The water industry is ripe for reform: The next government will be ready to intervene

The sustainability of the UK’s existing water infrastructure is under serious pressure and enormous challenges lie ahead, says Yännick van den Nieuwendijk, Managing Director of Amiblu, UK and Ireland.

Public trust in the ability of water companies to deliver on a range of activities has been in steep decline on every metric according to an Ofwat survey released last year.

At the start of 2022 over half of survey respondents told the regulator that they trusted water companies to fix water pipe leaks in public areas, deal with wastewater and sewage, support the environment, provide good value for money and invest in the water network. 

By the end of the year on all metrics this had fallen below half. Recent high-profile stories of record levels of sewage dumping and the inability of Thames Water to service its debt, is likely to have further dented public trust. 

Unsurprisingly, challenges with the water industry have shot up the political agenda. The local elections in 2023 saw sewage spills as an issue that came up time and time again on the doorstep. 

In the run up to the local elections in May 2024, MPs and councillors once again cited it as an issue that was front of mind. Calls for a crackdown on water companies is popular with voters and all the major parties are vying to position themselves as the party willing to take a robust and wholesale approach. 

The Government in recent months has made efforts in this regard notably with an announcement to crackdown on executive bonuses for poor performance. The Labour Party has said it would increase Ofwat powers with Labour’s Shadow Environment Secretary Steve Reed not holding back in his views, saying: “Despite the gross negligence, consumers are now expected to pay higher water bills, whilst CEOs are pocketing millions in bonuses. With Labour, the polluter – not the public – will pay.” This all points to a more interventionist approach in the coming years. 

Much of this reform is overdue. Tackling sewage spillages and environmental performance are the most pressing issues. However, there is a growing sense that the market is simply not functioning as it should. A lack of investment and openness to innovation and new technology have played their part. They are, however, a symptom of a fundamental issue, which is lack of competition at a local level. As such, companies do not have the same pressures to ensure their supply chains are more efficient and to keep consumer bills down. 

This has an impact on procurement where big suppliers in the market can dominate, whilst innovative suppliers are often closed off.  Even when suppliers meet and often exceed standards, they can be left off pre-approved lists. 

The consequence is that this inadvertently creates restricted practice and inhibits transformative technologies coming to market that in turn would help water companies deliver better services to the public.  The next government should decide to review this with an aim of creating a level playing field. We have seen this work in other sectors with reforms to the energy and telecoms market but more powers for Ofwat are required.

There are some positive developments from the water companies including a commitment to invest £96 billion in infrastructure between 2025 and 2030. This is a near doubling of current levels. 

Delivering at this scale will be an enormous challenge for all stakeholders. Government, regulators, water companies and suppliers must now work collaboratively to bring the dynamism and innovation that enables the value chain to flourish. Investment and reform are the order of the day with those water companies that lead this charge likely to be rewarded. By taking the right steps now, slowly but surely, public trust can be regained.

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