Ofwat, the water regulator, is not using its full powers to tackle pollution and sewage leaks, ministers, MPs and charities have said.
The regulator has been criticized for giving water companies a “leakage license” for years and for failing to limit massive bonuses to CEOs who preside over a system of pollution and chaos.
Last week there was an outcry after the chief executive of Ofwat appeared to defend the water companies, saying they had made investments, that the leaks were not due to old pipes and that the lack of tank construction was due to low demand.
Recent sewage dumps and water leaks during the drought have many people wondering if the regulator is fit for purpose, with issues including the water CEO’s salary, water leaks pipes and unbuilt tanks under the spotlight. Concerns have been raised about whether Ofwat is functioning properly or too close to water companies, and why water has not been seen as a critical political issue.
Philip Dunne, Conservative MP for Ludlow and chairman of the House of Commons environmental audit committee, told the Guardian that Ofwat was not using all of its powers to target CEO pay. “They already have the power to sanction director compensation deals, and I don’t think they’ve done that.”
Government ministers have hinted they are frustrated that they cannot, unlike Ofwat, force water companies to spend more on infrastructure instead of big bonuses.
Sources said they’d like to see water companies spend a lot more on better infrastructure and a lot less on shareholder payouts, but pointed out the secretary of state doesn’t have the power to withhold shareholder dividends water companies.
Steve Double, Defra Minister, said: ‘The public and the government rightly expect more from our water companies and we have made it clear that they need to fix the leaks. Ofwat has put in place clear financial consequences for companies that underperform on leaks. If we don’t see the changes we expect, we won’t hesitate to take further action.
Last week it was revealed that annual bonuses paid to water company executives had risen by 20% in 2021. Figures show executives have received an average of £100,000 in one-off payments on top of their salaries, during a period when dirty water was pumped out. for 2.7 million hours in England’s rivers and bathing places.
In total, the 22 water bosses have paid themselves £24.8m, including £14.7m in bonuses, benefits and incentives, in 2021-22.
Leaky pipes have also returned to center stage. After a drought in 1995, strict leakage targets were imposed and leakage levels dropped significantly. But in 2002, Ofwat introduced new criteria for leakage targets, called the Economic Leakage Level (ELL). This meant that companies only had to repair a leak if the value of the water lost was greater than the cost of repair.
As the Angling Trust puts it: “In other words, the environmental consequences of wasting water have been dismissed as irrelevant in favor of lowering water bills.” Figures uncovered by the trust show that under the ELL regime leaks first increased, then did not decrease appreciably until a new goal-setting regime was reintroduced into the framework. of the 2019 price review for the industry.
Martin Salter, policy manager at the Angling Trust, said: “The way water in this country is managed and regulated is a complete and utter mess and Ofwat has been a big part of the problem. For years they have given water companies a leak permit while ministers have failed to demand the levels of investment in infrastructure needed to enable us to store water in times of surplus to protect consumers , the environment and the economy in times like these.
The clogged tank
Meanwhile, there are concerns over the need for new reservoirs, like the one campaigners have called for in the Thames Water catchment area.
In 2011 Ofwat refused to support the building plans and the Planning Inspectorate determined that there was “no immediate need for a tank of this scale”. When the plans were relaunched in 2019 and debated in parliament, Charles Walker, the Tory MP for Broxbourne, said: “The role of Ofwat has not yet been mentioned. It has no obligation to respect the environment. His only interest is to lower the bills, but he should be much more interested in the environment. I think we’ve all had enough of Ofwat in this place. I hope the minister will take that into account. »
NGOs have also sounded the alarm about the sometimes emergence of a revolving door relationship between Ofwat and water companies. There was media attention when Jonson Cox, a former Anglian Water executive who left with a £9.5million ‘golden farewell’, went to work as chairman of Ofwat. And last year Thames Water hired Cathryn Ross as director of strategy and external affairs. His previous job was CEO of Ofwat.
Dunne believes that for decades water companies and the regulator operated in an environment where water and sewer were low political priorities. “I think everyone would suggest that we’re not doing enough, but that’s because water hasn’t been given political priority,” he said. “Only now are we seeing the consequences of the lack of political priority and investment over the past decades.”
Dunne argued that the system needs to be overhauled because two separate agencies, Ofwat and the Environment Agency, regulate water companies, so there is no holistic approach and the harshest possible penalties will not are not taken.
“We have a regulatory system which, by dividing between the financial regulator and the environmental regulator, means that I think there are questions to be asked about whether this is the optimal way to regulate an industry because there is a division of responsibilities.
“The Environmental Protection Board is now in place and has decided, in one of its first comprehensive inquiries, to find out whether the regulatory system is working or not. And that is something that I received very well.
Ofwat has been contacted for comment.