A House of Lords committee has called for a single social tariff to be introduced for water customers in England and Wales ahead of the 2024 price review (PR24).
Following a nine-month inquiry into the work of Ofwat, the Industry and Regulators Committee recommended government take a more active role in many areas, including affordability, clearer priorities to Ofwat and a joined-up approach to tackling environmental challenges.
In its report The Affluent and the Effluent, the committee said government should legislate to introduce a single social tariff to provide baseline support for all customers.
The report recommended government decide the level of support based on consultations with consumer groups, companies and regulators. The tariff, the report suggested, should include “a no-detriment clause” to ensure no billpayer is worse off and that companies should continue to support financially vulnerable customers even with the social tariff in place.
Proposals for a single social tariff gained widespread support, however secretary of state Therese Coffey dismissed it, which was noted in the report.
The committee called for more intervention by government to ensure future resilience, including by creating a National Water Strategy to tackle water pollution and secure future supplies in a joined-up way.
The committee criticised government for failing to engage sufficiently with the sector and its regulators.
It said Ofwat and the Environment Agency have not approached key issues in a joined-up way, including reducing water pollution and securing future supply.
The committee found Ofwat had not been given clear guidance by government on how to balance and prioritise its duties. Witness evidence highlighted the difficulties of balancing competing priorities while maintaining low bills. That was disputed by former chair Jonson Cox and chief executive David Black who both rejected the idea Ofwat was focused on low bills or held back investment.
Given the consequences of not investing in environment or infrastructure, the committee said “it is crucial that Ofwat is given strong, clear guidance by the government on how these trade-offs should be made.”
The report said the 2022 strategic policy statement from Defra “failed to give a sense of prioritisation, particularly in relation to the balance between the affordability of bills and infrastructure and environmental investment.” It acknowledged intervention may impact Ofwat’s independence but said controversial decisions with financial and environmental consequences for many generations should be taken by elected politicians rather than regulators.
“The government has not yet shown the necessary political will to make these decisions on the most important issues facing the sector,” the report stated.
Business planning is already underway for PR24 based on Ofwat’s methodology, which itself is based on Defra’s SPS. However, the report called for an updated SPS with stronger language and a clear steer on balancing priorities.
Meeting infrastructure needs will take a decade or more, the report stressed, and will require “more effective coordination and proactivity” from government, regulators and the sector.
The committee called out the work of the EA and Ofwat and said there was “a clear lack of effective coordination on issues such as Environment Agency outputs not aligning with what Ofwat deems financeable, and ineffective information-sharing.”
To improve information sharing, both regulators were recommended to formalise and publish plans for how they share company performance information.
The report suggested Ofwat finds ways to increase investment outside of the price review process and consider third-parties for infrastructure projects, as was the case with Thames Tideway. Direct procurement for customers (DPC) was also cited as a model to deliver major infrastructure over a longer timeframe than five-year asset management periods (AMPs). It recommended legislation to remove barriers for large water infrastructure projects.
The inquiry ran from May 2022 to January 2023 featuring evidence from regulators, companies, conservation groups and NGOs as well as academics and other stakeholders.