UK and Welsh government water commission must help end sector ‘doom loop’

The regulator, Ofwat, could be overhauled or even replaced as a new commission is set to carry out a “root and branch” assessment that will consider all options for the future regulation of the industry. However, re-nationalisation has been ruled out.

The water sector has faced significant criticism and difficulties over the years. Thames Water, for instance, has indicated the need to raise bills by 59% to maintain operations, far above the increase of 23% previously approved by Ofwat. The initiative aims to address the systemic issues plaguing the industry, including pollution, infrastructure decay, and the need for substantial investment to ensure future resilience and sustainability.

Gordon McCreath, water industry specialist at Pinsent Masons, said: “As with the previous major announcements on the government’s water strategy, there is a welcome tone of pragmatism in this step.”

The commission will look at strategic planning and double down on protecting consumer interests. The review will also look to establish rules to hold companies to account without putting off potential investors, drawing on a panel of experts from various sectors including regulatory, environmental, health, engineering, investor and economic fields.

The review is part of a broader government strategy to reset the water sector, ensuring it can meet the challenges posed by climate change, population growth, and the need for significant infrastructure upgrades. The goal is to restore the health of the UK’s rivers, lakes, and seas, providing clean and reliable water services for all.

The commission’s findings, expected next year, will help shape the future of the sector. For example, the review is expected to result in new legislation aiming to attract long-term investment, speeding up the delivery of infrastructure. This aligns with needs to source an additional five billion litres of water a day by 2050.

McCreath said: “The remit of the commission is clearly centred on the need to attract investment to the sector: that can be seen in the peppering of the word throughout the announcement and the appointment of a former deputy governor of the Bank of England as its chair.  But the task before the commission is a gargantuan one and at this stage there is nothing in the announcement that points to it being more or less likely that it will succeed.  Above all else, the reforms must allow the much needed water infrastructure improvements to continue to proceed at speed.  They must not be slowed down by the regulatory rug being pulled out from under them.”

The independent commission is the third stage of the UK government’s water strategy. Previously, the secretary of state, Ofwat and water companies agreed to ‘ringfence’ money for vital infrastructure upgrades.

The UK government has also introduced into parliament the Water (Special Measures) Bill, setting out new measures to crack down on any customer failings by water companies. These measures include bringing criminal charges against rule breakers as well as strengthening regulation and boosting accountability through a new ‘code of conduct’ for water companies. The bill will also require water companies to install real-time monitors at every sewage outlet with data independently scrutinised by the water regulators.

Robbie Owen, an expert on water infrastructure projects at Pinsent Masons, welcomed the review as an opportunity to find a lasting solution to the current position with the water sector, “which was unsatisfactory for all concerned”.

He also commented on one aspect of the so-called ‘doom loop’. “Given the unprecedented amount of new infrastructure needed to be delivered in the next 10 years, including new reservoirs and water recycling facilities, it is essential that the unhelpful rhetoric stops and the mood music changes so that water companies, their investors and contractors can be allowed to focus on getting on and delivering,” he said, adding that “the commission’s work should also provide an opportunity to consider whether the current system of water resources management plans is fit for purpose as an essential part of the planning for new supply requirements.”

Owen urged the commission to include water companies fully in its work, given the reports that the panel of experts from across the regulatory, environment, health, engineering, customer, investor and economic sectors the commission will draw on will not include the water companies themselves.

He said: “Government considers that the commission forms part of its reset of the water sector by establishing a new partnership between government, water companies, customers, investors, and all those who enjoy our waters and work to protect our environment, but this will not be achieved if the water companies are ostracised from the process, as some seem to be suggesting”.