Question to the Department for Environment, Food and Rural Affairs:

To ask Her Majesty's Government what assessment they have made of the joint working of Ofwat and the Environment Agency in regulating water companies; and what assessment they have made of (1) the effectiveness of such working, and (2) whether the division of responsibilities has led to weaker sanctions being applied.

HM Government considers that the interests of both the environment and consumers are best protected with separate bodies for environmental and economic regulation. There are regular discussions between Ofwat and the Environment Agency to facilitate regulation of water companies, as well as with the Drinking Water Inspectorate and Defra.

Ofwat’s price review process incentivises and penalises companies in relation to their performance, resulting in companies having to return money to customers where they fail to meet relevant performance commitments. Ofwat and the Environment Agency work closely to agree those performance commitments related to environmental performance.

Enforcement action against water companies is strengthened because of Ofwat and the Environment Agency having differing routes and tools for sanctions.

Ofwat can take enforcement action where companies either fail to comply with their statutory duties and licence obligations or are likely to do so. Ofwat’s enforcement sanction options include enforcement orders, and it can directly impose financial penalties, secure formal undertakings from companies (that previously included money being returned to their customers in respect of their failings) and fines paid to the Treasury’s Consolidated Fund.

The Environment Agency’s enforcement powers are focused more on individual incidents and sites and include intervention orders, civil sanctions and criminal proceedings, when fines can be imposed as part of the sentencing. Since 2015, the Environment Agency has brought 54 prosecutions against water companies, securing fines of almost £140 million.

In June 2019, Ofwat imposed a penalty package on Southern Water of £126 million for spills of wastewater into the environment from its sewerage plants and for deliberately misreporting its performance, which contravened both statutory obligations and licence conditions. £3 million was paid as a fine, while £123 million will be reimbursed to Southern Water’s customers. They received a £17 rebate in 2020/21 and will receive an £11 rebate in each of the following four years.

In parallel, the Environment Agency brought a criminal case against Southern Water for widespread and long-term breaches of environmental law. The case saw pollution offences from 16 wastewater treatment works and one storm overflow brought together in a single prosecution. The £90 million fine was the largest imposed against a water company, because of a prosecution bought by the Environment Agency.

In November 2021, the two regulators launched the largest ever criminal and civil investigations into water company operation of their sewage treatment works, considering over 2200 treatment works. This followed new data coming to light because of increased monitoring programmes the Environment Agency and Ofwat had required and funded. To date, Ofwat has opened enforcement cases with six companies, whilst all other water and sewerage companies in England and Wales remain subject to its ongoing investigation.

HM Government will always consider the learning and outcomes of reports and inquiries to ensure effective regulation and enforcement in the water sector. This will include the outcomes of the House of Lord’s Industry and Regulators Committee’s current inquiry ‘The Work of Ofwat’, which is considering the regulator’s relationship with HM Government and the other regulators.