The UK Government’s Independent Water Commission, led by Sir Jon Cunliffe, has issued its Final Report on reform of the water sector in England and Wales. In a relatively short time frame the Commission has produced an extensive analysis, covering most aspects of water law and policy and with some very clear supporting graphics on key metrics and statistics.
Professor Sarah Hendry, Dundee Law School and the UNESCO Centre for Water Law, Policy and Science at the University of Dundee s.m.hendry
The Commission had 50,000 responses to the consultation – that is extraordinary and reflects the importance of the topic, but also the unhappiness with the status quo.
The terms of reference
The focus was water services, but the line between managing water resources and delivering services is wavy; the report covers pollution control and water quality, and also water resource management – though not flooding. It covers Wales in some detail with separate proposals where appropriate.
Whilst the Commission was specifically asked not to address the elephant in the room of private ownership, nonetheless there is extensive discussion of the business models, including some comparisons with Scotland and other countries. References to Scotland are generally positive and this blog will focus on seven highlights that might be of special interest to readers here in Scotland.
A Strategic Approach from the Government
The Report is critical of the lack of strategic direction, and bringing together overall objectives and Ministerial policy within long-term, cross sectoral and ‘systems based’ National Water Strategies for England (and separately for Wales). One example of overall strategic objectives is given from New Zealand, around protecting firstly the health and well-being of freshwater ecosystems, and secondly, the health of people. There is an acknowledgement of the Ministerial Directions in Scotland, which the Report notes summarise obligations for Scottish Water in just 5 pages.
Regulatory Reform
Chapter 3 provides an excellent review of the current, highly complex legislative framework for water, for both water resources and water services, in England and in Wales, identifying more than 100 pieces of relevant legislation and suggesting a comprehensive review. Many respondents, like myself, will have noted in their responses the time and resources that such a review would entail.
The proposal for a single ‘water regulator’ will bring together (in England) the work of OFWAT, the water functions of the Environment Agency (EA), and the Drinking Water Inspectorate (DWI), as well as functions from Natural England, and changes to the Consumer Council for Water.
Creating a single regulator may mean some dislocation of work within the EA, which will need to be carefully managed, and more generally there is recognition of the need for resources, and the significant reduction in funding, especially for the EA, in recent years. The need for reform of water law and policy has also been canvassed in Scotland where the Government consulted in 2023 on reforms to address scarcity, environmental protection and urban drainage.
Catchment Management and Water Resource Planning
The Report notes the plethora of plans already produced, including the River Basin Management Plans (RMBPs) under the Water Framework Directive (WFD) Regulations, all with variable time frames, stakeholders, planning assumptions, and mechanisms for consultation. There is a welcome focus is on the regional scale, with a proposal for water resource planning broadly at the level of the river basin districts currently used for the WFD reporting, although Wales would be a region itself, which is not the case at present (and there would be implications for the Solway Tweed and Northumbria basins, which cross the Scottish border).
The suggestion is that regional spatial plans could replace the RBMPs and this is likely to be controversial. There has recently been an extensive review by the Office for Environmental Protection on the WFD rules in England, suggesting that reform and enforcement are needed, but many stakeholders would resist the removal of any WFD rules, for example to remove ‘one out all out’ rule or to reduce the list of specific pollutants.
However, there are also more positive proposals to ‘sweeten’ any move away from the WFD including more emphasis on public health, bringing in smaller waterbodies, and strengthening and streamlining biodiversity requirements. This may appeal to the Government as enabling a move away from some EU frameworks.
Water industry planning, which is very onerous currently, should be streamlined into two core plans – one for water resources and supply, and one for the water environment and wastewater. This is an interesting suggestion and certainly worth considering in Scotland if the Government does proceed with water services reform in the next couple of years.
Environment and Water Quality
It is notable that much data in the Report on water quality is still taken from the last round of WFD reporting in 2019 – one unfortunate consequence of Brexit was always going to be the loss of those comprehensive datasets, along with their comparability across EU Member States.
The focus is on actions of the water industry, but there is clear acknowledgement in the early chapters that agriculture is the single biggest source of water pollution in England, and any cohesive approach to improve water quality must also consider farming impacts, and also runoff from roads, the third largest source of pollution (this is broadly true across the EU).
The Report strongly encourages updating the Urban Wastewater Treatment (UWWT) Regulations, which is certainly necessary in Scotland as well, and proposes some alignment to the recently Recast UWWT Directive, especially Extended Producer Responsibility for the costs of the necessary quaternary treatment to remove emerging pollutants. This would be helpful in Scotland, as despite our current goal of alignment with EU environmental legislation, EPR would need to be implemented UK-wide.
Considerable and welcome attention is paid in the Report in various places to the threats posed by emerging pollutants – PFAS have attracted much interest recently, but there are much wider concerns around especially pharmaceuticals and microplastics.
As well as wastewater treatment, these are relevant to drinking water quality, where Scotland has been implementing recent EU developments but England has not; and to sewage sludge on land, where current regulations date back to 1989 and focus on heavy metals. The Report also proposes bringing sewage sludge into permitting rules which has recently happened in Scotland, but without any widening of the regulated components of the sludge.
Business Models and Governance
The Report does look at ownership, especially the recent shift to private equity and away from listed companies. There is some comparative analysis, including with Scotland; the Report concludes that there is insufficient evidence that public ownership is better in itself, and that regulation is key. The latter is undoubtedly true though misses two key points: firstly, the extreme lack of trust in England that is deeply connected to the ownership model; and secondly, the incentives for private owners (whether or not listed companies) to ‘game’ the system and the regulator. These may be less prevalent in a publicly owned system, with a higher chance that all actors are prioritising the same public good and policy goals.
There is significant criticism of the increased reliance on data modelling and econometrics and the need to restore engineering expertise to OFWAT or its successor, and for the regulator to have a duty to supervise at company level. It also recommends moving away from industry ‘self monitoring’, due to the lack of trust this entails.
The Report proposes that the regulators should be able to block changes of ownership, and have a power to direct parent companies or controlling entities – both powers are likely to be welcome to campaigners.
Economic Regulation and Infrastructure
There is extensive detail on economic regulation. One suggestion also relevant to Scotland is that the Weighted Average Cost of Capital should be set by the Competition and Markets Authority (CMA) for all UK utilities and that seems a very sensible suggestion, as does reforming the CMA’s role in appeals of price determinations.
Currently, if a service provider wants to appeal OFWAT’s decision the CMA must undertake a whole redetermination (and that is also the case in Scotland); in other sectors, there are appeals on the merits of specific elements of a regulatory decision which is considerably quicker and would be appropriate.
There should be a formal ‘turnaround’ regime for poor performers, but limited proposals on the Special Administration Regime, the rules of last resort to take over a failing company. As I write this, I see that River Action has launched a judicial review over the Environment Secretary’s failure to publish a policy on the use of the SAR.
Our underground infrastructure is crumbling, and the Report recommends a resilience objective, and standards for resilient infrastructure. There is no duty to map sewers in England, or, since 2011, to adopt private sewers; there is a good practice example from Scotland on monitoring asset health. This links to the Government’s housebuilding agenda and there is a proposal that service providers should be consulted on development plans, where lack of capacity can block developments at a very late stage. There is also a proposal that the requirement to connect be restricted.
Another proposal is for a statutory requirement for Sustainable Urban Drainage Systems (SUDS) in new developments. This was legislated for in England in 2010 but is still not in force; this would certainly be a positive development and one that has been in place in Scotland for some time.
Consumer Protection
Drinking water quality is excellent in England, but the regulators should have comparable powers over all suppliers. There are important proposals for consumer protection with the suggestion that the Consumer Council for Water become a statutory ombudsman. In Scotland that role is now held by Consumer Scotland and there is redress through the Scottish Public Services Ombudsman for final tier complaints. Very significant, and long overdue, would be a single national social tariff (separately determined for Wales).
Conclusions
The UK Government has already accepted some key recommendations, including the new single regulator, and there will be a White Paper in the autumn; the Welsh Government will also provide a response.
The 89 recommendations are listed at the end with a helpful table indicating which would need primary legislation and which could be taken forward without, supplementing the final chapter on Implementation which addresses the steps which could be taken rapidly.
As the Report concludes, it is proposing transformative change; there are huge challenges around scale, planning, and timing. Many proposals will need legislation, and the resources required will be considerable. There needs to be a degree of consensus– the question is whether the political will, and the consensus, is there; and whether it can also convince those who feel so strongly that only a change back into public ownership is the answer.