A new, “powerful” water regulator should replace Ofwat, the Drinking Water Inspectorate and the Environment Agency to “reset” a sector tarnished by scandals over sewage spills and financial mismanagement, a major review has recommended.
The government is expected to adopt the recommendation for England and Wales made in the review it commissioned from Sir Jon Cunliffe, a former deputy governor of the Bank of England, which was released on Monday.
Critics have said Ofwat has presided over a culture of underinvestment in infrastructure and financial mismanagement by water companies since its creation in 1989, when the industry was privatised.
Thames Water, the most troubling case for the government and the UK’s largest water company, is loaded with £20bn in debt and struggling to stave off financial collapse into a special administration, a form of temporary nationalisation.
Cunliffe’s review suggested a new regulator, with powers to “direct”, or take control of, failing water firms.
Speaking on BBC Radio 4’s Today Programme, Cunliffe said Ofwat had “failed” because “for many years it didn’t have the powers”. He added: “To be blunt about it, it was directed by government to take a light touch to regulation.”
Cunliffe said the complexities of the water industry required “a broader, less monolithic and a less desk-based approach to economic regulation and to the oversight of companies’ performance against their licences”.
Emma Hardy, the minister for water and flooding, said the government would spend the summer examining how many of the report’s 88 recommendations to adopt. “We are going to introduce a water bill next year that will change the law and put many of them into law,” she said.
The environment secretary, Steve Reed, also announced on Monday he would be taking up the recommendation in the report to create an ombudsman with legal powers to compensate consumers who are failed by the water industry, for example with taps running dry due to burst pipes and sewage leaks in gardens.
The report found that there are only 58 members of staff charged with protecting the safety of the country’s drinking water, because of civil service rules on headcount and pay.
This means, the commission said, the Drinking Water Inspectorate in its current form may not be able to meet the “challenges of the future”. The report also says the country is not protected from pollutants in water such as Pfas, or “forever chemicals” and microplastic, and recommends legislative changes to address these and remove them from the water supply.
It also recommends that bills are not raised dramatically, as they were in April and will be until the end of the decade, with the new regulator prioritising consistent investment in infrastructure so companies do not have to “play catch up” and have to increase bills to urgently build or repair sewers and reservoirs.
Compulsory smart metering should also be rolled out in homes across England and Wales, the commission recommends, meaning households who use greater volumes of water will be charged more. The report also suggests more businesses are given smart meters to drive down water use and a nationwide social tariff to help consumers who cannot afford their bills.
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The commission was banned by Reed from considering the nationalisation of water. It did, however, consider the possibility of water companies transferring to a not-for-profit model, as is employed at Welsh Water.
Cunliffe said the regulation of water companies and how they were managed was a bigger factor in whether they performed well or badly, rather than their ownership structure.
James Wallace, the chief executive of River Action, said: “This was a once-in-a-generation opportunity to reset a broken and corrupted system. Instead, the commission blinked. After three decades of privatisation, there is no evidence it can work.”
Gary Carter, national officer at the GMB union, said: “Water privatisation has been a disastrous failure. Our rivers and waterways have been fouled, while bills rocket and fat cat bosses get rich.
“Meanwhile, the water infrastructure crumbles through lack of investment. It’s a disgrace – and one Ofwat has overseen.”
The former Undertones frontman and water campaigner Feargal Sharkey said Reed should resign over a failure to grip the issue of sewage pollution. He told Good Morning Britain: “I think Steve has got to reflect very carefully on the shambles that the last 12 months has been. He should go.”