Water and Sewage Companies: Directors’ Remuneration

Lord Sikka Excerpts

Thursday 22nd February 2024 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what plans they have for reforming remuneration of the directors of water and sewage companies operating in England.

[Lord Sikka (Lab)]

My Lords, it is a pleasure to open this debate. Privatisation of water in England has not yielded the promised benefits to the people, but directors of these companies are highly rewarded for inflicting at least five major harms to customers, the environment, taxpayers and society generally. First, in pursuit of private profits, more than 1 trillion litres of water are lost to leaks from crumbling infrastructure each year. Secondly, tons of sewage are dumped in rivers and seas, threatening human health, marine life and biodiversity; only 14% of rivers in England have a good ecological status, and no rivers have a good chemical status. Thirdly, customer bills in England have risen in real terms without commensurate increase in quality of service. Fourthly, investment in infrastructure has been very low. Fifthly, companies are habitual tax avoiders. In the words of a man called Michael Gove, who gave a speech on 1 March 2018:

“Last year Anglian, Southern and Thames paid no corporation tax. Indeed Thames has paid no corporation tax for a decade. Ten years of shareholders getting millions, the chief executive getting hundreds of thousands, and the public purse getting nothing”.


Little has changed since 2018. It is more of the same. England’s nine major water and sewage companies are more than 90% owned by overseas investors scattered across China, Hong Kong, Singapore, the Caymans, Qatar, the UAE and elsewhere. They have little or no physical contact with polluted rivers and crumbling infrastructure and have done absolutely nothing to curb undeserved executive pay. Their main concerns are returns and dividends. Since privatisation, around £75 billion has been paid in dividends, funded by debt and squeezes on investment.

Puny fines have not curbed the lust for bigger profits, pay packets and bonuses. Since 2010, Anglian Water has been sanctioned 74 times and fined £6.2 million. Thames Water has been sanctioned 98 times and fined £175 million. Yorkshire Water has been sanctioned 94 times and fined £109 million. Severn Trent has been sanctioned 82 times and fined £8 million. United Utilities has been sanctioned 215 times and fined £6.6 million. Despite these offences, the directors are rewarded and their pay packets keep getting bigger. According to data published by the Liberal Democrats—I must give credit where it is due—in 2021, 2022 and 2023 executives of water companies in England collected remuneration of £70 million, including nearly £41 million in bonuses. Why are these bonuses paid? Is it not the duty of directors to provide clean water, plug leaks, ensure water security and the proper disposal of wastewater, and renew infrastructure? If it is, there is no case whatever for giving them bonuses.

People are concerned about undeserved rewards at water companies, so the Government periodically soothe public anxieties with promised reforms. For example, on 1 March 2018 the then Environment Secretary, Michael Gove, lamented excessive executive pay at water companies, but absolutely nothing changed. On 3 July 2018, in a paper titled Consultation on Revised Board Leadership, Transparency and Governance Principles, Ofwat promised greater transparency over executive pay, but it remains elusive. In June 2023, Ofwat said that it would review bonus payments, and it repeated that on 8 November, but nothing changed.

On 11 February 2024, the Government announced they are considering banning bonuses for directors

“if a company has committed serious criminal breaches … That could include successful prosecution for a Category 1 or 2 pollution incident—such as causing significant pollution at a bathing site or conservation area—or where a company has been found guilty of serious management failings”.

Those words are quite interesting. Words such as “could” are vague—not “will” or “must”—and the emphasis is on multiple breaches and failings. How many do there need to be before the Government think that something needs to be done? Ripping off customers and taxpayers is simply not considered a failing in the Government’s thinking, although most people absolutely are concerned about it. I am sure the Minister will tell us more about it.

What if pollution is deadly but not criminal as defined by law? After all, the Government have authorised these companies to continue polluting rivers until 2050. I hope the Minister will tell us why, after 14 years of doing nothing, the Government are now making some vague gestures in the year of a general election.

Ofwat, which has presided over degradation, is somehow now expected to enforce curbs on bonuses. Ofwat is a failed and conflicted regulator. Two-thirds of England’s biggest water companies employ key executives who previously worked at Ofwat. In a letter to the Ofwat CEO, dated 21 February 2024, the Environment, Food and Rural Affairs Committee expressed strong concerns that Ofwat cannot exercise its full range of powers as they are now, because that might affect the stability of the sector and upset water companies. How do the Government expect it to deal with bonuses and executive pay? I hope the Minister will expand on that.

The Government have done nothing to create pressure points for honest, ethical practices by addressing the shortcomings of the shareholder-centric model of corporate governance, enhancing democracy or empowering long-suffering stakeholders in water companies. I will sketch out what I think needs to be done.

Whether water is owned privately or through a not-for-profit company, we need durable reforms grounded in democracy and public accountability. First, remuneration contracts of water company directors should be publicly available so that everyone has a clear idea of what they are getting. The sanitised snippets in the annual accounts—which I have read—are very economical with information and rarely mention that chauffeur-driven cars and private school and medical fees also form part of executive pay packages. There is complete silence on these things. I have this from an insider, by the way.

Secondly, all customers should be empowered to vote on executive remuneration policy and amounts. A 51% vote should be needed to approve directors’ basic pay. If directors have polluted rivers, did not plug leaks, did not invest adequately or exploited customers, it is extremely unlikely that they will get their pay. Customers will simply not reward them for it. This is a powerful pressure point for securing socially responsible practices.

In addition, if bonuses are to be awarded for what I call extraordinary performance, there needs to be extraordinary approval for those bonuses. That would mean that at least 90% of customers must approve the bonus. This is a fairly common standard for approving bonuses in places such as Sweden. They are not simply handed out willy-nilly because somebody thinks they deserve it.

I am sure the Minister will oppose my suggestions—I am quite prepared for that—but for the last 35 years, Ofwat and Governments have failed to tackle the scandal of excessive pay for the poor performance of water companies. We need to empower and trust the people. If the Minister disagrees with empowering people, I hope he will tell the House why people cannot be trusted but some administrator at Ofwat can be, even though it has failed ever since privatisation.