Priorities for Water Sector Reform

Lisa Smart Excerpts

Thursday 19th June 2025 Westminster Hall

[Helena Dollimore (Hastings and Rye) (Lab/Co-op)]

Thank you, Ms Lewell. I thank the Backbench Business Committee for allocating time for me to make a statement on behalf of the Environment, Food and Rural Affairs Committee about our second report of this Parliament. The report is entitled “Priorities for water sector reform”, and it is intended to be the first in a long-term inquiry into reforming our water sector. We will continue to return to this subject throughout the Parliament, as we know how important it is.

The Secretary of State for Environment, Food and Rural Affairs has made reform of the water sector one of his five core priorities. Sir Jon Cunliffe was appointed by him to lead an independent review of the sector and to make recommendations. Unusually, therefore, our report does not make recommendations to the Government but to Sir Jon himself. It is intended to feed into the work of the Independent Water Commission.

Over the past six months, we have been wading into the water industry and its many problems. Before I come to our findings, I want to thank my fellow Committee members, the Committee staff and the Chair for their hard work in getting this report over the line. Most of all, I thank the campaigners across the country who have helped to expose what is happening in our water industry.

The story of what has happened in the water sector in this country reads a bit like the film “Erin Brockovich”—individuals who care about the state of their sea or their local river, going out to test the water only to find shocking levels of sewage pollution. A shocking number of them have then ended up having to go to court to find out the truth of what is happening. The seas, rivers and waterways of a whole country have been desecrated. In my own constituency, in Hastings, Rye and the villages, we have been at the sharp end of this crisis, suffering at the hands of Southern Water.

In our inquiry, we tried to take the public’s questions to the water bosses, to channel that anger into seeking answers about how we solve the crisis and about how we got here. We hauled in the water bosses one by one, and heard story after story of corporate failure, environmental degradation and a lack of accountability. The boss of Thames Water explained why it put 98 critical infrastructure projects back, instead spending that money on dividends rather than fixing broken pipes. Some companies, including Thames, are now struggling to stay afloat, thanks to the previously high levels of dividends extracted from the companies. That should never have been allowed to happen.

We heard about serious failings during major incidents in which the public were abandoned. In Brixham, during a cryptosporidium outbreak, while residents lay in hospital from drinking the water, the boss of South West Water, Susan Davy, was missing in action. She could not explain why she refused interviews with the media during the crisis.

We grilled the boss of Southern Water, Lawrence Gosden, about major incidents in my own constituency, when residents in Hastings and Rye were left without water for up to eight days. Proper provisions were not made during that time for residents, and communication was seriously lacking. In the Hastings water outage, Southern Water initially refused to cough up any compensation. After I grilled him about it in Committee, the chief executive agreed to reverse the decision and pay compensation. Our Committee has taken the learnings from such incidents to recommend that we have a clear set of guidelines to say what people can reasonably expect from the water companies during a major water outage—such as providing portaloos, showering facilities or food provision as the crisis goes on.

One water boss after another justified taking an eye-watering bonus while presiding over serious failure. They were always quick to justify the need for bonus cheques to deliver good performance, but had no answers for us about why their bonuses were 150%, while the lowest-paid frontline workers out repairing pipes and leaky mains got just 3% or 5%. Bonuses going up while sewage pollution incidents increase—the Committee is not sure how that meets the definition of performance-related pay.

At the heart of the issue is a perception that the water companies are prioritising profits over people and the planet. We found that the current structure of these companies is dominated by private equity and opaque financial arrangements that have been used to take debt to unsustainable levels. Some companies have clearly been bought by irresponsible owners who have prioritised shareholder returns over long-term investment and environmental stewardship.

We were also disturbed by how much of our water industry—a whopping 70%—is in foreign ownership, often that of countries regarded as hostile to the UK. Is it really in the UK’s national interest to have water, a critical piece of infrastructure, in the hands of our adversaries? Major changes are needed to bring about a fundamental shift in leadership. The sector is deaf to the crisis it faces. Vetting or vetoing of owners could be a first step.

We also believe that the commission and the Government should be open-minded about different ownership models. As well as publicly and privately owned businesses, options include not-for-profit enterprises, community interest companies, co-operatives and hybrid approaches. Regardless of the approach taken, other factors may need to be considered, such as the power to vet owners—a power that Ofwat does not currently hold. The commission should conduct a serious analysis of whether alternatives could bring about a culture that is better focused on public service, transparency and accountability.

We know that there is also a need for other changes. The report calls for tighter regulation of financial practices, including limits on debt gearing levels, better oversight over complex business structures and greater scrutiny of dividend policies. We also want to see changes in the regulatory environment, which is too complex and too ineffective. Regulators such as Ofwat have been found asleep at the wheel during the crisis, too often focused on processes instead of outcomes. The rise in pollution incidents shows that regulators need better resources and powers to properly monitor the environment and enforce environmental protections.

The price review process is not working either. Our Committee found that it must be reformed or replaced to better serve the interests of customers and the environment. It has failed to support the necessary investment in the sector and to maintain or improve the resilience of assets, and has allowed money to be siphoned off into bonuses and dividends instead of spent fixing broken infrastructure.

The sector and the regulators have woken up too late to the need for investment in that broken infrastructure, and customers are now bearing the brunt of a huge increase in bills that should have been spread over a longer period. It is the most vulnerable households that will suffer. We welcome the Government’s commitment to introduce a better single social tariff to protect those households and urge them to move quickly in introducing it.

This week, we took evidence from Sir Jon Cunliffe, and impressed on him the importance of seeking fundamental reform of a sector that is failing. This is a time not for tinkering around the edges, but for bold action to meet the expectations of people across this country. This report should serve as a wake-up call and a stark reminder of the challenges in our water sector. It is the first step in a long-term inquiry, but our message is clear: the water sector must change.

We welcome the efforts recently made by the Government and Ofwat to tackle some of the problems of governance, bonuses and financial mismanagement, including the recent announcement of a ban on bonuses for overseeing failure thanks to the new powers introduced in the recent Water (Special Measures) Act 2025. However, we urge the Government to go further. We need a system that puts people before profits, protects our rivers and seas and earns the trust of the public. Let us not waste this opportunity—let us build a water sector that is transparent, accountable and fit for the future.

[Lisa Smart (Hazel Grove) (LD)]

I am grateful to the hon. Member for Hastings and Rye (Helena Dollimore) for that comprehensive overview of what is a really impressive piece of work by the EFRA Committee. It is shocking, but my Hazel Grove constituents will not be surprised, because they are subjected to United Utilities dumping sewage in the rivers Goyt, Tame and Mersey.

Could I press the hon. Member for a little bit more information? She mentions the open-mindedness of the Committee when it comes to ownership models of water companies, but I wonder how open-minded it is when it comes to the regulator. She talked in her remarks about improving resources and extending powers, but does she agree that scrapping Ofwat and starting again with a new regulator would be part of the solution?

[Helena Dollimore]

I thank the hon. Member for that important question. On the Committee, we heard about the failures of United Utilities in her constituency and other places that it is meant to serve properly.

We found that, at the moment, we have a very complex regulatory regime that does not serve anyone well. There is a lot of confusion about who is responsible for what, in the sector and among consumers. People do not know where to go when things go wrong—that is not clearly enough understood. We feel that there could be a much simpler, clearer regulatory regime, which needs more powers and also more resources to do the job properly.