UK water industry needs tougher policing, says Lords report

The UK government and regulators are failing to police the privatised water sector adequately, with companies prioritising financial returns at the expense of “sorely needed” infrastructure investments, according to a parliamentary report.

The lax oversight regime allowed the utilities to remain “overly focused on maximising financial returns at the expense of the environment, operational performance, and financial sustainability”, the House of Lords industry and regulators committee said on Wednesday.

Evidence gathered during the peers’ inquiry had revealed “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”, said Lord Clive Hollick, the committee chair.

The government and regulator had to do more to hold the industry to account for pollution and executives should not be entitled to “substantial bonuses” if their companies missed key performance targets, the report said. The water industry was privatised in 1989.

Ministers should also give regulator Ofwat the power to ban the directors of companies responsible for “serious pollution incidents” from continuing to work in the sector, the report recommended.

There has been a growing public backlash over the poor state of the country’s waterways. A scathing report by MPs last year found that only 14 per cent of rivers in England were rated as having “good” ecological status.

The Environment Agency, another regulator that has been blamed for failing to take effective action against polluters, found last year that the environmental performance level of water companies was at its lowest ever.

The committee called on the government to ensure the agency had “adequate funding” to investigate, prosecute and levy penalties against water companies for polluting.

The wide-ranging report found that the levels of investment had not matched the rising demand for water and sewage services or for maintaining and upgrading infrastructure. The network was now “unable to cope”, it said, while urging the government to clarify how Ofwat should balance the short-term need to keep bills low while ensuring enough investment to secure long-term supply.

It called on ministers to produce a national water strategy that covered both water quality and security of supply and set regulators clear targets. The report also said the government should introduce a “single social tariff” to protect vulnerable customers who could not afford their water bills.

Ofwat said this week it would be acquiring new powers to block companies from paying out dividends if they failed to meet customer and environmental performance targets. As part of ensuring that water companies comply with their statutory obligations, which include maintaining sewers, Ofwat regulates how much water companies can charge customers.

Ofwat called the report “helpful and detailed” and said there was “work in train” in a number of the areas it had identified.

“The committee has called on us to allow companies more money to invest in the network. We agree that more spending is needed. At the same time we note that, over the last two years, 14 of the 17 water companies have not spent the funds they have been granted to invest in the network, and some have spent less than half,” the regulator added.

Water UK, the industry trade body, said the committee was “right to encourage a more holistic approach to improving water quality that involves industry, government and regulators”.

It added: “We welcome the committee’s clear recommendation that the government provide Ofwat with guidance on the increased level of investment needed to deliver further improvement to the environment and water security.”

The Department for Environment Food and Rural Affairs said the government knew more needed to be done and “we will go further and faster to hold companies to account in delivering for customers and our environment”.