1 week Ago By Lucie Heath
The public are “rightly angry” about the state of our rivers and seas , the Government’s new water tsar has said as he signalled a major overhaul of the “struggling” industry. In his first public comments since being appointed to lead Labour’s Independent Commission into water companies , Sir Jon Cunliffe issued a threat of reform to regulators, saying they lay at the heart of change that “is clearly needed”. Writing in i that water firms’ “own decision making” left them partly to blame for their struggles, the former Bank of England deputy governor suggested he would take a tough approach to shaking up the industry.
However, he also said he wanted to bring the sector back to health to make it attractive to investors. Sir Jon, who was in charge of financial stability at the Bank, could use his work to “re-establish stability and trust in the nation’s banks” following the financial crash as a blueprint for the water industry. i has been calling for a review of water sector regulation as part of its Save Britain’s Rivers campaign amid criticism that the economic watchdog Ofwat is “dithering” and “toothless”.
Water companies have come under intense public scrutiny in recent years as the public has become more aware of the high levels of untreated sewage being dumped into Britain’s lakes, rivers and seas while bosses receive bonuses and pay out dividends to investors. Acknowledging the mood among the public, whose water charges will rise while untreated sewage continues to be dumped in their waterways, Sir Jon called for better value for billpayers. “We need a system where water billpayers have confidence that they are paying a fair charge and that the improvements they pay for are delivered,” he wrote.
As i previously reported, the Independent Commission could result in Ofwat being scrapped entirely or the various bodies being merged together, giving one organisation responsibility for finance and the environment. Signposting that major change lay ahead for Ofwat, the Environment Agency and the Drinking Water Inspectorate, Sir Jon said “increasingly complex regulatory framework have left regulators struggling with increasing and competing demands”. Sir Jon said the commission has been given a “very broad scope” and did not come with any “preconceived solutions” for beleaguered water firms.
However, he made it clear the review would not address the broader question of privatisation . Sir Jon confirmed that the public will be asked to contribute to the review via a consultation that will be launched in the new year before the commission reports back its findings in the summer. Water firms are allowed to dump sewage during times of extreme rainfall to prevent their systems from becoming overwhelmed, but there is concern over how often this is happening.
In 2023 water companies in England spilled sewage for a record 3.6 million hours across their network. Several water companies, most notably Thames Water , have found themselves in increasingly difficult financial positions after accruing large piles of debt.
Investors have refused to inject more cash into the business as they say a tougher approach being taken by regulators is making the sector unappealing. Read Next Water bill increase needed to fix sewage crisis, says minister Sir Jon said his review will look at how the regulatory system can be reformed to stop water companies destroying the environment, while still attracting private investment. He wrote: “The underlying challenge of the regulation of private sector firms is universal: the need to ensure that broader social costs are recognised without destroying incentives to innovate and to invest.
” While the review has been broadly welcomed by campaigners, some have questioned what can be achieved if the commission will not address the wider question of privatisation, which they argue has left firms prioritising dividends over investing in their infrastructure. Labour ministers have repeatedly said they will not renationalise the water industry as they argue it will be too costly for taxpayers, however some economists dispute this. Sir Jon said there were various reasons why Britain’s water infrastructure was facing pressure, including population growth, higher environmental standards and climate change.
However, he said water companies shared the blame for the situation they are now in. “Water companies are clearly struggling too, and in some cases failing to deliver what is rightly expected of them. In several cases, those struggles have been, frankly, created by water companies’ own decision making and short -term approaches,” he wrote.
This week the commission has begun meeting privately with stakeholders including water company bosses, environmental leaders and consumer groups. Earlier this week the Water Minister, Emma Hardy , told i Labour would look “very seriously” at the review’s findings. Hardy also said the Government needed to be “honest” with the public that water bills needed to rise to address the sewage crisis.
In December, the regulator Ofwat will decide how much water companies will be allowed to increase bills over the next five years to reduce sewage spills . Firms have said they need to raise the average water bill by £144 over the next five years to fix their creaking infrastructure, but Ofwat published a draft decision this year that would cap the average hike at £94, or £19 per year. The increase will be introduced from April.
‘The water sector now faces stark challenges’ Water is essential to society and to our natural environment. We all depend, every day, on the reliable supply of safe, drinking water and treatment of our wastewater. But for one of the most developed countries in the world, these basic standards cannot come at the cost of our wildlife, countryside and coastline.
People are rightly angry about this. The water sector now faces stark challenges and all sides know that change is clearly needed. And the regulatory system must lie at the heart of that change.
We need a system where water billpayers have confidence that they are paying a fair charge and that the improvements they pay for are delivered. A system where the public can have trust that the crucial standards there to protect our environment will be delivered and enforced, and that the firms in charge of this critical infrastructure are financially and operationally resilient. A system in which the investors who will provide the billions of pounds of investment the sector needs can trust that they will get a fair return on their investment and a stable regulatory environment.
And a system that is built around long-term planning and joining up at a local level across sectors that interact with our environment. This is necessary if the sector is to meet the challenges posed by climate change, population growth and ageing infrastructure. Over the coming months, the independent Commission which I have been asked to lead will look at how to reform the system to deliver that trust on all sides and to incentivise a thriving sustainable sector that can meet the demands we place upon it.
There are reasons to be hopeful. The quality of our drinking water in England and Wales remains world leading, and we are seeing investment in environmental projects across the nation. The Thames Tideway Tunnel will soon be fully operational, a £5bn project delivering under budget a cleaner river for the capital created with private investment – an example of the type of initiative we need more of up and down the country.
But it is also clear that since the sector was privatised in 1989, our population and our demand for water has grown, the standards for protection of our natural environment have justifiably been raised and the warnings of climate change and water scarcity are now becoming a reality. These pressures along with an increasingly complex regulatory framework have left regulators struggling with increasing and competing demands. Water companies are clearly struggling too, and in some cases failing to deliver what is rightly expected of them.
In several cases, those struggles have been, frankly, created by water companies’ own decision making and short -term approaches. My career began over four decades ago at what was then the Department for the Environment and Transport, working on regulation to clean up our beaches and to address the industrial pollution of our rivers. I have worked on the regulation of railways and for many years on the regulation of the financial sector, including the fundamental regulatory reforms necessary to re-establish stability and trust in the nation’s banks following the Great Financial Crisis a decade-and-a-half ago.
The underlying challenge of the regulation of private-sector firms is universal: the need to ensure that broader social costs are recognised without destroying incentives to innovate and to invest. While I hope to draw on this experience in leading this Commission, I know that the water sector has its own, unique challenges. The Commission comes with no preconceived solutions.
It has been given a very broad scope. It will listen to the voices of all those who care about our water sector and waterways, to those who have the expertise to set the right path, to those who will provide the investment we need and to the industry itself. It will look at the experience of regulation in other sectors and other countries.
We will appoint experts with a wide range of expertise on consumers, the environment, finance engineering and public health to advise the Commission. Starting this week, when I will meet representatives of those who care passionately about our natural environment, we will begin the first stage of our engagement with all those that have a stake in the system and in its future. Guided by this engagement and advice, we plan to issue a broad public Call for Evidence in the New Year, setting out in detail the challenges and the areas for reform we want to explore.
Building on that, we will issue the recommendations of the independent Commission on Water to the Government by the summer. This Commission is not about whether the sector should remain privatised. It’s about how we make our water industry fit for the long term and rebuild public trust.
The challenge here is great, but so is the opportunity. We have a chance to harness the urgent need and the passion for change to ensure cleaner water, better long-term decision making, and a sector that can draw investment from around the world and contribute to economic growth. In other words, an opportunity to reset this essential sector for generations to come and to give the public confidence in their water companies and pride in their waterways once more.
Sir Jon Cunliffe is the chair of the new independent commission into the water sector.
