Defra Minister Steve Reed has announced that the Government is to carry out a full review of the water sector, saying that “fourteen years of Tory failure have left much of our infrastructure in disrepair.”

In a wide-ranging speech this morning to stakeholders including water companies, representatives from the water industry, investors, environmental groups and campaigners setting out his plans to transform the water sector, Reed told his audience:

“Instead of protecting our waterways, water companies were allowed to pay out multi-million-pound bonuses and billions in dividends and the Conservatives were too weak to stop them.

“Firmer action should have been taken over the last fourteen years to ensure money was spent on fixing the water and sewage system, not syphoned off for bonuses and dividend payments.

“I am angry that over a decade of Conservative failure means customers will now have to pay higher bills to fix the system - this did not need to happen.”

He went on to say that while he couldn’t undo the failure of the past, he could stop it ever happening again.

The new Government had inherited “a broken water system” he said, with systemic issues that require a proper reset with a reformed water sector in a new partnership with government to bring in the “vast quantities of investment” that are needed.

“It will take all of us - government, regulators, environmental groups, investors and industry bosses - working together to clean up our water,” he emphasised.

He explained that change will come in the following three stages:

1st stage - the package of common-sense measures announced in his first week as Secretary of State for the Environment.

• Funding for vital infrastructure will now be ringfenced, meaning it can only be spent on upgrades that benefit customers and the environment - not diverted to pay bonuses, dividends or salary increases.
• Where money for investment is not spent, companies will refund it to their customers.
• For the first time in history, customers will have the power to summon board members and hold water executives to account through new customer panels with teeth.
• Protection and compensation for households and businesses will be strengthened when their basic water services are affected, including consulting on doubling the compensation customers are entitled to when their water supply is interrupted.

2nd stage - the Water ( Special Measures) Bill introduced into Parliament yesterday.

• The Bill represents a significant increase in enforcement powers for the water regulators so regulators can take tougher and faster action to protect customers and the environment.
• Where there is persistent law-breaking, the Bill will make it easier for the Environment Agency to bring criminal charges.
• The Bill will create new tougher penalties - including imprisonment - for water companies if companies obstruct Environment Agency and Drinking Water Inspectorate investigations.
• Offences will be triable in both the Crown and Magistrates’ Courts, where previously the punishment in most cases was merely a fine.
• The Environment Agency will get new powers to recover the costs of their enforcement activity from water companies, and ensure the Environment Agency has the resources, including staff, to take the enforcement action needed to hold polluters to account.
• Fixed Monetary Penalties will also be imposed by the Environment Agency as Automatic Fines - including for pollution and water resources offences, and for failure to comply with information requests and reporting requirements.
• The current £300 cap on the penalties will be lifted to reflect the scale of damage pollution is having on waterways.
• The Bill will give Ofwat new powers to ban bonuses for the executives and senior leadership of water companies unless they meet high standards when it comes to protecting the environment, their consumers, financial resilience and criminal liability.
• Water executives will be held accountable – if they fail to meet these standards, companies may need to remove executives from post or take other corrective actions.
• To increase transparency, the Government will ensure there is independent monitoring of every single sewage outlet, including emergency overflows which are currently not fully monitored.
• Water companies will be required to install real-time monitors so the public and regulators have full transparency on where sewage spills are happening – within an hour of them happening. They will also be required to publish the data in a clear, accessible format which will be independently scrutinized by the regulators and used as evidence in their investigations.
• A new statutory requirement will be introduced for water companies to publish annual plans to set out the steps they are taking to address their pollution incidents to ensure they do not keep happening.

3rd stage to address a much wider set of issues

He went on to outline the background to the 3rd stage of bringing about change, saying that while the new Bill is a significant step forward in fixing the broken water system, the country also faces a much wider set of issues, including:

• Water companies need to attract the levels of private investment required to upgrade crumbling infrastructure and keep pace with population growth.
• Major infrastructure projects to increase water storage capacity and sewer upgrades must be delivered at speed.
• The country needs to better prepare for future impacts of climate change such as flooding and droughts, which are already causing significant impacts to farmers.
• Customers and the environment must be better served at a local and regional scale, with a catchment level approach to tackle pollution sources such as chemicals, agriculture and road run off.

He told his audience:

“We need to reform the entire water system to resolve these very deep-rooted and complex problems which brings me to stage three of our long term plan for change.

“The Government will carry out a full review to shape further legislation that will fundamentally transform how our entire water system works and clean up our rivers, lakes and seas for good.

“We will ensure the framework that underpins our water sector delivers long-term stability, with clear, achievable targets that reflect the needs of customers and the environment at a catchment, regional and national scale, as well as enabling housing delivery and supporting the Government's growth mission.”

PR24 will proceed as planned to bring in much needed investment

Further details on the review will be set out later during the autumn – in the meantime, PR24 will proceed as planned to bring in much needed investment, he said. Reed explained:

“By strengthening regulation and enforcing it consistently, we will create the conditions needed in a well regulated private sector model to attract the global investment required to rebuild our broken water infrastructure.

“A sector that has been associated with decline and cover ups will become one of growth and opportunity. It will unlock the biggest ever investment in our water sector, and the second biggest private sector investment into any part of the economy for the entirety of this Parliament.

“This will help build nine new reservoirs and multiple large-scale water transfer schemes, 8,000 kilometres of water mains pipes and upgrade 2,500 storm overflows so they’re fit for purpose.

"It will clean up our rivers, boost economic growth around the country by creating tens of thousands of jobs, and increase the resilience of our water supply that underpins every single home and every single business in the UK."

Nationalisation would cost billions of pounds and take years to unpick current ownership model

Commenting on nationalisation, which some people have advocated, the Minister said this would cost billions of pounds and take years to unpick the current ownership model. This would leave sewage pollution to get worse in the meantime and halt the much needed investment, he continued, adding:

“I am more interested in a model that works.”

He concluded:

“My immediate focus is to make sure, from now on, that customers and the environment always come first, and that the water sector can attract the investment that’s needed.

“Looking further ahead, our review will deliver a radical, long-term approach to reform the water sector and ensure we can sustain our communities and the environment in the decades to come.

“While I’m clear there is work to be done – I want to thank the water companies for working with me and signing up to my initial package of reforms.

“I know, with the right approach, we will deliver the change this country wants to see.”