Ofwat: Strategic Priorities

Part of the debate – in the House of Commons at 2:42 pm on 9th June 2022.

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Photo of Philip Dunne Philip Dunne Chair, Environmental Audit Committee, Chair, Environmental Audit Committee 2:42 pm, 9th June 2022

Indeed. The Consumer Council for Water is a statutory consultee with Ofwat, so it will be able to make that case as part of the determination process once Ofwat is following its instructions under the SPS.

It was clear from our inquiry that there had been a lack of political will from successive previous Administrations to empower regulators to tackle pollution and improve water quality. This had not been included as a priority in previous strategic policy statements. Evidence suggested that Ofwat’s price review process had hitherto focused on the twin primary objectives of securing clean water supply and keeping bills down. There was virtually no emphasis on facilitating the investment necessary to ensure that the sewerage system is fit for the 21st century. Anglian Water, for example, told the Committee that in 2017 the Government’s last strategic policy statement, which sets the objectives for Ofwat, “ducked the hard choices”.

So in October last year we wrote to the Secretary of State to contribute to the consultation on the draft SPS. We were concerned that the draft that had been published for consultation by the Government was imprecise in its expectations, with no indication of what specific outcomes were expected and by when. We called for the next SPS to make it unambiguously clear to Ofwat that a step change in regulatory action and water company investment is urgently required to upgrade the sewerage network, improve the parlous state of water quality in English rivers, and restore freshwater biodiversity.

In February, we were pleased when the Government published the final SPS, which had been significantly strengthened following our recommendations. We had made five specific recommendations that the Government accepted and have now been incorporated in the SPS guidance. They are, first and foremost, the very welcome prioritisation of investment over lowering bills to ensure that the sewerage system is fit for the future; secondly, challenging water companies to meet a target of zero serious pollution incidents by 2030; thirdly, amending the previous wording on the use of storm overflows from being used in “exceptional” circumstances to

“only in cases of unusually heavy rainfall”; fourthly, prioritising overflows that do the most harm to sensitive environments; and finally, requiring that water companies should significantly increase their use of nature-based and catchment-based solutions. That is all new, and our Committee can justly take some credit for it.

What has become clear is that water companies now know that they need to act and they must start to do so immediately. Some are already acting ahead of the measures set out in the Environment Act to produce drainage and sewage management plans. I have been sent plans from four companies—Northumbrian Water, Severn Trent Water, Thames Water and Wessex Water—and I am quite sure that others have also prepared plans setting out what they are committing to do under the current and the next water industry national environment programme as part of their plans for capital investment.

I have a couple of frank questions for the Minister about whether our water company regulators are fit for purpose. With the work that I and my Committee have done, there is no doubt that both the Environment Agency, through poor monitoring, and Ofwat, through poor enforcement, have not met the standard we expect of our regulators to protect the environment of our waterways. Self-monitoring by water companies, permitted by the Environment Agency since 2010, has allowed them to discharge sewage more or less at will. The proof is that it took water companies revealing during the course of our inquiry that they might be in breach of their permits for the Environment Agency and Ofwat to announce major investigations into potentially widespread non-compliance by water and sewerage companies at sewage treatment works. Those investigations continue, so I cannot discuss them.

Where the Environment Agency has prosecuted companies for persistent breaches, judges have started to impose more meaningful fines, but even though these fines might start to capture the attention of water company boards rather than being seen as an inconvenient cost of doing business, as previously low fines appear to have been, fines paid by water companies for breaching environmental standards go directly to the general Treasury account; they do not contribute to solving the problem. I urge the Minister, therefore, to work with Treasury colleagues to enable water company fines to be ringfenced for water quality improvement. There could be a stand-alone fund managed by DEFRA or an arm’s length body with an independent chair, or it could be left to water companies to administer based on the environmental priorities of the river or coastal system they have been found to have polluted. Instead of allowing water companies to hand back a tiny rebate to individual ratepayers, potentially hundreds of millions of pounds could be put back into environmental protection. Although we all hope that no such fines will be necessary, we must deal with the world as we find it, and we think that would be a practical step toward solving the problem.

I have another suggestion for the Government. We know that more houses must be built to meet the UK population’s needs. When development consents are granted, developers are obliged to contribute to the additional infrastructure required—roads, schools, medical facilities, or other basic infrastructure—but, as we have just heard from my hon. Friend the Member for Central Suffolk and North Ipswich, water companies are not statutory consultees and local authorities have no power to require developers to contribute to any necessary water infrastructure. Indeed, the infamous right to connect explicitly removes such costs from developers. I urge the Minister to work with me on using the opportunity presented by the Levelling-up and Regeneration Bill, which had its Second Reading last night, to put this right and to empower local authorities to require developers to contribute to meeting the cost of the infrastructure required for water and waste water connectivity of new developments, which are contributing to the pressure.

I commend the motion to the House.