The regulator has been criticized for giving water companies a “license to leak” for years and not capping huge bonuses for 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, arguing that they had made investment, that the leaks were not due to old pipes and that the lack of reservoir construction was due to low demand. Recent sewage dumps and water leakage during the drought have left many questioning whether the regulator is fit for purpose, with issues such as water CEO fees, leaking pipes and unbuilt reservoirs under the spotlight. publicity. Concerns have been raised about whether Ofwat is working properly or is too close to water companies and why water is not seen as a critical political issue. Philip Dunne, the Tory MP for Ludlow and chair of the Commons environmental scrutiny committee, told the Guardian that Ofwat was not using all its powers to target CEO pay. “They already have the power to set directors’ pay and I don’t think they’ve done that.” Philip Dunne. Photo: Jessica Taylor/UK Parliament Government ministers have hinted they are frustrated that, unlike Ofwat, they are unable to force water companies to spend more on infrastructure instead of big bonuses. Sources said they would like water companies to spend much more on better infrastructure and much less on shareholder payments, but pointed out that the secretary of state has no powers to withhold dividends from water company shareholders. Steve Double, the Defra minister, said: “The public and the government rightly expect more from our water companies and we are clear that they must fix the leaks. Ofwat has set out clear financial consequences for companies that underperform on leaks. If we do not see the changes we expect, we will not hesitate to take further action.” Last week it was revealed that annual bonuses paid to water company executives were set to rise by 20% in 2021. Figures showed executives received an average of £100,000 in lump sum payments on top of their salaries during a period when they were dirty water for 2.7m hours in England’s rivers and bathing spots. In total, the 22 water bosses paid themselves £24.8m, including £14.7m in bonuses, benefits and incentives, in 2021-22. Leaky pipes have also come back into the limelight. After a drought in 1995, strict leakage targets were imposed and leakage levels were significantly reduced. But in 2002 Ofwat introduced new criteria for leakage targets, called the economic leakage level (ELL). This meant that companies only had to fix a leak if the value of the water lost was greater than the cost of fixing it. As the Angling Trust puts it: “In other words, the environmental consequences of water wastage were dismissed as irrelevant in favor of water bills.” Figures revealed by the trust show that under the ELLs scheme, leakage initially increased and then failed to appreciably decrease until a new target-setting scheme was reintroduced as part of the 2019 price review for the sector. Martin Salter, head of policy at the Angling Trust, said: “The way water is managed and regulated in this country is a complete and utter mess and Ofwat has been a major part of the problem. For years water companies have been allowed to leak, while ministers have failed to demand the levels of infrastructure investment 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 about the need for new reservoirs, such as the one campaigners have been calling for in the Thames catchment. In 2011 Ofwat refused to support plans to go ahead with the building and the Planning Inspectorate found that there was “no immediate need for a reservoir of this scale”. When the plans were revived in 2019 and debated in parliament, Charles Walker, the Tory MP for Broxbourne, said: “Ofwat’s role has not yet been mentioned. It has no duty to have any environmental assessment. Her only interest is to reduce the bills, but she should be much more concerned about the environment. I think we’ve all had enough of Ofwat in this place. I hope the minister will take this into consideration.” Jonson Cox, the chairman of Ofwat. Photo: Tom Stockill NGOs have also raised the alarm about the appearance at times of a tortuous relationship between Ofwat and water companies. There was media attention when Jonson Cox, a former Anglian Water executive who left with a £9.5m ‘golden goodbye’, went to work as chairman of Ofwat. And last year Thames Water hired Cathryn Ross as director of strategy and external affairs. Her previous job was Chief Executive of Ofwat. Dunne believes that for decades water companies and the regulator operated in an environment where water and wastewater were low political priorities. “I think everyone would suggest that not enough is being done, but that’s because water hasn’t been the political priority,” he said. “We are only now seeing the consequences of the lack of political priority and investment in recent decades.” Dunne argued the system needed an overhaul because two separate agencies, Ofwat and the Environment Agency, regulate water companies, so there is not a holistic approach and the harshest possible penalties are not being imposed. “We have a regulatory system which, with the division between the financial regulator and the environmental regulator, means that, I think, there are questions about whether this is the best means of regulating any industry because there is a separation of responsibilities. “The Environmental Protection Agency is now in place and has decided as one of its first kinds of general investigations to look at whether or not the regulatory system is working. And that’s something I very much welcomed.” Ofwat has been contacted for comment.
