Labour government lifts the lid on its plans for water

Just two weeks in (at the time of writing) to the new Government and things feel markedly different to the abundant rhetoric but less convincing practical measures of recent months and years. An assertion that the grownups are now in the room, it’s time for seriousness, that civil servants are valued, and that they are about to embark on a programme of reform seems to have resonated.

That was certainly the tone of new Environment Secretary Steve Reed who has picked up Labour’s “change” message baton and is waving it all over the place. Labour were of course determined to hit the ground running, show some quick and eye-catching wins.

This has certainly been the case on green energy, with the scrapping of the de facto onshore wind ban, announcement of three new mega solar farms, appointing ex-Climate Change Committee chief Chris Stark as their net zero transition tzar and Ed Miliband declaring the UK would be stepping decisively back onto the global climate leadership stage.

Of course two weeks in, it’s a bit of a leap to suggest there’s been progress as such but all you can do is look at the signals. Things have arguably been a little less eye-catching with regard to water compared to energy thus far, but the overall tone fits that serious and measured tone. It feels like things will come and Reed has said, “this is just the beginning”.

Water special measures?

On water, the news has been rather dominated by the draft determination from Ofwat on water company business plans, associated bill impacts and the plight of Thames Water, its finances and ‘turnaround oversight regime’ aka Labour’s much-trailed ‘special measures’.

Slightly buried under all this noise were Reed’s announcements of four initial steps to reform the water sector: Ringfencing investment for water infrastructure upgrades so it can’t be used for bonuses and dividends; returning any unspent upgrade money to customers and increasing penalties for under-performance; environmental and social purpose embedded in company articles of association, and finally, beefed-up customer panels with the power to summon board members to explain themselves.

Week one water reflections

It's fair to say these measures underwhelmed the anti-privatisation zealots and in reality the announced measures could be anything from window-dressing to meaningful change depending on how they are implemented. That, we will have to wait for. In the meantime, here are some quick reflections on week one’s goings-on:

It’s understandable people are angry about bill increases which were on average a third less on average than water companies had asked for, but still plenty-enough to be felt by many. That anger should mainly be reserved for the politicians and regulators who allowed some companies to load up excessive debt, take undeserved dividends and perform badly. As well of course, as the worst of the companies who took those actions.

There is a lot of ire over the concept of people “paying twice” for infrastructure upgrades. They may have done – partly. In line with water industry law, companies will have told the regulator they had the means to maintain their assets, meet demand and comply with the law.

In reality companies will have ticked that box, but took a settlement from Ofwat that was probably less than enough to maintain and upgrade assets to the level necessary to prevent pollution and build resilience. Then, as private companies do, they made as much efficiency and profit out of what they were allowed. Between those two, it would have been nowhere near enough.

Rather than possibly paying twice now, customers arguably should have paid more, before we reached the current crisis point. Regulators shouldn’t have allowed the financial engineering which made what was paid in bills bad value for money. And, they shouldn’t have been stripped of all meaningful regulatory capacity to ensure bills were used to best effect.

Meanwhile, the focus on low bills through the past decade while debt was cheap was irresponsibility by previous governments, exacerbated by light touch regulation allowing parts of the industry at least to get “completely out of hand” as Sir Keir Starmer described it.

So what to do? The new government has the ability to legitimately say “it wasn’t us”, but as Rachel Reeves described it, there’s a “bitter pill” needed to recover things. Impose special measures, renationalise (or a variant, floatation, and/ or break-up) Thames if need be.

But the Government should set a strong signal that it’s willing to step in early doors to take serious and difficult decisions. Decisions that will deliver a reset for the sector and provide a foundation on which it can rebuild and start recovering resilience and the health of our water environment. Serious measures such as special administration, limited to one or two of the worst performers will surely limit the risk of wider infrastructure investor sentiment contagion.

Article of association changes is a positive and pragmatic step if Labour aren’t going to renationalise (and of course, they never were under Starmer and Reeves) or some other alternative (not-for-profit). It won’t satisfy many, but this change if implemented well, should influence fiduciary duties of directors meaningfully.

There is much to find out still about the proposals for more powerful customer panels which Reed described as a historic first. Sceptics harked back to prior examples in the days of the water boards, pre-privatisation, when they had limited impact and the effectiveness of present-day customer challenge groups. Coupled with articles of association changes they might feed into a more open and transparent sector – which even the UK Information Commissioner is now wading in on.

Kings speech

Labour’s new legislative programme was announced in the King’s speech. 40 Bills heralded a busy period to come, with three of interest from a water and environment perspective: The Planning and Infrastructure Bill will be the legislative vehicle for the Government’s ambitions to turbocharge housing and growth. This will cover major new water infrastructure and of course, housing. It’s crucial that these minimise their impact on the environment and, indeed, explore the scope to work with nature to unlock future climate resilience.

The Water (Special Measures) Bill is the wrapper for Labour’s package of measures to tighten the regulatory screw on water industry performance and is essentially what you see is what you get – it’s been that well trailed. Finally, the English Devolution Bill looks to give greater powers to metro mayors and could, just could, be a vehicle to enable a more joined-up and locally-prioritised approach to managing water pressures from flood to drought and pollution at a catchment and regional level.

Nevertheless, the aspect of our world which so far feels conspicuous by its absence as far as policy goes is the concept of working with nature. On that, there has been little if anything said. We must hope – as Reed has proclaimed – that this is just the beginning. That Emma Hardy MP, a water Minister committed to SuDS and other community and nature-based solutions, can broaden the new Government’s embrace of weaving a strong nature thread into the basket of necessary water reforms. Time will tell.

Author: Alastair Chisholm, policy director - CIWEM