector.