Recommendations & Conclusions
21 items
8
Conclusion
42nd Report - Water sector regulation
Acknowledged
Customer trust is at its lowest level since monitoring began in 2011.14 The Consumer Council for Water told us that, according to its survey, environmental performance was the biggest driver of dissatisfaction amongst customers.15 Committee members also drew attention to problems experienced by our constituents, including poor company responses to …
Government response. The government recognises that customer trust in water companies is low and that environmental performance is a key driver of customer dissatisfaction, and is taking action to hold water companies to account for their environmental performance and to ensure that …
HM Treasury
9
Conclusion
42nd Report - Water sector regulation
Acknowledged
Customer bills cover operating costs; returns for financing used to pay for capital enhancements; and a contribution towards capital repayments.19 The Consumer Council for Water told us that to rebuild trust people need to understand what they are getting for their money.20 Ofwat described the way companies have explained customers’ …
Government response. The government agrees that customers need to understand what they are getting for their money, and states Ofwat is working with water companies to improve the clarity and transparency of bills.
HM Treasury
10
Conclusion
42nd Report - Water sector regulation
Acknowledged
Water companies have a large and extensive network of assets that they are responsible for maintaining, including reservoirs, treatment works, pumping stations, and water supply and sewer pipes. Ofwat published a targeted review of asset health in 2017, followed up by work on asset management maturity in 2021. In December …
Government response. The government supports the work of Ofwat to ensure water companies have robust plans for asset maintenance and replacement, and notes that Ofwat published a targeted review of asset health in 2017, followed up by work on asset management maturity …
HM Treasury
11
Conclusion
42nd Report - Water sector regulation
Acknowledged
Ofwat told us that it is challenging to understand asset health for a sector where so many of the assets are below ground and can only be measured indirectly.24 Ofwat illustrated this problem when it told us about the challenge of making sure companies replace mains which are in a …
Government response. The government notes Ofwat's powers to require companies to develop and implement long-term asset management plans and take enforcement action against companies that fail to maintain their assets properly, and that Ofwat has recently consulted on proposals to strengthen its …
HM Treasury
12
Conclusion
42nd Report - Water sector regulation
Acknowledged
The UK has one of the highest standards of drinking water quality in the world, and the Drinking Water Inspectorate (DWI) does inspect water supply assets.28 But the responsibility for wastewater is much less clear. The EA’s responsibility is to conduct inspections only to assess compliance with environmental permits. Ofwat …
Government response. The government recognises the importance of robust regulation to ensure water companies are meeting their obligations to protect the environment and provide high-quality drinking water and is committed to ensuring that regulators have the powers and resources they need to …
HM Treasury
13
Conclusion
42nd Report - Water sector regulation
Acknowledged
In 2020, the previous Public Accounts Committee recommended that Defra provide an update on how it planned to accelerate the pace of infrastructure improvement, to address the gap between future water supply and demand in England, which was estimated to be 3.6 billion litres per day by 2050.31 Five years …
Government response. Defra, the EA, and Ofwat are working together through RAPID to accelerate the development of new water resources infrastructure and the government has also set ambitious targets to reduce leakage and demand, and is working with water companies to help …
HM Treasury
14
Conclusion
42nd Report - Water sector regulation
Acknowledged
Defra told us that the importance of water to big investment and development opportunities was clear.36 But Water UK told us a lack of water in Cambridge had delayed the building of a new cancer hospital.37 The EA told us it had had to do a lot of work with …
Government response. Defra, the EA, and Ofwat are working together to ensure that water resources are taken into account in planning decisions and a minister-led taskforce has been set up for high-profile infrastructure projects.
HM Treasury
15
Conclusion
42nd Report - Water sector regulation
Acknowledged
Defra and the EA could not tell us how many proposed new homes are not being built because of water system constraints.40 Defra told us that it has set up a minister-led taskforce for high-profile infrastructure projects, working to ensure they can be built quickly.41 We explored with witnesses how …
Government response. Defra, the EA, and Ofwat are working together to ensure that water resources are taken into account in planning decisions and a minister-led taskforce has been set up for high-profile infrastructure projects.
HM Treasury
16
Conclusion
42nd Report - Water sector regulation
Acknowledged
Significant action needs to be taken in the short term to meet environmental targets. In 2023 Defra published the Environmental Improvement Plan and set targets for the sector to reduce leakage and demand, and address sewer discharges and phosphorus in treated wastewater. It published the Expanded Storm Overflows Discharge Reduction …
Government response. The government agrees that significant action is needed to meet environmental targets and highlights existing plans and the EA's role in monitoring and enforcement, without committing to new actions.
HM Treasury
17
Conclusion
42nd Report - Water sector regulation
Acknowledged
We asked the witnesses about water companies’ current environmental performance. Ofwat and the EA are taking enforcement action against every wastewater company for their management of combined sewer overflows. Water quality pollution incidents have increased.47 WildFish highlighted failures in regulation in its written submission, while in its written submission the …
Government response. The government recognises the concerns about water companies’ current environmental performance and is committed to holding water companies to account for their environmental performance, and is working to ensure that they are meeting their obligations to protect the environment.
HM Treasury
18
Conclusion
42nd Report - Water sector regulation
Acknowledged
The EA told us it is increasing the number of inspections it does, and its teams are building up expertise in how wastewater treatment plants work.52 Of the 4,600 inspections the EA undertook last year, it told us found breaches in permits in 1,653, including 92 serious breaches and six …
Government response. The government supports the EA’s work to increase the number of inspections it does and build up expertise in how wastewater treatment plants work and is also working to address the “justice gap” where the EA cannot prosecute all the …
HM Treasury
19
Conclusion
42nd Report - Water sector regulation
Acknowledged
Both the EA and Ofwat told us they would like to encourage companies into ‘enforcement undertakings’, whereby companies are obliged to take action to fix an issue, or return money to bill-payers. The EA told us that at present, only 12% of its cases get an offer of undertakings. Both …
Government response. The government encourages the EA and Ofwat to use enforcement undertakings where appropriate and is working to ensure they have the necessary powers.
HM Treasury
21
Conclusion
42nd Report - Water sector regulation
Acknowledged
The financial resilience of the water sector has weakened. While Water UK pointed out to us that some companies are resilient, Ofwat has signalled its concerns about the financial resilience of 10 of the 16 major companies.60 In 2023–24, 10 companies could not cover their interest payments with cash from …
Government response. The government is concerned about the financial resilience of the water sector, notes Ofwat's powers to prevent dividend payments, and is committed to working with Ofwat to ensure water companies are financially resilient.
HM Treasury
22
Conclusion
42nd Report - Water sector regulation
Acknowledged
Companies have taken large dividends in the past – in 2005 and 2018 a company paid a dividend of more than 100% of the equity in the company, and in 9 other cases in the last 34 years companies have paid dividends of more than 60% of the equity in …
Government response. The government acknowledges water companies should not be paying excessive dividends at the expense of investment, and notes Ofwat's powers to prevent dividend payments if financial resilience is insufficient and monitoring of water companies' dividend policies.
HM Treasury
23
Conclusion
42nd Report - Water sector regulation
Acknowledged
First Economics told us that financial resilience depends on having confidence that financial markets will supply water companies with new debt and equity.73 Ofwat estimates companies will need around £12 billion in new equity over the next five years to support their spending plans.74 Ofwat told us that companies had …
Government response. The government recognises that financial resilience depends on confidence in financial markets, is committed to creating a stable regulatory environment, and is working with Ofwat to ensure water companies are financially resilient.
HM Treasury
24
Conclusion
42nd Report - Water sector regulation
Acknowledged
We sought to understand would happen if a water company became insolvent. Defra told us that that the special administration regime will ensure that services are protected.78 Defra also acknowledged that there would be costs involved in setting up such a regime, which the government would seek to recover.79 If …
Government response. The government confirms that the special administration regime will protect services if a water company becomes insolvent and it has the power to recover costs through customer bills if necessary, committed to protecting customers in such an event.
HM Treasury
25
Conclusion
42nd Report - Water sector regulation
Acknowledged
Defra has overall responsibility for setting the policy and regulatory framework for water in England.82 Defra told us there is “too piecemeal a picture” of regulation currently, with overlaps and gaps in responsibilities.83 71 Qq 34, 110 72 C&AG’s Report, para 3.32 73 Q 3 74 C&AG’s Report, para 3.6 …
Government response. The government acknowledges the need for a joined-up approach to water management and is considering the Water Reform Committee's recommendations, with next steps to be set out in due course.
HM Treasury
26
Conclusion
42nd Report - Water sector regulation
Acknowledged
We asked whose responsibility it is to balance environmental need with affordability. Ofwat told us that there is no formal basis for making trade-offs between affordability and making improvements, nor was there in previous price reviews.87 Defra acknowledged that there had been “deep under-investment” leading to a big jump up …
Government response. The government states that Ofwat has a statutory duty to ensure that water companies can finance their functions while protecting customers, and that Defra sets the overall policy framework and environmental objectives.
HM Treasury
27
Conclusion
42nd Report - Water sector regulation
Acknowledged
An independent Commission, headed by Sir Jon Cunliffe, is currently reviewing the water sector regulatory system.91 Defra told us that recognised that the sector needed a “fundamental reset”. Defra told us that the Commission was asked to cover areas including the regulatory system structure for planning as well as strategic …
Government response. The government agrees the water sector needs a fundamental reset and is considering the Water Reform Committee's recommendations, with next steps to be set out in due course.
HM Treasury
28
Conclusion
42nd Report - Water sector regulation
Acknowledged
Defra told us that the Commission’s interim report says that the sector needs a reset in its strategic planning, legislative framework, regulatory framework, water company structures, governance, assets and resilience.94 Defra told us that it fully accepted the contents of the interim report, and had big changes to make.95 In …
Government response. The government agrees the sector needs a reset and is considering the Water Reform Committee's recommendations, with next steps to be set out in due course.
HM Treasury
30
Conclusion
42nd Report - Water sector regulation
Acknowledged
The regulators told us about operational changes they were making now. The EA told us it has increased its capacity to carry out inspections, and expects to do 10,000 a year from next year, including returning to areas where issues were found this year.99 We asked the regulators if there …
Government response. The government welcomes the operational changes that the regulators are making to improve their oversight of the water sector and notes that the EA has increased its capacity to carry out inspections of water company sites and assets, and Ofwat …
HM Treasury