An influential House of Lords committee has called for an overhaul of how the water sector is regulated following accusations of a catalogue of failures by Ofwat and the government over many years.
Following the publication of its damning report The Affluent and the Effluent in March, the Industry and Regulators Committee tabled the debate in the Lords where the shortcomings of all parties were raised.
The peers made it clear that the buck should stop with the Department for Environment, Food and Rural Affairs (Defra).
Lord Hollick, who chairs the committee, said investment has fallen far short of what was needed due to a combination of “weak regulation and incompetent government leadership”.
He argued that insufficient investment was made when costs were lower and now a much higher level is needed, with the burden to fall on household bills.
Ofwat has failed to ensure companies invest sufficiently in infrastructure and thus created a backlog, Hollick claimed.
However, the regulator had not had the “determined political backing of government” to invest, Lord Hollick conceded. He further called on the government to give clear guidance to regulators on how to strike the right balance between investment and affordability.
“The government’s 2022 strategic policy statement to Ofwat gave no sense of priority – effectively ducking this key decision,” Hollick stated.
Lord Cromwell added that the committee had not felt convinced that Ofwat had the “business savvy” to recognise financial engineering taking place, or the ability to stop it with its light touch regulation.
He went on to accuse Defra of being “far too complacent” by letting regulators and water companies make their own decisions on competing priorities instead of taking a lead on investment requirements.
Lord Whitty said there was a need to “start again with regulation” and to correct the “complete and utter failure” to recognise the blow climate change will deliver to the water environment.
His suggestion for “a single, very powerful regulator” specifically for water was echoed by the Duke of Wellington. He said sewage discharges – which have ratcheted up the agenda in the past two years amid public anger – had not been deemed a high priority for the Environment Agency and its resources therefore were not directed there.
“Corrective action would have been taken decades ago if it had been,” Wellington argued. “In the future should there not be a single regulator?”
Hollick listed recommendations within the report that were not adopted by government, such as the need to introduce a single social tariff and to ban wet wipes – the latter being the subject of a second consultation instead of swift action taken, he noted.
In calling for acknowledgement that change was required, Hollick described Ofwat as “a dozing regulator” while companies were being loaded with debt, and Defra being “unconcerned”.
After it was slammed throughout the two hours of the debate for not addressing issues and instead repeating existing policies, the government’s representative Lord Benyon denied the accusations.
He said a review of regulation was “above my pay grade” but admitted an examination of it may be needed over time.
He said the Plan for Water would transform the water environment and provide leadership and long-term thinking, arguing that government was mindful of affordability concerns.
Benyon noted the committee’s disappointment that the single social tariff was dropped but said there should be confidence that government continues to work with industry and consumer groups to protect people with affordability challenges.
He said the current dividend rate of 3-4% was not greedy or excessive in terms of investment and noted some companies have not paid this for several years.