The water industry is “failing” and polluting companies are “deaf to the crisis” the sector faces, MPs have warned.
The industry needs “root-and-branch reform” and recommend that a review being carried out by Sir Jon Cunliffe examine different forms of corporate ownership, which “could offer a better culture of responsible leadership.”
MPs says there has been “serious economic mismanagement of companies” and calls for greater regulation of debt accumulation and debt management, saying that “a culture of relying on debt must never be allowed to arise again”.
Regulators including Ofwat must “better vet or veto potential owners of water companies to prevent bad actors from running critical national infrastructure”, the report by the Environment, Food and Rural Affairs Select Committee (EFRA) said.
Companies have presided over sewage spills and pollution, financial mismanagement, large bonuses for executives leaving some water companies at risk of collapsing and requiring a taxpayer bailout.
The sector’s poor performance has sparked widespread public anger prompting Ministers to set up the Independent Water Commission, a government-commissioned review, which is looking at the industry’s future.
“We see merits in the argument that the current models of ownership in the water industry may not be bringing about the culture the sector needs,” the MPs said.
Public trust has been seriously undermined by the multimillion-pound bonuses repeatedly paid to senior executives over many years, regardless of performance, the committee said.
Excessive dividends alongside poor performance are “symptomatic of a culture of profiteering over duties to regulators and customers” their report concluded.
More money from investors and customer bills needs to find its way to greater investment in infrastructure and delivering a better service to consumers and “less towards debt repayment or financial rewards for executives”.
Fines and rewards should also focus on a reduction in pollution incidents, responsible ownership and the need for long-term resilience.
“Despite some initial success after privatisation in 1989, root-and-branch reform of the water sector is now needed to improve the sector’s culture,” the committee said.
MPs found that “public disquiet has increasingly turned to outrage” at the way water companies and their bosses are benefiting from the sector.
Their report said alternatives such as not-for-profit enterprises, community interest companies and co-operatives should “be on the table”. Sir Jon Cunliffe needed to keep an open mind about alternative ownership models forwater firms, the report said but ministers have told him to rule out full nationalisation on cost grounds.
Privatisation of the water sector in England and Wales has “almost certainly weakened the accountability of the water industry to the public”, the MPs said noting that water data is often not public in practice.
They stop short of calling for the renationalisation of the water industry. They say taking troubled Thames Water into special administration, if it fails to solve its financial problems should only be a last resort given the high initial cost to the taxpayer.
“It is unclear whether allowing a failing company to struggle on and accumulate progressively more debt is a better outcome than assuming temporary national control more quickly, with the associated costs that it could incur” the report says
MPs want water companies to be legally obliged to publish performance, environmental and financial data on a regular basis.
Alistair Carmichael, chair of the committee, said the sector has a “serious culture problem”.
“Water companies’ complex and sometimes impenetrable financial structures, with their myriad subsidiaries, holding companies and parent organisations, seem to suggest that their purpose is less to provide a good service to their customers and more to allow them to juggle their finances and their increasingly unsustainable levels of debt.
“This has got to stop now. Trust and accountability in the water sector are very low.”
A Defra spokesperson said new legislation has banned unfair bonuses for bosses at six water companies and launched 81 criminal investigations.
Water UK said companies are focused on investing to secure supplies, end sewage entering our rivers and seas and support economic growth.
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