Official review calls for Ofwat to be scrapped

(Sharecast News) - An independent review of the UK's under-pressure water sector has called for Ofwat to be scrapped, it was confirmed on Monday. The Independent Water Commission, chaired by Jon Cunlifee, a former deputy Bank of England governor, has published 88 recommendations following a nine-month review.

In particular, it wants a single integrated water regulator to replace the current patchwork of bodies charged with oversight.

The report said: "The current regulatory landscape is fragmented and overlapping, and fully joined-up regulation is essential for the system to meet the demands of the future and ensure that private water companies act in the public as well as the private interest."

The review has recommended that a "powerful, single" regulator in England replace Ofwat, the Drinking Water Inspectorate and the water environment-related functions at both the Environment Agency and Natural England.

In Wales, Ofwat's economic responsibilities would be integrated into National Resources Wales.

The review continued: "Water is a complex sector responsible for the second-largest infrastructure programme in the UK.

"Water companies will spend £104bn on investment and operation over the next five years. Climate change, population growth and economic development will put huge pressure on water systems over the coming decades."

The review also called for eight new regional water system planning authorities, stronger environmental regulation - including mandatory water metering - an ombudsman to provide stronger customer protection and the ability to block changes in ownership.

The UK's water industry was privatised in the late 1980s. In recent years, however, it has faced increasingly vocal criticism across the board, as spills and leaks grew, bills rose, investment declined and debts mounted.

Thames Water, the country's biggest water firm with 16m customers, slumped to a £1.6bn loss last year while debts hit £17bn.

The company, which paid out dividends while failing to invest in its crumbling infrastructure, has warned it will take at least a decade to turn its fortunes around.

Fellow water firms have also been criticised for a lack of investment, high bills and repeatedly sewage spills and leaks.

The commission's mandate did not include considering the sector's possible renationalisation, however.

Cunliffe said: "Restoring trust has been central to our work. Trust that bills are fair, that regulation is effective, that water companies will act in the public interest and that investors can get a fair return.

"Our recommendations to achieve this are significant."

Water UK, the industry's trade body, welcome the recommendations. David Henderson, chief executive, told the BBC it represented "fundamental change" in the sector, which is "exactly what's needed".

But others agreed. Campaign group River Action said: "The report diagnoses symptoms but avoids the cure.

"We've been handed vague policy nudges that leave the current failed privatised water company model intact."

The Consumer Council for Water said companies "have always had the freedom to do what's right by their customers, and many have made bad choices". It also flagged high water bills, which are expected to rise further in the coming years as utilities undertake significant infrastructure upgrades.

Fergal Sharkey, the high profile water campaigner, called for environment secretary Steve Reed - who commissioned Cunliffe - to step down. He also criticised the review's limited scope.

As at 1000 BST, shares in Severn Trent and United Utilities Group were up 1%, at 2,712p and 1,131.5p respectively, while Pennon Group was 2% higher at 524.5p.