Poster put up by residents in Sussex frustrated by failure to repair a long-standing leak. Photo Workers.
A new government-commissioned report into the water industry is good (in parts) at identifying glaring problems. But its proposals go nowhere near what is needed, and risk fragmenting the industry even further…
The Labour government’s Independent Water Commission has produced a report on the water industry, to try to damp down public anger at the industry’s dreadful performance. But it falls far short of answering fundamental questions about the cause and what’s to be done.
The commission, led by Sir John Cunliffe, a senior civil servant, who served as Deputy Governor of the Bank of England for Financial Stability, was given the remit of looking only at ways to “improve the privatised regulated model”. But the model itself is the problem that has brought about raw sewage flowing into our rivers, lakes and seas, soaring bills, excessive shareholder dividends and unjustifiable directors’ salaries and bonuses.
The report, published on 21 July, is a scorching indictment of the way that this vital industry is organised. It said, “Neither the industry as a whole, nor the regulator, appears to have a clear understanding of the amount of intervention and investment required to reach a sustainable level of renewal, nor the standard it should be aiming for.”
Resilience
The commission said that as a result, it did not have a clear view of the condition of water industry – its assets, past renewal and maintenance, and overall resilience. The report says that’s not good enough, “Infrastructure resilience should be a strategic imperative for water companies, rather than an afterthought.”
There are other aspects of failure too: no integrated planning across the water system; the planning that currently exists is not comprehensive; and decision-making is fragmented.
The commission recommends creating a single National Water Strategy “to support stable long-term investment planning”. But it then refuses to recommend creating the single authority needed to implement such planning.
Perversely it recommends devolving planning powers by creating eight new regional water planning authorities in England, with a separate authority for Wales. That looks like the opposite of integrated planning.
And because of devolution there’s an absurd recommendation to divide responsibility for the River Severn along the Welsh border! The longest river in Britain, it is prone to extensive flooding: a clear case for being managed as a whole.
The single systems planner in Wales would be accountable to the Senedd, but not to the British government or people.
The commission also recommends creating a new National Water Strategy for Wales. It happily advocates planning across the whole of Wales, but not across the whole of Britain!
When ministers point to £44 billion of new investment by 2030, they fail to mention that the British people will fund this through higher bills. Speaking at the report’s launch, Cunliffe said, “We have to recognise that the cost of producing water and waste water services is likely to increase over the medium and longer term as the industry has to replace ageing assets, respond to higher environmental and public health standards and continue to adapt to the challenges of population growth and climate change.”
Bills
Last year, Ofwat said the water companies could raise our bills by an average of 36 per cent by 2030. And some companies have challenged that as too low.
Environment Secretary Steven Reed claimed at the report’s launch that households will “never again” face major water bill hikes. But when questioned, he said it was merely “the intention” that the reforms would ensure there was enough investment to prevent a repeat of the recent increase.
Our bills fund more than investment though. The total pay of water company chief executives in England and Wales rose by 5 per cent to reach £15 million in 2024-25, an average of £1.1 million each. The highest-paid was the CEO of Severn Trent: she got £3.3 million during the financial year. The biggest pay increase went to the CEO of Affinity Water: an extra £844,000, doubling his total pay to £1.6 million.
Ofwat banned six companies from paying bonuses to their chief executives and chief financial officers for the 2024-25 financial year – Thames Water, Anglian Water, Southern Water, United Utilities, Wessex Water and Yorkshire Water.
But that hasn’t stopped the gravy train. Southern Water evaded the ban by giving its CEO an 80 per cent pay increase to £1.4 million, which Ofwat accepted. In April, Thames Water paid £2.5 million in bonuses to 21 senior staff to reward them for taking out an absurdly high-interest loan. And Yorkshire Water’s CEO was simply paid £1.3 million by its parent company.
The commission grudgingly acknowledged concerns about the level of dividends. It says, “There are legitimate questions about whether companies have, in some cases, issued dividends at the expense of their own financial resilience.”
Dire
But that’s as far as it goes: the commission says that it “…agrees with Ofwat’s existing approach, whereby companies must show dividend levels reflect company performance.” But it does not examine the mismatch between inflated dividends and dire performance across the sector. Incredible!
‘If companies had paid less in bonuses and dividends, they would have had more available to invest…’
If the companies had paid out less in inflated salaries, bonuses and dividends, they would have had more available to invest. Instead, Cunliffe repeats the line put forward by the CEOs (in their own interest) that companies need to attract the best people.
The commission makes the dubious claim that, “companies were able, as intended, to finance new infrastructure through borrowing without the ratio of debt to equity becoming so high as to threaten their financial resilience headroom.”
But Thames Water’s £16 billion debt threatens its future, with administration and takeover imminent. And it’s not alone – the sector had combined debt of £60 billion last year.
Ofwat would be scrapped as one of 88 measures set out to tackle problems in the water sector. The report notes that the regulatory system was far too fragmented and states that “fully joined-up regulation is essential for the system to meet the demands of the future.” But it then recommends that Wales should have a separate economic regulator, and that Ofwat’s responsibilities should be integrated into Natural Resources Wales.
Much commentary on the report has focused on regulation of the industry, or in the case of some trade unions only about protections for their members. Unison the leading union in the sector, took a broader view. It says that the industry needs fundamental change, not tinkering with regulation. Certainly people care about reducing pollution and leaks and limiting increased bills; regulation is only a means to those ends.
The commission has failed to address the problems faced by those who work in the industry, those who actually run it. The industry has skills and recruitment challenges which the companies are ignoring.
Safety
The companies continue to put profit before public safety. For example Thames Water recently sacked a GMB member who raised concerns about unsafe practices at Mogden Sewage Treatment Works.
Calls for nationalisation must not obscure the key need for workers in the industry to take both personal and collective responsibility for their industry. The whole culture in the water industry has to change.
Our class should focus on the whole industry, its purpose and function. We must enforce professional standards of competence and public safety, and take control of this vital industry. We cannot devolve that to any government or its regulators.