“Is it me, or is the ‘new regulator’ basically a glorified business manager with a remit to ensure the business runs smoothly and stays in profit?”
These words came from a member of the public who has seen straight through the slick, glossy brochure and recognises that if the government’s proposed new laws to reform the regulation of the water industry are brought in, the consequences for our waters, health, and bank accounts will be disastrous.
We are talking about the Government’s proposed new laws to reform the regulation of the water industry. It’s New Vision for Water.
Yet, from parts of the environmental NGO world that should know better, we hear partial praise and that this legislation does not go far enough. The truth is, it goes way too far and in completely the wrong direction.
A corrupted commission
The New Vision for Water is the product of the so-called independent water commission conducted by Sir Jon Cunliffe. It was set up to review water industry regulation, which is controlled and overseen by the Government, specifically the Department for Environment, Food and Rural Affairs (Defra), the very department that holds full responsibility for allowing the sewage scandal to develop. The government may pretend otherwise, but the buck stops with the civil servants and the string of secretaries of state who were led or advised by them over the years.
Defra set the terms of reference for the review into itself at the end of 2024 to end the growing demand for the “root and branch review” that the ever more influential Feargal Sharkey demanded.
It was to be a review that might find out the truth. Through a masterstroke by Defra: it forbade Sir Jon and his water commission from investigating Defra’s own conduct, thereby throwing away the opportunity to learn from its worst mistakes. It was to be a “forward-looking” and tightly controlled review, and as Defra also acted as the secretariat, reviewing and sorting the evidence, then writing the report, with a figurehead steering from the outset, independent it was not.
Vested interests
The commission’s overarching goal was to review regulations to make them more attractive to investors. This emerged after a bunch of powerful fund managers met with Environment Secretary Steve Reed and said they didn’t like the current legislation.
The review was carefully designed to avoid considering introducing public ownership, because compelling evidence to a genuinely independent commission would undoubtedly have presented that as an obvious solution. A review to please the shareholders could hardly succeed if it took away their flock of golden geese, i.e., their captive customers.
That insidious exclusion was based on false claims that it would cost £99bn to rid the industry of parasitic shareholders. It turned out that the government, via Defra, had relied on evidence in a report written by a think tank, which was commissioned by water companies to get that high cost figure. This figure has since been proven by the eminent economist Prof Sir Dieter Helm to be utter nonsense.
When that fake number was rumbled, Defra went to Ofwat to get the value of water companies based on their regulatory capital value (RCV), which is a made-up number that adds up what companies have spent on things – your money, by the way.
To borrow an analogy from Lord Prem Sikka, Professor of Accounting and House of Lords veteran of challenging deceit, this is like buying a Ford Escort for £3,000 in 1989 and adding up the cost of the tyres, batteries, exhausts, servicing, fuel, tax, insurance, parking tickets, etc. paid for ever since, and by 2026, even though it is worn out and won’t start, claiming it is now worth £50,000.
Years of neglect
The RCV of Thames Water is claimed to be over £20bn, but in fact, it owes about £20bn. And it is not just Thames Water that runs its assets into the ground while claiming high values; we see this from United Utilities as well. These years of neglect at multi-billion-pound companies’ sewage treatment works were exposed by Matt Staniek of the Save Windermere campaign.
If the commission had looked back forensically, it would have discovered what specialists like economist Prof David Hall, former auditor Stanley Root and others had proven: that water company owners do not bring in cash, they take it out.
That should be the end of the conversation about privatisation. But such is the value of scamming 62 million people that huge efforts are made to keep that money flowing out of the water company and into the hands of clever financiers.
It is a fantastic trick: collect and spend captive billpayers’ money, then charge them ruthlessly for doing so. If you want more money, create a crisis and force bill increases. The water company shareholders have taken at least £85bn for simply owning a stake that they will sell, usually at a profit. But maybe not this time. That is why the government has been called in to help.
Interestingly, this is a government whose party (Labour) took £4mn from a hedge fund in the run-up to the 2024 election and declared it only afterwards. This is a government with close ties, for example, to BlackRock, the massive global asset manager that bought a majority stake in wastewater contractor Lanes Group in 2024 and has increased its holdings in the water sector, including United Utilities, Severn Trent and the Pennon Group (the notorious South West Water).
If water companies pay an eye-watering £16mn to install three tanks worth £390,000, our government may deem it acceptable, because that is theoretically going back into the economy via groups like Lanes Group, the company acquired by BlackRock. It is billpayers’ money, not taxpayers’, so it doesn’t matter to government.
This is what the public and NGOs are up against. Powerful organisations that have the ear of our most senior politicians and a bargaining power that ordinary people only have a brief taste of at election time.
Billpayers’ money
So, how does a government defend such a blatant trick played on us all? From the start of the commission to right now, the Secretaries of State for the Environment, first Steve Reed and now Emma Reynolds (in her foreword on the New Vision for Water), have both repeated the blatant and easily demonstrable lie that £104bn of private sector investment is being brought in to sort out the shambles.
It isn’t. This is billpayers’ money, secured by hiking bills.
In the government’s glossy brochure, £104bn in investment is mentioned six times, with the final reference effectively providing proof that this is an injection of private money.
The White Paper proposes creating a single super regulator. Coincidentally, Sir Jon was strongly encouraged to combine the regulators, as Defra had already decided that “fragmented” regulation was a problem. However, successful water industries, such as those in Sweden and Denmark, use multiple regulators. Divisions like that help to avoid corruption.
Why the push for one super regulator? Regulation needs to be carried out effectively, in accordance with the law. The Office for Environmental Protection found that Ofwat, the Environment Agency (EA) and Defra hadn’t been effectively regulating and that they had not adhered to the law. Regulation also requires an industry that is “regulatable”, but controlling private equity has been beyond these regulators’ reach since privatisation, and there is no sign that this situation will ever change.
The refreshing reality is we don’t need shareholders. They don’t bring, they only take, and the customer funds everything. We need a water industry that provides infrastructure to protect the environment, support housebuilding capacity, and ensure a water supply for a growing population. Despite the promises, privatisation did not deliver that, and if it starts to now, it will only be at huge and unnecessary expense.
Ironically, Ofwat finally started to get tough, as the government kept claiming it wanted, when it fined Thames Water £123mn (including £18mn for effectively stealing money as dividends), and Ofwat acted far more swiftly than the EA ever could. But it turned out that was not what the government really wanted; it wanted to attract more investors. So, the Defra media machine quickly singled out Ofwat for blame and disbandment. Soon, its CEO was off to new pastures, and its staff were left wondering what comes next.
End privatised water
Worryingly, what combining the regulators really does is create a much tidier body for the industry to capture and control. A proposal for bespoke regulation for each company that would help companies “deliver” and ensure their shareholders get a “fair return” threatens to make a mockery of regulation in the industry altogether.
It would have been far more difficult for campaigners like Windrush Against Sewage Pollution to have penetrated the regulators’ machinery regarding dodgy goings-on if they had been a single unit. The EA was, and still is, very secretive about what it does and will not even share the financial interests of its Area Directors, including whether they have incentives such as shares in water companies.
Ofwat, on the other hand, has been far more transparent, honest, and helpful. It also won’t allow its staff members to own water company shares in the companies they regulate.
The New Vision for Water proposes a new role – Chief Engineer for the regulator. If anything, the regulator might need a Chief Financial Engineer, for this is where the real questions come to the fore. Where has the money gone? Why has so much debt been accumulated for delivering so little, and how has so much been extracted?
What we need are professional regulators who understand how to apply existing law effectively to deter criminals. That means catching and punishing them when they offend. This includes the people making the big decisions, not fining billpayers for the company’s offence or blaming junior staff.
Thames Water has over 180 convictions, but not one intervention of any kind on a board member. Instead, bosses receive bonuses, and the customer funds everything, including lawyers, fines and costs.
But even more fundamental than a strong regulatory body, what the industry and public really need is to rid the system of the motive to game their guaranteed income from every household and business in England and Wales and to pollute when it is profitable. That means ending privatisation – the root cause of these motivations.
More teeth… and a muzzle
The New Vision for Water also proposes MOTs for sewage works. Yet sewage works already have inspections, and companies regularly ignore the findings. When a vehicle fails an MOT, it cannot legally be used until the failure is fixed. In theory, this sounds promising, but in practice, taking London’s massive Beckton Sewage Works out of order until repairs can be made simply will not work, so we are really looking at window dressing for deregulation.
The government is “getting tough on water regulation” but is actually ensuring shareholders are protected, so that means getting weak on regulation. We don’t need new laws to protect the environment. We can see what the government does with the existing laws well enough to understand that its intent is to protect shareholders, not the environment.
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