Government signals strategic shift on environment for Ofwat

Management & Regulation, Water Resources

The government’s strategic priorities for Ofwat have been published and laid before Parliament in a strategic priorities statement (SPS). Since previous statements, emphasis on the environment has strengthened considerably, marking a shift that environmentalists should welcome. Next it will be for Ofwat to pick up the baton and run with it through PR24 says CIWEM Director of Policy, Alastair Chisholm.

Much of the government guidance to Ofwat in advance of recent investment rounds has focused strongly on issues like resilience, affordability, consistent and good levels of service, leakage, and competition and markets. Quite customer and service-centric; very ‘Ofwat-y’ you might say.

Prior SPSs have rarely enamored environmentalists. Normally the argument is that environmental ambition is too low; too much emphasis on keeping customer bills low leaving little room for investment and measures which will enhance the environment. And too much discretion for Ofwat on the balance between these.

The counter argument has typically been that the Water Industry National Environment Programme (WINEP) – set out by the Environment Agency for companies to address reasons for not achieving good status under the EU Water Framework Directive – focuses squarely on the environment and represents a big pot of investment. Different regulatory horses for different water courses.

Public opinion

Since the last SPS in 2017, something has fundamentally changed: The public have got on board with the climate and nature crises en-masse.

We’ve had COP26, the emergence of David Attenborough as a strong voice on climate change. We’ve had COP15, a raft of reports on nature decline, and the rise-and-rise of ex-Undertones front man turned sewage campaigner, Feargal Sharkey flanked by a range of other local and national groups casting sewage pollution into the spotlight.

Add to this the campaigning within Parliament on sewage by Philip Dunne MP, government has been given a clear message: the environment matters to the public. They want to see improvement, and they really don’t want to see big or widespread pollution events – particularly by big companies.

Change in tone

This landscape has informed a change in tone and emphasis. As water Minister Rebecca Pow MP said: “We are the first Government to set a clear expectation that Ofwat should prioritise action by water companies to protect the environment and deliver the improvements that we all want to see.”

The shift in tone since the 2017 SPS was evident in the draft for consultation published by government last autumn. Between that and the final version, tweaks have been subtle but important: Changing the order of things to put the environment front and centre. Making the phraseology used less discretionary and more explicit.

Following a raft of criticism of the level of monitoring and enforcement delivered by the Environment Agency, there is a very clear statement that “all companies must comply with permits and regulation and… have processes in place to achieve this”. Elsewhere, “we expect water companies to meet the requirements of all environmental legislation.”

This is black and white, and is a clear direction for stronger enforcement.

Whilst campaign groups have argued that there was more than enough legislation and regulation in place to hold water companies’ feet to the fire, there is now clear government direction to one of its key water regulators: No more excuses.

Nature a matter of preference

Things have also been tightened up elsewhere - importantly on nature-based solutions (NBS). Water companies are some of the best-placed entities to drive forward widespread use of NBS to improve flood risk, water quality, climate resilience and more. They have huge landholdings and all the mechanisms at their disposal to deliver. What was missing was the drivers.

The draft statement contained the hitherto typical weasel words (companies should “work towards” delivery of NBS to achieve their targets and outcomes, despite associated uncertainties and risks bound up in scheme maturity and performance). Now the SPS says this should happen as “a matter of preference”. That’s quite a shift.

Storm overflows

Arguably the driver of this change has been the focus the past couple of years on pollution from storm overflows and the public outrage associated with it.

Not much has changed since the initial draft of the SPS on this, just a reflection of the measures set in train by the extensive content on the issue in the Environment Act passed at the end of last year. Government wants to see “significant improvement” in the reduction of harm and frequency of discharges.

It does add greater emphasis to one critical point: How overflows are intended to operate. Campaigners made much of legal rulings stating that overflows should only discharge in “exceptional” circumstances. This is now echoes in the statement – government expects they should only operate in “unusually heavy rainfall”.

Tagging a welcome and very absolute numerical target onto all this, government states that it wants to see zero serious pollution incidents by 2030 – in other words the end of the next AMP round. No excuses.

Who pays

Unwritten it may be, but one of the biggest changes in tone comes with regard to customer bills. Whereas the mood music in recent guidance has been ‘keep a lid on bills’, read between the lines and the latest SPS is clear. It puts a functional water supply and sewerage system, fit for the long-term right up front in the opening paragraphs. Nodding to investment failures of the past it states:

“A system that works in the enduring interests of consumers does not simply mean lower prices in the short-term at the expense of future generations.”

This is followed with: “As the industry works towards these shared goals, it will be vital that support is in place for those who may struggle to afford water bills.”

For campaigners who wanted to see government hammer companies – rather than bill-payers – for the costs of clean-up, that will be a disappointment but hardly surprising. The message is, if we want a climate resilient water system that protects our environment it’s going to cost and we’re all paying. No more corner-cutting to keep water cheap – that political vehicle has run out of room to manouvre.

So the next stage – which will take a little while yet – is to see what Ofwat makes of all this in its own requirements put to companies as they prepare their next round of investment plans. It’s a departure from the old territory, but now the economic regulator should be in no doubt as to the value of the water environment to government and to the public. And they’ll be watching.

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