The National Audit Office reports today that Defra and the regulators have failed to drive enough investment in the past and now face significant environmental supply and infrastructure challenges. In order to tackle the challenged including the anticipated challenge of 5Bn shortfall in water per day by 2050 the sector now needs to attract an unprecedented investment. At the same time Defra has counter released the non-news that they are implementing the Water Bill powers to jail water company bosses for covering up sewage spills.

Our response is as follows:

  1. The public has become the regulator in the absence of any effective regulatory body.  

It was campaign group Windrush Against Sewage Pollution (WASP) that exposed the level of illegal sewage discharges into our waterways in 2021, that lead to the current Environment Agency (EA) criminal investigation of all water companies. That investigation is now 3 years in and still has at least one year to go. The current cost to the taxpayer of the EA investigation to date is £5.9M. At that rate it will have cost us circa £8M by the time it completes. That money should have been spent on actually regulating the water companies not post hoc investigations. The practice of ‘Self Monitoring’ by water companies of their compliance is not working and never will do. It is WASP again who have recently made OFWAT investigate the massive over pricing in the water industry by publishing comparator costs between water companies in England and between England and Denmark.

  1. The regulators and government are not regulating to the law and are not in agreement about how they are interpreting the law.No CEO of a water company can go to jail if it is not clear what is and isn’t legal.
  • The EA is still licensing water companies to discharge untreated sewage when their sewage works capacity is reached – which is many more times than the Storm Overflow guidance of circa 20 ‘spills’ i.e. untreated sewage discharges in a year, and 10 for Bathing Sites. This is despite the Office for Environmental Protection report saying that the regulators are not regulating to the law, and the Wild Fish judicial challenge
  • Bathing site geographical limits are not clear for inland waterways.
  1. Water company investors have not ‘invested’. Every 5-year period the shareholders take out more money than they put in. Water company debt is eye watering with Water companies gearing at between 60 and 80%. That is a staggering level of borrowing to ‘invest’. This debt is accruing vast sums of interest repayments. Meanwhile, companies are paying dividends to shareholders. Yorkshire water is paying its shareholders £2.1Bn in interest and dividends in 2025-30 alone, whilst it is borrowing an additional £1Bn on top of the current £6.2Bn debt. Of the £8.5Bn needed in 2025-30 to pay for the maintenance of our water system in Yorkshire, £6.5Bn is coming from bill payers, £0.5Bn is being returned to the company from a disallowed inter-company loan, leaving £1Bn to find through borrowing. The borrowing is a 23% burden on every customer’s bill. Borrowing is always increasing as are debt payments.

In our view:

  1. Investors have not invested. The purpose of privatisation was to secure long-term investment to sort out our crumbling infrastructure. Instead, the government sold the silver, failed to regulate the monopoly industry, allowed debt to accrue to over £60bn in 30 years whilst paying out £78Bn in dividends. Shareholders have been laughing all the way to the bank. So yes, the NAO is right – there has not been investment.
  2. Our sewage system has not been maintained. All the water companies are saying that there was never enough money from customer bills to cover the costs of maintenance. At the same time water company boards certified that they did have enough money so that they could make profits, take dividends and take on more interest attracting debt. Oh and the debt is always way above base rate, so we are paying out at 8-12% interest. This is a cash cow for creditors. Loan a bit of money, charge crazy interest and get it all back in a matter of months with more to spare.
  3. We have been paying through the nose. The argument by the water companies that customer bills are too low is wrong. Compared to Europe we have one of the highest bills, for one of the lowest levels of water quality in our waterways. We also are paying much more for maintenance. Ofwat cannot assure the public that our money has been used prudently and effectively to maintain our sewage system. This is a total mess.
  4. Costs have been inflatedIf a 150m sewage pipe in Windermere costs £13M, and a 835M sewer that was drilled under Ilkley to store 3.4M litres of water costs £14.2M  (email from YW Chair of Audit Committee) then clearly there is not transparent, efficient costings of projects. We can only assume water companies inflate costs to drive up their company value in the face of a regulation system that can’t keep up, in order to keep on increasing borrowing and therefore returns to their shareholders.

“The NAO is right, if we carry on at the current costs of service, we cannot afford a water system fit for the future, and our rivers lakes and seas will continue to deteriorate. We have been duped; other countries are getting their infrastructure much cheaper and have better water quality. The costs of debt and the apparently vital shareholder rewards are crippling us. The water industry must not be propped up any longer.” Prof Becky Malby

  1. The People’s Commission midpoint summary report will be out on Monday. In relation to the issues identified by NAO it will say that:

(a) International evidence indicates that bills are higher under privatised water systems and lower under public ownership.

(b) Polluters should also pay. The cost of pollution should not be borne by the bill payer or taxpayer alone

(c) The public needs to be at the centre of the plans for the future not sidelined into a passive captured customer role. It is the public who are keeping this scandal in the news, it is the public who are uncovering water company illegal activity, it is the public who want to protect our rivers lakes and seas, and it is the public who are paying.

(d) The costs of public ownership have been vastly inflated by the government ‘s use of a regulatory valuation for pricing which is both misleading and wrong.

(e) There is an opportunity to innovate to provide solutions to this crisis if scientists, engineers, environmentalists, and policy makers work together.

(f) We need a national strategy that secures a water conscious society where we use less water, we radically reduce pollution, and we secure a water system at a fair price.