The water sector in England and Wales is at a crossroads, with a scathing report from Parliament’s Environment, Food and Rural Affairs Committee (EFRA) calling for “root and branch reform.” The report, ‘Priorities for water sector reform’, pulls no punches, stating that water companies have increasingly prioritised financial gains over their core purpose of servicing critical infrastructure. This stark assessment could reshape the sector’s future, pushing it towards greater accountability, transparency, and a renewed focus on public service.
The report’s findings, based on evidence sessions with major water and sewerage companies, paint a damning picture of a sector plagued by cultural issues, poor leadership, and a regulatory environment that has failed to incentivise improvement. The Committee urges the Independent Water Commission, led by Sir Jon Cunliffe, to consider a variety of corporate ownership models that could foster a better culture of responsible leadership. This call to action could spark a significant shift in the sector’s structure, with MPs advocating for greater regulatory oversight of potential owners to prevent bad actors from controlling vital national infrastructure.
One of the most contentious issues highlighted is the payment of millions in bonuses to senior executives, despite poor performance. This practice, the report argues, “seriously diminishes trust” and may not incentivise the necessary improvements. The Committee calls for reforms to ensure that the right people are in senior positions, with greater oversight from Ofwat before appointments and bonuses are made. This push for greater accountability could lead to a significant overhaul of the sector’s leadership and incentive structures.
The report also delves into the financial management of water companies, criticising the “serious economic mismanagement” and calling for greater regulation of debt accumulation. MPs argue that a culture of relying on debt must not be allowed to arise again, and that dividends should correlate with a company’s performance. This could lead to a more sustainable financial model for water companies, with a greater focus on long-term service delivery and environmental protection.
The Committee supports the Water Commission’s focus on creating a better regulatory framework but stresses that a good framework is nothing without well-equipped regulators. They call for automatic access to water companies’ data for regulators and a price review process that encourages better resilience and long-term water security. This could result in a more robust regulatory environment that better protects customers and the environment.
The report also highlights the need for improved communication with consumers and the introduction of a single social tariff to protect low-income households. The Committee wants the Commission to address issues of local coordination and communication, and to consider statutory standards to create a customer-first culture. This push for greater consumer focus could lead to significant improvements in customer service and support for vulnerable customers.
Chair of the EFRA Committee, Alistair Carmichael MP, summed up the report’s findings, stating that “the water sector has a serious culture problem.” He argued that water companies have lost sight of their primary functions and that an ineffective regulatory system has failed to protect customers, the environment, and the sector’s financial stability. Carmichael called for bold proposals from the Water Commission to resolve the issues plaguing the sector and ensure it is fit for purpose, both now and in the long term.
The report’s findings and recommendations could have far-reaching implications for the water sector. They challenge the status quo, pushing for a more accountable, transparent, and customer-focused industry. The Independent Water Commission now has the opportunity to take these findings on board and propose bold reforms that could reshape the sector’s future. The upcoming evidence session with Sir Jon Cunliffe will be a crucial moment in this process, with the Committee putting their findings to the Commission’s Chair and pushing for meaningful change. The water sector is at a pivotal moment, and the decisions made in the coming months could determine its future for decades to come.