Water and Sewage Regulation (Industry and Regulators Committee Report)

Baroness Bowles of Berkhamsted Excerpts

Monday 16th October 2023 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I have been on the Industry and Regulators Committee since its inception and I am pleased that, before my time to rotate off, we will be looking at the issue, among other things, of whether regulators have the right kinds of remits, overlaps and priorities and whether the government/regulator relationship is right. It is my view that our Ofwat inquiry highlights well areas for improvement in those matters and, in the important case of utilities, whether privatisation has made things far too private—by which I mean lacking in transparency and in action.

One of the conclusions of our report deals with this by suggesting that utility companies should be subject to the same kinds of transparency requirements as publicly listed companies. There has clearly been failure. Water companies have got away with sweating the assets for far too long, to pay out large dividends instead of properly providing for future infrastructure, and have turned emergency sewage discharge into a routine way of operation.

Regulators focused too much on bills as their yardstick, were dozy about future water security and complacent about discharges, while Governments—always suspect in the short-term electoral cycle—have set meagre targets and inadequate Environment Agency budgets and have been held in thrall to the construction industry when it comes to changing planning laws in necessary ways. It is a catalogue of failure, leaving a dire situation for both finance and infrastructure.

A fundamental requirement throughout the company and regulator chain must be to ensure investment sufficient to match demand caused by population growth, property development and climate change. That has fallen a long way behind and there is no way to claw back the money that has gone to private pockets, leaving consumers to foot the bill in future. I doubt there is going to be any other way.

Behavioural change in water consumption has a part, and it will now have to be more draconian than it need be, and so too does banning harmful products such as wet wipes that cause environmental damage and cost. Why is it that the pleas of the wet wipe industry to government have overturned the needs of the sewage industry? The Environment Agency has found that last year the environmental performance of water companies was at its lowest ever, so what are it and the Government doing about it, other than monitoring decline?

Ofwat says that 14 of the 17 water companies have not spent the funds they have been granted to invest in the network, with some spending less than half. So what is happening, other than knowing the bad statistics? In recent times, there have been more fines levied for pollution, but that is not getting at those responsible; it has to come back to the boards and executives of the water companies. Whether it is sewage or lack of investment, these are things that affect the health and well-being of everyone. I am just as worried about a pathogen in waterways as I am about a dodgy financial product. The first might kill me, the latter might fleece me—so why do we closely regulate only the latter?

The former Ofwat chair Jonson Cox said in a letter to the committee that the sector had “lost public legitimacy”. He said it was

“tempting to lay the blame at the doors of regulators. But these are FTSE 100/250 scale companies and need to take responsibility, as the regulatory regime requires them to do”.

He went on to say:

“The CEOs and shareholders of these large-scale companies need publicly to face into their performance shortfalls, and not hide behind their trade association, Water UK, or regulators”.


Well, I agree with that, as did the committee, but surely as utilities they have responsibilities beyond that of top-end listed companies and must be held accountable accordingly—not, as seems currently the case, having health and safety cop-outs and being treated more leniently than others who released pathogens into public places would be. If water companies do not perform, responsible people should be banned from the sector, and indeed from other utilities—end of. Regulators need to be more joined up, cover more and be more active. Utilities are special and special provisions must apply, and that should apply to underspending on investment as well as to illegal discharges.