Water sector review could include replacing Ofwat amid row over bills and sewage

An independent review into the water industry could consider abolishing regulator Ofwat among other measures to reform the sector, after a public outcry over bills, bonuses and sewage pollution.

The UK and Welsh governments announced what they said was the largest review of the sector since privatisation, with an independent commission chaired by former deputy governor of the Bank of England Sir Jon Cunliffe.

It will focus on the water sector and its regulation, and will have no limits in the scope of its potential recommendations, including wholesale reform of Ofwat and how it interacts with other watchdogs such as the Environment Agency.

He said: “I don’t rule that out. What I’ve asked Sir Jon to do is a root-and-branch review of the entire sector – that includes looking at regulation and the regulator.”

The review is designed to tackle systemic problems and secure the infrastructure needed to meet future challenges, drive economic growth and clean up Britain’s rivers, lakes and seas, the governments said.

Ministers say its recommendations, which will be handed to them in the second quarter of next year, will form the basis of further legislation to attract long-term investment and clean up the country’s polluted waterways and coasts.

The move comes after years of underinvestment, a growing population and extreme weather caused by climate change have led to intense pressure on England’s ageing water system, causing widespread flooding, supply issues, sewage pollution and leakages.

Public fury has swelled over the degraded state of the country’s rivers, lakes and coastal waters and at a lack of investment in water infrastructure, rising bills, high dividends and debt and executive pay and bonuses at privatised water firms.

Fresh figures released by Ofwat on Tuesday showed water companies have asked to hike consumer bills by even more than they originally requested, despite attempts by the watchdog to curb bill increases.

The latest requests by water firms would see the average bill in England and Wales grow by 40% by 2030, rising to £615 per year.

Many argue that they need to spend more on upgrading their pipes, sewers and reservoirs than originally planned.

Ofwat is due to make a final decision on bills increases on December 19, with companies going to the negotiating table with regulators between now and then.

The commission’s findings and recommendations will not affect the current round of price rises, which takes place every five years.

Mr Reed said:  “Our waterways are polluted and our water system urgently needs fixing.

“That is why today we have launched a Water Commission to attract the investment we need to clean up our waterways and rebuild our broken water infrastructure.

“The commission’s findings will help shape new legislation to reform the water sector so it properly serves the interests of customers and the environment.”

Water Commission chairman Sir Jon said: “Working over many years in the public sector, in environment, transport and the Treasury, and the Bank of England, I have seen how the regulation of private firms can be fundamental to incentivising performance and innovation, securing resilience and delivering public policy objectives.”

The commission will assemble a panel of experts to help guide its recommendations, from the regulatory, environment, health, engineering, customer, investor and economic sectors.

The panel will not include representatives from the privatised water companies, but the commission will engage with the industry.

“Both the Welsh and UK governments are determined to improve water quality and the resilience of the water sector for future generations.”

The commission will have a series of objectives including establishing a clear vision for the water sector, better regulation and empowering regulators, ensuring a stable framework that attracts investment, and safeguarding the consumer and affordability of bills.

It will also focus on delivering resilient infrastructure in the face of a growing population and climate change.

David Black, chief executive at Ofwat said: “We welcome the Water Commission’s review and look forward to being able to work with the Government on the change that is needed to drive better outcomes for customers and the environment.

“We are ready to back record investment, the challenge for water companies is to match that investment with the changes in company culture and performance that are essential to rebuilding the trust of customers and the public.”

The launch of the commission follows the introduction of legislation to bring criminal charges against water executives and a ban on bonuses, the Environment Department (Defra) said.

Campaign group River Action’s chief executive James Wallace said: “It’s encouraging to see the new Government swiftly addressing water pollution and scarcity in its first 100 days.

“The Water Commission must deliver a fully funded national action plan to end pollution for profit, enforce laws, and reform regulators.

“The plan must cover agriculture and water companies, propose legislation prioritising public benefit over profit, and ensure polluters pay.

“It must restore funding to regulators and reform the system blocking sanctions and legal action,” he urged.

Campaigners are holding a march for clean water in central London on November 3.

Campaigners who want to see the water sector renationalised criticised the review for continuing with privatisation.

Matthew Topham, lead campaigner at We Own It, said: “The review is deaf to the calls of the public, anti-sewage groups and the international community to wrestle with the root cause of the sewage crisis: privatisation.

“Without serious thought, this Labour government will be remembered for its re-privatisation of England’s water system — repeating a failed experiment which has been studiously avoided the world over.”

The Environment Secretary said the problems with the water industry are “failures of regulation and governance, not ownership” and that the Government was not looking at renationalising the water industry because it would cost billions of pounds and take years.

“You see the state that the economy is in. And frankly, it would cost tens of billions of pounds to nationalise the water sector.

“And if we were to decide to spend that amount of public money, which we won’t, it would also take years to unravel the current ownership model,” he told ITV’s Good Morning Britain.