Water regulator Ofwat faces abolition after official review
Overhaul prompted by public anger at pollution and high pay
Ofwat, the water regulator for England and Wales, should be replaced by an “integrated” one for the industry, according to the final recommendations of an independent commission that was set up to probe the oversight of the sector.
The review led by Sir Jon Cunliffe, a former deputy governor of the Bank of England, was commissioned by environment secretary Steve Reed in the wake of public anger about pollution, rising bills and executive pay.
Cunliffe’s main recommendation is for a new water regulator in England to replace Ofwat and the Drinking Water Inspectorate and to assume the water environment related functions of the Environment Agency and Natural England.
In Wales, Ofwat’s economic responsibilities should be integrated into Natural Resources Wales, an existing body, Cunliffe said.
Reed is making a speech later on Monday in which he is expected to launch a formal consultation into the regulatory overhaul.
On Friday, the Environment Agency revealed that the number of serious pollution incidents by water companies in England rose 60 per cent last year on the previous year.
The Cunliffe report, released on Monday, has 88 recommendations and runs to 465 pages. The commission’s mandate did not extend to nationalisation. It said that climate change, population growth and economic development will put “huge pressure” on water systems in the coming decades.
“The current regulatory landscape is fragmented and overlapping and fully joined-up regulation is essential for the system to meet the demands of the future and ensure that private water companies act in the public as well as the private interest,” it said.
“A powerful, single regulator for water would simplify the system, reduce duplication, close regulatory gaps and ensure a much stronger ‘whole-firm’ view of each company.”
The report argued that the new body would also improve investor confidence through a more stable regulatory regime.
The largest company in the sector, Thames Water, has been teetering on the edge of financial collapse because of its huge debt pile.
The report recommended new powers for the regulator to block changes in water company ownership, for example where investors are not seen to be prioritising the long-term interests of customers.
It suggested the addition of “public benefit clauses” to water company licences. It said the regulator should be able to set “minimum capital” requirements so that water companies are less reliant on debt and more financially resilient.
The report also suggested that a formal turnaround regime should be established for the regulator in England and Wales to support the recovery of poorly performing companies. This would allow these struggling companies so-called “regulatory forbearance” to give them space to recover.
Cunliffe has called for ministers to transfer planning responsibilities from existing regulators to nine new regional water authorities.
Under the proposals the Consumer Council for Water, the consumer watchdog, will be upgraded into an “Ombudsman for Water” with stronger powers.
The report recommended a “national social tariff” to help low-income customers who need support to pay their bills. This would replace the current patchwork of support, which varies from one water company to another.
Cunliffe conceded in a BBC interview that bills were likely to keep rising faster than inflation. And he said he would not support caps on executive salaries in the sector given the need for water companies to attract the “best people”.
Water UK, an industry lobby group, said: “Everyone agrees the system has not been working. Today is a major moment and this fundamental change has been long overdue.”