Water watchdog OfWat gets punchy as patience with industry pours away

OfWat has responded to Michael's Gove firey rhetoric, but Jeremy Corbyn and Labour will deserve much of the credit if this results in a less awful industry 

James Moore
Chief Business Commentator
Tuesday 10 April 2018 11:19 BST
High shareholder returns has meant that some water companies have been unable to fund clean-water projects
High shareholder returns has meant that some water companies have been unable to fund clean-water projects

Water companies: You have a regulator after all.

OfWat, which had given every impression of being the Office for Doing Not Very Much, has outlined a packages of measures it wants to take to bring the embattled sector “back in balance”.

They are outlined in a letter to Environment Secretary Michael Gove, who seems to have recognised that beating up on the water industry might help him to create a counter narrative to the one that portrays him as a poisonous backstabbing brexiteer.

Some of OfWat’s missive amounts to wagging its finger at the industry and telling it to do what it should have been doing for years now. In other words: We expect you to be nice to your customers and to cool it when it comes to the cash you pour over executives for kicking money to shareholders via your Cayman Islands subsidiaries.

And by the way, those among you who haven’t already promised to move your corporate structures away from the Western Caribbean Sea had best get their skates on.

Others might require legislative action - most notably the changes OfWat says it wants to impose on water companies’ licences.

These would start with the imposition of a “high-level principle”, which is apparently required to make it clear that monopoly water companies “must put customers and their interests at the heart of everything they do”.

Other measures include a proposal to enforce a “stronger and consistent ring fence around the regulated business to protect its integrity and its financial strength” and the “binding of all companies to our principles of board leadership, transparency and governance”.

Translating this sort of thing into meaningful improvement for the poor customer does rather depend on the regulator’s willingness to get tougher than OfWat has been up until now.

The regulator says it has been busily engaging with chairs and CEOs of water companies, including those loaded up with debt and making use of offshore structures. Apparently they’re all now among the water company coalition of the willing (group hug everyone).

The muted response from trade body Water UK to its members getting a kicking - “we support the direction of travel to tackle issues of concern” - rather suggests they’ve seen the way the water is flowing and will knuckle down.

But Mr Gove might still need to take action to hand OfWat new powers, which is where it could get interesting.

Ministers, especially those in the May Government, are often fond of talking tough, but rather less keen on actually doing things that will upset any apple carts not involving Mr Gove’s beloved Brexit.

As such, the Environment Secretary’s response will merit close attention.

He kicked this all off when he wrote to OfWat to say that he was jolly cross with the water companies at the end of January. He followed it up with a speech in March in which he used some very un-Tory like language in front of an audience of water bosses.

It included accusations that they had used complex offshore structures to avoid tax, over paid executives and failed to properly invest in their infrastructure. He even went as far as naming and shaming some of them directly.

At the end it wouldn’t have been all that much of a surprise to see one of his aides handing him one of those hats Jeremy Corbyn used to wear that the BBC is so fond of using pictures of.

The Labour leader has been getting a lot of stick of late, some of it deservedly.

But if all this watery sound and fury results in a less awful industry, one less hell bent upon squeezing every last drop of money out of its customers while its product pours out of antiquated pipes and on to Britain’s streets, Labour will deserve a lot of the credit.

Its rhetoric, combined with the threat of nationalisation, have done as much as anything to force a change in approach to and from an industry that has for too long floated on easy street.

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