Does the water industry really need ‘root-and-branch’ reform?

Some are arguing that we need a fundamental ‘root-and-branch’ reform of the water industry and that the Water (Special Measures) Bill should be used as a vehicle to bring about that change. This is misguided and could be dangerous. 

WildFish is firm in its view that the existing legal structures – if implemented correctly with strong political support from the highest levels of government – are sufficient to put the water industry back on track.

Yes, it is undeniably true that, with the connivance of the central government, Ofwat and the Environment Agency (EA) have presided over a decade or more of the water companies’ performance getting markedly worse and rivers getting more polluted. All the while, money has been siphoned out of the companies that are now drowning in their own debt.

Our complaint to the Office for Environmental Protection (OEP) – the final results of which are expected in the autumn – has already identified possible failures to comply with environmental law by DEFRA, the EA and Ofwat about the regulation of combined sewer overflows (CSOs) (click here for more).

It is clear to anyone who has been involved long enough that such failures have been repeated across sewage treatment generally and also in relation to water resources.

However, that is water under the bridge. The money lifted from the pockets of bill-payers past and siphoned out of the companies isn’t coming back any time soon and the ex-Secretaries of State who presided over all that are now sunning themselves in Tuscany.

The new Government’s Water (Special Measures) Bill is to address such things as making water company executives criminally liable for serious failures and giving the water regulator new powers to ban the payment of bonuses if environmental standards are not met. The Bill will also, it is claimed, introduce new powers to bring automatic and severe fines.

However, when it comes to the environmental regulator, experience tells us that the real problems here are far more mundane (read more in our report: Doing its job?) to do with the EA’s poor resourcing, the EA’s refusal to review and to impose strict environmental permits that actually drive, rather than meekly follow investment (see the judgment in the WildFish JR of the Storm Overflow Discharge Reduction Plan), the ‘wishful thinking’  of operator self-monitoring, the EA’s weak Sanctions and Enforcement Policy, the pernicious effect of the  Regulators’ Code and the statutory growth duty, the lack of political support for the EA taking a tougher approach, the EA’s (and fellow NGOs’) dubious willingness to accept cosy Enforcement Undertakings for repeat offences by water companies (WildFish report into Enforcement Undertakings).

This can be corrected now, and without the need for new law or any sort of fundamental reform. All it needs is for the new Secretary of State to show political courage.

Ofwat’s performance too has been woefully poor over many years, but underlying this is the unambitious and internally inconsistent Strategic Policy Statement (SPS) issued to the financial regulator by the Secretary of State.

When the most recent SPS was being drawn up, WildFish wrote and published a shadow SPS (Time to fix the broken water sector – linked here) to show how Ofwat could be given the direction it needs to put the water industry back on track. The new government can correct the SPS right now, by using the powers it already has under section 2A of the 1991 Act.

If the new government really means what it says, that it will not tolerate poor performance across the water sector, then it can start now by:

• Issuing a new, clear and unambiguous SPS to OFWAT that forces a much tougher financial regulatory approach. One that prioritises investment in the environment.
• Disapplying the Regulators Code and the statutory growth duty (section 108 of the Deregulation Act 2015) in respect of the EA and OFWAT’s regulation of the water companies.
• Directing the EA to review water company permits so that they drive and not merely follow investment, and ensure that all permits actually meet existing legal obligations (such as the 1994 Regulations on urban waste water treatment).
• Directing the EA to end Operator Self-Monitoring, take monitoring back from the water companies (which have amply demonstrated that they cannot be trusted) and increase permit charges to pay for independent continuous monitoring of all discharges.
• Directing the EA to stop using Enforcement Undertakings for water company offences and prosecute water companies aggressively under a new Sanctions and Enforcement Policy.

None of the above requires new law. It can be done now.

The alternative is months and years wasted devising new law to bring about some long-winded and slow reform of the water industry. As well as being unnecessary, this approach risks yet more dither and delay and will not deliver change rapidly enough.

Worse still, re-opening the existing legal structures is an opportunity that the water companies will no doubt seek to exploit.

By: Guy Linley-Adams

Solicitor