Recommendation 1

Many water companies are struggling to turn around their performance without stronger intervention. Thames Water has demonstrated that Ofwat’s turnaround regime is imposed too late and has limited capacity to tackle vicious cycles of penalty and failure. The IWC’s report contains useful recommendations to facilitate the turnaround of companies, including a supervisory regulator that would intervene sooner, alongside a stronger Turnaround Oversight Regime that would review allowances and give the regulator powers of direction over company owners. These proposals may be controversial for shareholders but are broadly palatable to the public if a privatised sector is going to deliver for customers and the environment. The IWC’s proposal to include regulatory forbearance in turnaround regimes is, however, objectionable. It would be loathed by campaign groups and customers, would be unfair to other companies that abide by the rules and is contrary to the ‘polluter pays’ principle. A well-regulated system would never need such a measure. (Conclusion, Paragraph 16)