First it was the railways. Then it was the energy suppliers. Now it’s the turn of the British water companies. One by one, Britain’s former state industries are facing their day of reckoning.
This time it’s not a broken franchise system or thinly capitalized companies offering customers cut-price energy deals that have opened the floodgates. Instead, it’s something nastier: raw sewage.
Public anger has erupted over water companies pouring untreated effluent into England’s rivers, lakes and sea as a system which has suffered from decades of underinvestment struggle to cope. Last year, according to data from the Environment Agency, discharges amounted to a rate of more than 825 per day.
While politicians of all stripes target water utilitysome of the shrewdest executives in the industry are forgoing bonuses as the spotlight turns on companies’ dull business models and dividends paid while the sewage ran.
Thames Water’s chief executive and chief financial officer, plus the heads of South West Water and Yorkshire Water, have all agreed in the last 24 hours to – in the latter’s words – do “the right thing”.
It would be wise to follow other leaders, including those below the top level. But more stringent action will be needed to appease the anger, including rethinking medium-term wastewater reduction targets.
Charities and campaign groups that have diligently monitored wastewater spills for years – and without which the extent of the crisis would now not be known – are riding a wave. One such group, Surfers Against Sewage, is planning more nationwide protests on May 20.
Just before the bonus payout announcements, the Financial Times published an analysis showing private wastewater and water companies paid £1.4bn in dividends last year, up sharply from £540m in 2021, despite protests over the wastewater crisis. Other criticisms surrounding the industry include lax regulation and high levels of water losses.
Where is the government in all this? It is true that the ministers have not sat idly by. Environment Secretary Thérèse Coffey has pledged to enshrine in the law a Wastewater reduction target for 2050, first released last year.
Unfortunately, activists say, that goal is underpinned by weak intermediate goals. They also fear it shifts responsibility to the government rather than the water companies themselves. The phased targets meant the pace of reduction would be “pretty slow” in reaching higher levels, said Richard Benwell of Wildlife and Countryside Link. He fears the targets will add “another 20 years” of some degree of wastewater runoff at sensitive wildlife sites unless tightened.
The Labor Party intends to target weak regulation. He is drawing up plans for a new water regulator for England and Wales as the issue looks set to become a key battleground ahead of the next general election. Scotland’s water system is already in state hands.
The financial regulator for water, Ofwat, came under fierce criticism from a House of Lords committee in March. He has been accused of failing to secure sufficient investment in the necessary infrastructure by water companies. The Environment Agency also found itself in the uncomfortable spotlight.
Ofwat has also tried to prove that he is not deaf to the clamor. He recently announced several measures, including new powers to penalize water companies that pay dividends regardless of environmental performance. He also proposed accelerating £1.6bn of water company investment, which is tightly controlled under five-year regulatory cycles, to 2023-25 from 2025-30. Just over £1 billion is aimed at reducing the average annual number of spills due to overflows by 10,000.
The problem for both major political parties and businesses is that renationalisation remains popular. The Labor Party has abandoned its previous leader, Jeremy Corbyn’s radical plan to bring several industries including water and energy back into state ownership. Yet the renationalisation of water is favored by trade unions and various constituencies. An October YouGov poll suggested the water sector also ranked high as the industries Britons would like to see in public hands.
Water companies insist they have invested more than £190bn since privatization more than 30 years ago and are taking voluntary action to reduce overflow spills. They have yet to convince their critics. They and ministers will have to up the ante if they are to avoid fueling the renationalisation debate.
This is a flood that won’t go away easily.
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