Committee publishes report on the failures of water and sewage regulation

The House of Lords Industry and Regulators Committee published its report entitled ‘The affluent and the effluent: cleaning up the failures of water and sewage regulation’ on 22 March, which finds that under investment, insufficient government strategy and poor coordination has resulted in the failure to protect the water environment.

The Committee launched its inquiry into the regulation of the water industry and Ofwat, the statutory economic regulator of the water and sewerage industry in England and Wales, in May 2022, in order to review Ofwat’s performance, the adequacy of its remit, and the investment and approach needed to prevent storm overflow overuse.

The Committee acknowledges Ofwat’s new powers, which were announced on 20 March, relating to the linking of executive pay to water company performance. The Committee is of the view that water companies should not be able to receive substantial bonuses when their companies have missed performance targets and polluted the water environment. In this regard, the report finds that water companies have been focused on maximising financial returns at the expense of the environment, operational performance and financial sustainability.

The Committee’s report also identifies the following concerns: Ofwat and the Environment Agency must go further to hold water companies to account for environmental pollution through penalties and prosecution; Ofwat has failed to ensure companies invest sufficiently in water infrastructure, choosing to keep bills low at the expense of investment that is now sorely needed; Ofwat needs to find ways to increase investment outside the Price Review process and consider the important role that third-party competition could play in reducing costs; and the government has not put in place a joined-up approach to the key issues facing the sector, including reducing water pollution and securing future supply.

The Committee has requested that the government take the following action to address the issues identified: give Ofwat guidance on how it should handle the trade-off between balancing the financial needs of customers during a cost-of-living crisis with the urgent need for infrastructure and environmental investment; legislate to introduce a single social tariff in time for its inclusion in the next Price Review, which will protect vulnerable customers from bill increases and provide a baseline of support for customers regardless of who supplies their water; consider banning the sale of wet wipes that are not rapidly biodegradable; publish a National Water Strategy, which sets expectations in relation to the quality of the water environment and the resilience of water supplies, giving regulators clear benchmarks; give Ofwat powers to prevent directors of companies that are responsible for serious pollution incidents from continuing to work in the sector, providing individual accountability.

Chair of the Industry and Regulators Committee, Lord Clive Hollick, said: “During our inquiry, we have taken evidence from local communities and activist groups and received a considerable amount of written evidence. There is an overall feeling of dismay, anguish and, anger from respondents, about the state of our waterways and the apparent failure to get to grips with the problem. We are calling on regulators and the Government to consider our report’s findings and recommendations and act fast before we are all left up sewage creek.”