111 The Water Commission

The big news for the water industry in the UK last week was the establishment of an independent commission into the water industry of England and Wales and its regulation.

Regular readers of the blog will know my admiration for the work of the Royal Commission on Sewage Disposal of 1898 and that the members of the commission were described in the official documents as “Trusty and Well-beloved”

So, our Trusty and Well-beloved Sir Jon Cunliffe, former deputy governor of the Bank of England, welcome to the water industry, and more power to your elbow.

Those who question what a banker can bring to the problems of the water industry perhaps don’t know that the earlier Royal Commission was headed by the Chair of the Inland Revenue.  So finance has always been entwined with water and wastewater.

The work of that Royal Commission still has influence today over a hundred years after it finished its work, and most of that influence is for the good.  However it did take 3 years to produce its first interim report and 17 years to complete its work.  Sir Jon is expected to deliver much more quickly.

The objectives of the Cunliffe Commission are:

To recommend measures to ensure the regulatory system delivers:  

1. Clear Vision: Establishing clear outcomes for the future and a long-term vision for delivering environmental, public health, customer, and economic outcomes.  
2. Strategic Planning: Adopting a collaborative, strategic, catchment approach to managing water, tackling pollution and restoring nature.  
3. Better Regulation: Rationalising and clarifying requirements for companies to secure better customer and environmental outcomes. 
4. Empowered Regulators: Ensuring regulators are effective in holding water companies accountable, for example for illegal pollution.    
5. Improved Delivery: Enhancing the sector’s ability to meet obligations, including clean rivers, lakes, and seas, while driving innovation. 
6. Stable Framework: Ensuring a regulatory environment that attracts investment and supports financial resilience for water companies.  
7. Consumer Protection: Safeguarding consumer interests and affordability through transparent and fair governance.  
8. Resilient Infrastructure: Delivering and maintaining robust infrastructure on time, anticipating future needs and climate challenges.   

(Note the subtle difference between customers and consumers in different objectives.  Is that significant or just poor proof reading?)

The objectives make clear that it is more an inquiry into the regulation of the water industry than an inquiry into the water industry.  However, I am sure that there is useful political capital in framing it as a review of the, currently unpopular, water companies.

Some thoughts on the objectives

I am delighted to see that the desired outcomes include “economic”.  The financial regulation of the water industry has focussed on customers with insufficient focus on the communities and the local economy in which those customers live.  There will be those who worry that bringing in economic outcomes will mean that environmental outcomes are ignored.  I think that we are past that phase of our development and that everyone including the regulators wants a sustainable balance between the two.

I have been banging on about strategic planning for wastewater for the last few years and have been writing guidance on Drainage and Wastewater Management Plans (DWMPs) for the last 6 months.  Encouraging strategic planning is therefore something that I am very much in favour of.  We already have Water Resources Management Plans and through the regional water resources bodies these are being extended to cover all users of water not just the water companies.  Let us hope that they are encouraged.  DWMPs started off with a focus on sewerage networks but should expand to have more focus on treatment in future cycles.  River Basin Management Plans consider the environmental condition of watercourses and so should set the framework for water companies and other discharges.   But that still leaves some gaps. 

• DWMPs only cover part of the urban flood risk with the rest covered (or not) by local authority flood risk management plans and surface water management plans.  Does regulation of local authority drainage planning come within the remit of the commission.  It would be good if it did. We need a stronger link between DWMPs and local authority drainage planning with a statutory duty on both sides to collaborate.  We also need a better funding mechanism for local authority drainage improvements.
• River Basin Management Plans currently look only 5 to 10 years ahead and so do not provide the necessary framework for everyone else.  They also need to be more collaborative involving dischargers in their preparation to help integrate their plans.
• There is no statutory plan for water distribution systems.  Is one needed or does the existing regulation by Ofwat and the Drinking Water Inspectorate work well enough?  It seems to.
• There is no overall statutory plan for the disposal of sewage sludge.  The strategy here is to encourage a competitive market for sludge processing and disposal with environmental regulation by the Environment Agency.  Is there a need for a more strategic regulator that includes consideration of the risks of spreading treated sludge on agricultural land.

Rationalising and clarifying regulatory requirements would be a good move.  It should start by trying to align the timetables for all of the different regulatory plans so that they can easily interface.  Common ways of reporting plans, outcomes, costs and values would also help.  Don’t forget that Natural England is also a regulator of the water sector.  Maybe a comparison with Wales, which has a unified environmental regulator would be useful.

Objective 4 concerns me, as we are back in kicking water company territory.  Yes we need effective environmental regulators, but they should hold all dischargers to account for the impact that they have on the environment.  Just a reminder that agriculture is currently a bigger problem for river quality than water companies.  So maybe we need an independent commission into regulation of the agriculture industry.

Objective 5 focusses on the topic of the moment of clean rivers, lakes, and seas.  I hope that the looming threat of drought and the ongoing problems of sewer flooding will not be overlooked by the commission.

Objectives 6, 7 and 8 are well phrased.  I like the wording that safeguarding consumers is to be through transparent and fair governance rather than through an ambition to keep bills low.  As the BBC commented on the announcement of the commission: “Ofwat has also been accused of getting its priorities wrong by putting too much emphasis on keeping bills low and not enough on encouraging investment.”  We need an acceptance that consumers have to pay a fair price for water and that price is higher than they currently pay.  To quote former Prime Minister Theresa May “There isn’t a magic money tree”.  If communities want better service then as consumers they will have to pay for it.  (Actually, Home Secretary Amber Rudd used the magic money tree phrase a few days earlier and May stole it.)

What’s missing?

The press release announcing the setting up of the commission talked about the need to restore public confidence in the water sector, but there is no formal objective to consider this.  Lack of trust by communities in water companies and regulators (and even Defra) is one of the biggest problems faced by the water sector.   I would like to see proposals of how to improve that made an explicit objective.  Lack of trust does not just damage shareholders, it damages the very foundations of public water and wastewater service; the willingness of customers to pay their bills, the willingness of investors to put in their money, the ability to attract and retain the great staff that we need, the willingness of the supply chain to deliver.  Perhaps this should be objective zero.