The architect of the government's water plan has asserted that the privatisation of water in England is not the fundamental reason for its widespread failings, cautioning that there is no single "simple solution" such as nationalisation to address the complex challenges facing the industry.
Review Highlights Systemic Issues Beyond Ownership
Sir Jon Cunliffe, a former Bank of England deputy governor who played a key role in reforming banking regulation after the 2008 financial crisis, was commissioned by the Labour government to conduct a comprehensive review of the water sector. His mandate included tackling pressing problems like the ongoing sewage scandal, frequent tap water outages, and inadequate preparedness for drought conditions across the country.
In his findings, Cunliffe emphasised that it should be made easier to remove underperforming water company chief executives. This recommendation comes amid mounting pressure on David Hinton, the CEO of South East Water, to resign following extensive water shortages that left tens of thousands of residents in Kent and Sussex without drinking water for days or even weeks.
Government Response and Regulatory Overhaul
The government has responded to Cunliffe's recommendations with a white paper released this week, which incorporates many of his proposals. Key measures include the introduction of a supervisory model, enhanced technical expertise within a new super-regulator, and turnaround regimes designed to compel water companies to address issues more swiftly. Notably, Cunliffe was instructed not to consider nationalising the industry as part of his review process.
England and Wales stand as the only nations globally with a fully privatised water system, a model that has faced intense criticism. Companies have been accused of distributing billions in dividends while neglecting essential investments in infrastructure such as pipes and reservoirs, leading many campaigners and politicians to advocate for public ownership.
Mixed Evidence on Ownership Structures
However, Cunliffe countered this view, stating, "You can't fix these problems with one simple solution. If we nationalised the system tomorrow, we wouldn't necessarily solve all the problems that we have to solve." He explained that his report examined water systems worldwide and concluded that privatisation itself is not the primary issue.
"We didn't think the problems the sector was facing could just be laid at the door of privatisation and profit," he added. "We pushed very hard for evidence that shows other ownership structures are systemically better, and the results were mixed. We didn't have results that conclusively showed any system was better than any other."
Cunliffe insisted that the current privatised framework "can work," but acknowledged it would require significant effort and transformation. He proposed measures to enhance accountability, suggesting that senior managers should be held personally responsible for failures, akin to practices in the financial sector.
Criticism from Campaigners and Industry Voices
Campaigners have reacted negatively to the white paper, arguing that the underlying issues cannot be resolved while water companies continue to operate for profit. James Wallace, CEO of River Action, asserted, "None of these reforms will make a meaningful difference unless the failed privatised model is confronted head-on. Pollution for profit is the root cause of this crisis."
Feargal Sharkey, a water campaigner and former Undertones singer, criticised ministers for failing to address corporate greed, warning that customers and bill payers will ultimately bear the costs. Meanwhile, Cat Hobbs, CEO of the campaign group We Own It, advocated for public ownership, proposing that water company boards include representatives from households and anti-sewage groups to ensure greater accountability.
Accountability and Financial Penalties Debated
The white paper has also drawn criticism for including provisions that could allow water companies to avoid fines. The rationale is that penalising companies heavily might hinder their ability to invest in infrastructure improvements. For instance, Thames Water faces over £120 million in fines for sewage dumping and other violations.
Cunliffe defended this approach, stating, "You have to make sure that [letting companies off fines] isn't an easy option – there need to be sanctions for poor performance. But if your answer to poor performance is to take money out of the company which they cannot invest, or leave with a shadow hanging over it for five years, it is not going to help customers to get things fixed."
He added, "If you just punish them you end up with a dead water company, which is in no one's interest." The situation in Kent and Sussex was described by Cunliffe as "clearly unacceptable," highlighting the urgent need for effective reforms to prevent future crises.
