Ofwat scrapped as water industry to be overseen by new watchdog

Water regulator Ofwat will be scrapped and replaced to overhaul the "broken" system, Environment Secretary Steve Reed has said.

The body is among changes recommended in a long-awaited Independent Water Commission review launched by Jon Cunliffe which also include the abolishment of Ofwat, the industry watchdog for England and Wales. It will be replaced by a regulator with supervisory powers, similar to oversight of banks after the financial crash and experts would be appointed to work inside water companies and ensure they are obeying the law and improving the environment.

While the Government called it the biggest overhaul of the water sector since privatisation, campaigners criticised the plans saying it creates an “illusion of change” and is not the transformation needed.

The review was also slammed for leaving out a recommendation of public ownership which some experts say is the only way to stop millions being siphoned off for huge CEO salaries and shareholder dividends and instead to invest into ending sewage dumping and fixing leaks.

Co-leader of the Green Party, Adrian Ramsay MP, said: "Expecting a different form of regulation to fix the water industry is, frankly, rearranging the deck chairs on the Titanic. Not only that but the majority of the public are going to be expected to pay more in bills, as we watch the industry continue to sink under the failed model of privatisation.”

Scrapping Ofwat will be the biggest overhaul with one regulator established where there has until now been four. Steve Reed says the new body will oversee investment and maintenance for customers so that families are "never again hit by the shocking bill hikes we saw last year".

Along with scrapping Ofwat, the government has confirmed it will immediately sign up to four more of the report's recommendations - which leaves another 83 to consider.

The new ombudsman, replacing the Consumer Council for Water (CCW), will have strengthened legal powers to help consumers who face problems from water companies, such as sewage floods in their gardens and taps running dry owing to burst pipes.

There's much to pick through in the 465-page report - but here are the key points:

*OFWAT

There are currently four separate regulators responsible for the water industry, a complex, tangled system of confusion. It is a merry-go-round of regulators blaming each other for breaking this country’s water system.

Sir Jon makes it clear that pretty much all sides are to blame for the state of the sector.

"The underlying fact is we have not managed this well, and no one comes out of this with very much glory - not government, not the water companies and not the regulators," he said.

But it's the role of the regulators that comes under most scrutiny.

Scrapping Ofwat, something the government has now confirmed it will do, and would mark a major shake-up in the way water companies are held to account.

*SEWAGE

We now have a much better idea of how many times sewage is spilled into our rivers and seas, which were not routinely monitored even a decade ago.

But the Water Commission recommends reforming what's called "operator self-monitoring" – where water companies monitor and report pollution and sewage incidents to the regulator.

The review doesn't recommend making monitoring entirely the responsibility of the regulator over water companies, citing high costs.

But it does say that the regulators should develop a stronger approach to monitoring, including greater automation, third-party checks and "intelligence-led inspections".

*OWNERSHIP

The review says the regulator should also have more say in who owns water companies and introduce a "new regime to make senior executives directly accountable, The sector also needs new measures to attract long-term investors and better oversight of company finances, it adds. But some campaigners are furious that the review was never allowed to consider what they see as the fundamental problem - that it is in private, not public hands.

*BILLS:

Sir Jon Cunliffe has repeatedly said that underinvestment for years in our water infrastructure now means that massive funding is required, which could put significant burden on households.

To ease this pressure, he makes two recommendations, including the compulsory introduction of smart metering.

This would work in a similar way to how energy meters currently work, where people would be charged for the water they use rather than paying a flat fee. More than 60% of households have a meter already. This normally gets read manually once a year, whereas smart meters track water use in real time.

Currently only 12% of households have smart meters. As well as reducing costs for users of less water, it could help in driving down demand across the country, Cunliffe says.

Increasing demand for water is putting pressure on water supplies and infrastructure. The report reads: "By 2055, it is anticipated there could be an additional 8 million people living in England, and public water supply could experience a shortfall of up to 5 billion litres per day."

Water minister Emma Hardy said it's clear that the water system is broken". She said the report is "stage three" in a "revolution" of the water sector, following changes to the law which banned bonuses for water bosses and the introduction of criminal liability for failures. She welcomed the report but refused to confirm exactly how many of its 88 recommendations the government will adopt. Instead, she said ministers plan to study them throughout the summer, before introducing a new water bill next year.

In a speech the Secretary of State for the Environment, Steve Reed pledged to strengthen regulation, clean up the country’s rivers and protect the public from soaring water bills.

He said: “Our water industry is broken. That is why this Government will fix our broken regulatory system so the failures of the past never happen again.

But River Action slammed the report accusing it of failing to propose the bold reform urgently needed to fix the UK’s crumbling water system and said it offers “the illusion of change – not real change.”

CEO of River Action James Wallace said, “This was a once-in-a-generation opportunity to reset a broken and corrupted system. Instead, the Commission blinked. After three decades of privatisation, there is no evidence it can work. The report diagnoses symptoms but avoids the cure, appeasing the vulture capital markets and failing to propose alternative public-benefit investment, ownership and governance models that have been proven across Europe. ”

“We needed a credible plan to rescue Britain’s rivers, lakes, and seas – and a clear pathway to bring failing companies like Thames Water into public control. Instead, we’ve been handed vague policy nudges that leave the current failed privatised water company model intact. When raw sewage is pouring into our waterways and reservoirs run dry, tinkering with regulatory half-measures simply isn't enough to restore public trust.

“The Government must act now with a powerful statement of intent by putting our biggest polluter - Thames Water - into Special Administration to send a warning shot across the stained bows of the Sewage Armada. Anything less will signal the UK is open to yet more corporate takeover. Our water is our life-blood and not for sale.”

Giles Bristow, Chief Executive, Surfers Against Sewage added: “Look past the glossy veneer of today’s Independent Water Commission recommendations and you’ll see it utterly fails to prioritise public benefit over private profit. This is not transformational reform, this is putting lipstick on a pig – and you can bet the champagne is flowing in water company boardrooms across the land. Prime Minister, you must abandon the dangerous fantasy that the current privatised water industry can be patched up – it can’t, and the public knows it. Your party was elected on a pledge to clean up our rivers and coasts; now deliver on that promise, and go far beyond these half measures.”