A review of the water industry has proposed the biggest reform of the sector in England and Wales since privatisation more than 30 years ago.
The review’s author, Sir Jon Cunliffe, has made 88 recommendations, which range from scrapping the current regulator Ofwat to introducing stronger environmental regulation.
The reforms are deep and wide, and come at a time when there has been widespread criticism of the industry over leaking pipes and sewage spills.
If these proposals are adopted in full it would be hard to see how things could not get better than where the sector is now – underinvested and widely derided.
Excessive debt and inappropriate dividends that threaten some water companies’ resilience – such as Thames Water – would be addressed by minimum capital levels and powers to block ownership changes if not in the company’s long-term interests.
We already know that water companies will invest more than £100bn in upgrading systems over the next five years – and that bills will rise sharply to pay for it.
Sir Jon says there are some “inescapable facts”, including climate change, higher environmental standards, a growing population, and replacing ageing infrastructure.
The problems plaguing the industry come from not investing for a long period, meaning there needs to be a “massive” investment, in order to catch up, he says.
The amount companies can invest is a function of what they are allowed to charge and for the last 20 years, bills have risen by less than inflation – so have been getting cheaper in real terms.
It is widely accepted that Ofwat prioritised keeping bills low over new investment. If consumers want a better water system, someone has to pay for it.
But what the Environment Secretary Steve Reed wants – and Cunliffe suggests – is a way of making sure bills do not have to spike so dramatically in future to catch up for years of underinvestment – as we are seeing now.
Ofwat is paying the price for that by being abolished.
Throughout the report there are continual references to the telecoms regulator Ofcom – which is seen to have done a better job by maintaining a focus on continual investment in better infrastructure over time.
But while you can change the regulator, the reality is that higher future bills are the price for fixing the underinvestment of the past.
There’s a lot to digest in this report – including compulsory metering and public health officials on water planning bodies.
It will take time to take effect. But at least the government will be able to point to the Cunliffe review and insist it has set the wheels of change in motion.
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