My Lords, we all agree that bad debt in this sector must be tackled effectively. However, we believe that the best ways to do this are through the sector-led voluntary approach to information-sharing and by Ofwat getting the regulatory penalties and incentives right.
While we strongly support the aim of the amendment, we cannot agree that it is necessary because, as noble Lords will be aware—the noble Lord, Lord Grantchester, made reference to this—very similar provision already exists in primary legislation. Without anything changing in the Bill before us, the power exists for the Government to bring forward regulations to require landlords to provide water companies with details of their tenants. This could happen if it seemed appropriate.
However, after consulting widely with all those who would be affected by this measure, we decided that a voluntary approach would be more suitable than imposing those regulations. Landlords felt that it would not be fair to penalise them financially for the debts of others. Having looked carefully at all the evidence, we took the view that there was much more that the water sector could do to address the issue, and there is evidence that some companies are already doing it. It is important that we make decisions based on the evidence; and the evidence showed us that good practice in tackling bad debt is not applied consistently across the water sector.
On earlier amendments on affordability, the noble Earl, Lord Selborne, and others suggested that water companies’ hands were perhaps tied on bad debt. Several companies have excellent performance in the recovery of bad debt—there are many things that they can do—but many others do not. Water companies can, and many already do, use the courts to pursue debtors. However, too many companies still fail to use all the debt collection tools at their disposal and we want improvements in performance in this area.
By way of illustration, perhaps I might give noble Lords some examples of what we identify as good practice. Yorkshire Water is an outstanding example of good work on bad debt. It partners with Experian’s credit account information-sharing service. Yorkshire Water assesses all new customers’ credit histories, which enables it to tailor services to each individual, supporting those in financial difficulty and providing sanctions for those who avoid payment. Another effective scheme is the arrears allowance scheme run by United Utilities, which supports 8,300 customers. For the first six months, the company matches customers’ repayments pound for pound; then the company matches every £1 paid with a £2 allowance until arrears are cleared.
However, at the moment, by no means all companies use these approaches. We wish to see such approaches become much more widespread, and the regulator wants to promote this, too. The methodology for the current price review places a much stronger focus on the responsibility of the company to collect its debts.
The sector as a whole is now starting to respond to this challenge. It is working with landlords’ organisations to establish a new voluntary scheme. Soon, it will launch a database that enables landlords to provide
tenant information voluntarily. Crucially, this scheme is supported by the industry through Water UK and the main landlords’ organisations. We wish to give this new system a chance to work and we hope that noble Lords opposite will do so, too.
Ofwat decides which costs may be recovered through the price review; it is absolutely central to what it does. It is clear that Ofwat is using the current price review process to bear down on the costs of bad debt, which is clearly very important. The regulator has been very clear to companies about how bad debt is viewed. Companies must demonstrate high performance in debt collection. They are obliged to show that any increase in bad debt is genuinely beyond their control.
I shall refer to a point made by the noble Lord, Lord Whitty, again in relation to the earlier group of amendments on affordability—the noble Lord, Lord Grantchester, may have referred to it just now as well. The noble Lord suggested that bad debt was mostly in the private rented sector. There is no evidence that bad debt is disproportionately in the private sector; nor does provision in the Flood and Water Management Act, which the noble Lord wishes to see implemented, focus on private rented properties. It would make all landlords, both private sector and social landlords, financially liable for their tenants’ debts. We may have misheard or misunderstood the noble Lord, but we wanted to put that clarification on the record in case that that was how the noble Lords opposite viewed the situation.
Intervention in the setting and recovery of charges is a job for the independent economic regulator. Ofwat has all the tools necessary to enable it to do this job, and it is absolutely right that it is allowed to do so independently. Although we share the view of the noble Lord opposite that those who seek to avoid paying for the water provided when they can pay should not push those costs on to others, I hope that he will accept that progress is being made in the way that I have described and will therefore be content to withdraw his amendment.