The government-commissioned review calls for reform of laws, regulation, and company management and infrastructure.
The water sector is beset with “deep-rooted, systemic” failures, and needs fundamental reform of laws, regulation, and infrastructure, a review has warned.
The Independent Water Commission was tasked by the UK and Welsh governments to carry out the largest review of the sector since privatisation in the face of widespread public anger over pollution, bills, and bosses’ bonuses although ministers ruled out nationalising water companies.
Its interim report has been published as Britain’s biggest water company Thames Water is again facing the spectre of temporary nationalisation after private equity firm KKR pulled out of plans for a £3 billion bailout.
Another of England’s private water firms, South West Water, reported widening financial losses after an outbreak of a parasite in water supplies cost it millions.
And water supplies are under pressure after the driest spring in decades has left farmers struggling and millions of households facing the possibility of hosepipe bans, while ministers have warned climate change, a rising population and crumbling infrastructure is putting future supplies at risk.
In the interim report published on Tuesday, the commission said multiple issues need to be tackled to rebuild public trust in the ailing sector.
Related Stories
It called for regulator Ofwat’s role to be strengthened and for the watchdog to adopt a more “supervisory” approach to oversight of water firms.
Former Bank of England Deputy Governor Sir Jon Cunliffe, who led the review into the water sector in England and Wales, told the BBC that more effective regulation was a huge part of solving the problem, with a regulator that could step in early before things got worse.
He said, “Because when they get worse, as you can see, they are very difficult to sort out, and we need an environmental regulator with the capability to monitor and enforce.”
He also said that having regulators with different remits and responsibilities for different parts of the process had made the water system “expensive and incoherent.”
People take a selfie on the dry cracked earth at Baitings Reservoir in Ripponden, West Yorkshire, on Aug. 12, 2022. Danny Lawson/PA
The interim review urges the government to provide clearer long-term direction on what is needed from the water system, and warns key elements of current legislation are “badly in need of review and rationalisation.”
It proposes greater regional decision-making around local water systems, and emphasises the need for a greater focus on long-term, responsible investment and ownership within the industry.
It is also considering new standards for the water sector’s crumbling infrastructure, warning there is insufficient understanding of the health of assets such as pipes and water treatment plants.
Companies should plan for long-term resilience of “critical assets,” not simply fix things when they fail, it warned.
Cunliffe said: “There is no simple, single change, no matter how radical, that will deliver the fundamental reset that is needed for the water sector.
“We have heard of deep-rooted, systemic and interlocking failures over the years—failure in government’s strategy and planning for the future, failure in regulation to protect both the billpayer and the environment, and failure by some water companies and their owners to act in the public, as well as their private, interest.
“My view is that all of these issues need to be tackled to rebuild public trust and make the system fit for the future. We anticipate that this will require new legislation.”
Anger has been growing over the polluted state of rivers, lakes, and coastal waters, leaks and sewage spills at the same time as significant shareholder payouts and bosses’ bonuses, and bills which were hiked in April to pay for investment to fix creaking infrastructure.
On Tuesday, Thames Water announced private equity giant KKR has pulled out of plans to invest in the company, in the latest blow to the struggling and heavily indebted utility.
Thames Water—which supplies 16 million customers—had hoped KKR would invest more than £3 billion of new equity amid fears the supplier was running out of cash, and its withdrawal from the deal raises the spectre of a temporary government nationalisation once more.
And South West Water’s owner Pennon has reported widening losses after a parasite outbreak in Brixham, South Devon, cost it around £21 million.
The outbreak put some people in hospital and left thousands of homes without safe drinking water, some for weeks.
A Surfers Against Sewage activist holds a board reading “End sewage pollution” during a protest in Brighton, southern England, on May 20, 2023. Ben Stansall/AFP via Getty Images
Though the interim review points to the need for better regulation of water companies, it does not recommend the wholesale scrapping of watchdog Ofwat which some have urged, and nationalisation—which some campaigners have called for—was excluded from its terms of reference.
Environment Secretary Steve Reed said he had commissioned the water commission to outline recommendations for a “once in a generation” opportunity to transform the water industry and delivered for the public.
“The government will respond to the commission in full in due course and outline next steps to benefit customers, attract investment, and clean up our waterways for good,” he said.
Environmental campaigners called for the final report, expected later in the summer, to reshape the water sector to put public health and the environment first, and for the government to implement ambitious reforms.
Richard Benwell, chief executive of the Wildlife and Countryside Link, a coalition of 89 nature organisations, demanded, “Politicians must stop equivocating and set clear strategic direction for environmental recovery.”
A spokesperson for industry body Water UK said: “Everyone agrees that the water industry is not working.
“We hope this report will be a starting point for the fundamental reforms the sector needs.
“We need a less complicated system which allows investment to get quickly to where it needs to go,” they said, adding the sector was spending £104 billion in the next five years to secure water supplies, cut sewage, and support economic growth.