The “deep-rooted, systemic” problems in the water industry in England and Wales are the fault of companies, the government and industry regulators, according to a much-anticipated review, which was immediately criticised for failing to recommend bold action by sewage pollution campaigners.
An interim review into the water industry written by Sir Jon Cunliffe, a former deputy governor of the Bank of England, and commission by the government found there was “no simple, single change, no matter how radical, that will deliver the fundamental reset that is needed for the water sector”.
Cunliffe, the chair of the IndependentWaterCommission, said public trust in the water industry had been shaken by “pollution, financial difficulties, mismanagement [and] infrastructure failures”.
Campaigners expressed disappointment that the report failed to recommend clear actions to end the crisis, which wasunderlined on Tuesdaywhen Thames Water, Britain’s biggest water company, said the US private equity group KKR had pulled out of a deal to inject fresh equity, leaving its future in doubt.
James Wallace, the chief executive of River Action, said:“This interim report signals some progress on regulation, but it reads more like a sales pitch to international investors and overpaid CEOs than the urgent restructuring of corrupted water companies.
“We ask the commission to learn from other countries how to ensure water companies are owned, financed and operated for public benefit.”
Cunliffe was prevented by the government from considering public ownership of water in his remit. He said there was a need to change the industry and its regulatory framework in order to attract investors prepared to take on a low-risk, low-return stake, that was stable over time.
He said: “We have heard of deep-rooted, systemic and interlocking failures over the years – failure in government’s strategy and planning for the future, failure in regulation to protect both the billpayer and the environment and failure by some water companies and their owners to act in the public, as well as their private, interest.
“My view is that all of these issues need to be tackled to rebuild public trust and make the system fit for the future.”
The economic regulator Ofwat, and the environmental regulator, the Environment Agency, had lost public trust, and their work overlapped, created tensions and left gaps in regulation, he said.
Cunliffe is considering a recommendation that the regulators should be streamlined, which could result in merging them. He is also considering a requirement for economic regulation to become more supervisory, in order to intervene before problems happened.
But Tim Farron MP, the Liberal Democrat environment spokesperson, said the commission needed to go further and recommend that Ofwat be scrapped. “At the heart of the sewage scandal is a regulatory system which has failed,” he said.
“It’s going to take more than a hose down to clean up the water industry. It’s time for Ofwat to go and the commission must now make this plain.”
Sign up toBusiness Today
Get set for the working day – we'll point you to all the business news and analysis you need every morning
after newsletter promotion
Cunliffe’s review was set up by the government amid growing public concern about record sewage spills and rising bills.
He said he was considering a requirement for the economic regulator to be given powers to ensure owners of water companies did not act against the public interest. This would include tools to take over the direction of companies and intervene in changes of ownership when needed.
But Giles Bristow, the chief executive of Surfers Against Sewage, said the report was a tinkering around the edges, which the public would not stand for. “The criminal behaviour, chronic lack of investment and woeful mismanagement which has led to sewage filled seas is a direct result of our profit driven system. This interim report begins to recognise this, but as yet does not spell out the need to end pollution for profit,” he said.
“The commission’s final recommendations must reshape the water industry to put public health and the environment first.”
Richard Benwell, the chief executive of Wildlife and Countryside Link, said the government needed to start work now on vital reforms to cut pollution.
“The findings of failings suggest a clear direction of travel. Politicians must stop equivocating and set clear strategic direction for environmental recovery. Strong, enforceable targets are needed for water quality that can be applied across sectors,” he added.
A Water UK spokesperson said: “Everyone agrees that the water industry is not working. We hope this report will be a starting point for the fundamental reforms the sector needs. We need a less complicated system which allows investment to get quickly to where it needs to go.”