Cunliffe and Corry have reported – what should happen next?

Why no mention of nationalising water companies?

Given the recent focus on poor water company performance, pay, and profits, media commentary has concentrated on water company ownership. The government instructed Sir Jon Cunliffe against considering nationalisation, likely due to Treasury concerns over costs. Some groups dismissed the Water Commission’s work as a sham, which seems unfair. Adopting most of the Commission’s recommendations could significantly improve the sector, and dismissing the work just because it avoids nationalisation is misguided.

The debate on water company privatisation persists, especially after decades of capitalism exploiting a poorly regulated system. English and Welsh water companies are among the few that remain privately owned in Europe. It is true that interest rates for borrowing have risen due to global economic factors and regulatory uncertainty, while the government could borrow more cheaply for infrastructure investments.

YouGov polls indicate over 80% of the public support nationalisation, influenced by media coverage. The cost of nationalisation is debated, considering the companies' debt, but also their significant assets and that financiers of companies could write off some of the debt having had healthy returns in the past. But there are also questions about whether the government would manage water services better than the private sector and how much sector failings stem from regulation or corporate mismanagement.

At The Rivers Trust, we lack the expertise to judge this complex issue or predict the outcomes of nationalisation. The government remains opposed to it, making the point perhaps somewhat moot. However, Thames Water’s dire financial situation might lead to it going into special administration, perhaps allowing the government to explore public ownership options.

Cunliffe offers sensible recommendations for enhancing the governance, financing, and regulation of privatised water companies without nationalisation. It remains to be seen if these recommendations will be implemented by the government and whether they will improve performance and tackle the high levels of debt in most companies, or not.

What should the government do now?

Whatever the outcome of the nationalisation debate, we feel that there is much else that needs to be done, and done quickly and ambitiously, to make the current system work much better than it currently does. In any case, we believe that goes much further than the operation of the water companies.

There is too much in the Cunliffe report to cover comprehensively in the rest of this blog, so we have focused on the areas that we feel are most important and urgent, and we have made some suggestions for how they might be implemented.

These are:

• Regional Systems Planner/ Water Authorities
• A new single regulator for water
• A collaborative system of monitoring

Regional Water Authorities

Water companies are an important part of the water system, but land managers, urban developers, highways operators, the chemicals industry and householders also have a huge role to play in fixing our water system. Water needs to be managed as a system, rather than each aspect of it being managed in isolation, and by separate organisations. We believe that Sir Jon Cunliffe’s recommendations for the creation of Regional Systems Planners will enable a big step forward in a more integrated direction that enables catchment and nature-based solutions to become more mainstream, and to generate far better value for money for tax and bill-payers.

A few years ago, the Rivers Trust convened a working group of NGOs and agricultural representative organisations to look at water governance. The clear consensus of that group was that water management should be planned at a local catchment scale, and that these plans should be brought together at a regional/river basin scale, and their delivery to be funded by new bodies with the authority to make decisions that meet local needs, as well as meeting national targets. We called this regional level of governance the ‘missing middle’.

Sir Jon Cunliffe has clearly recommended that this missing middle should be filled with what he has called Regional Systems Planners, or Regional Water Authorities, . We believe, along with Cunliffe, that these new bodies should not be large quangos, but they should have enough expert staff to gather the necessary information from Catchment Partnerships and regulators to support good decision-making about how funds should be spent in the region most cost-effectively to improve the health of the water environment, protect water supplies and reduce flood risk. These systems planners need to have an independent chair, who is responsible to the Secretary of State for meeting national targets and legislative requirements, but they also need to be required to listen to the voices of local communities when making decisions.

The regional systems planners need to be able to direct large amounts of expenditure such as flood budgets, the Water Industry National Environment Programme (WINEP), nature recovery funding, local/unitary authority budgets, infrastructure managers environmental budgets (e.g. Network Rail and National Highways) and, ideally, a significant portion of agriculture payments through ELMS. Because they control large amounts of expenditure, they would attract high calibre representatives on their boards and to their staff, and they would benefit from institutional buy-in from multiple organisations. The River Basin Liaison Panels we had in the past became ineffective talking shops because they only had the convening remit with none of the power to direct and co-ordinate expenditure.

To enable this, Catchment Partnerships need to be far better funded and required to develop high quality local catchment management plans that truly capture the community’s vision for their river and the many opportunities that exist for innovative, cost-effective solutions at a local scale that can actually be delivered. These local plans need to form the foundation stones of the Regional Systems Planners’ plans and must set out clearly the ambitions of communities for their local river. Again, if the plans have a funding mechanism and are taken seriously, the Catchment Partnerships will at last have a much clearer mandate which will lead to far better engagement from local people, businesses and organisations in the development of these plans.

The board of each Regional Systems Planner should have at least one representative of the Catchment Partnerships serving on it, along with the regulator, the water companies in the region, an agricultural representative, the relevant unitary authorities, infrastructure bodies such as National Highways and Network Rail and others who can help fund catchment management. The growing interest in establishing rights for rivers could be captured by having one person on every Regional Systems Planner board (e.g. a river guardian) who speaks up for the river in the decision-making process.

The Regional Systems Planner must be charged with developing a very clear, funded delivery plan to achieve dramatic improvements in water quality and to address the rapidly growing risks to water supply and flooding of homes and businesses. They should have legally binding targets that they are responsible for delivering in each catchment and in the region as a whole to contribute to the Environmental Improvement Plan targets nationally, and be held accountable for delivery by Ministers. They should engage in a constant cycle of planning, delivery and review to inform future planning and delivery.

The absence of any clear pathway to – or accountability for – delivery in most of the existing plethora of water plans was highlighted by The Rivers Trust in our evidence to the Commission, echoing the Office of Environmental Protection’s criticisms of the failure to deliver the Water Framework Directive.

Regional Systems Planners need to have responsibility for creating and maintaining nature-based solutions as part of our critical national infrastructure that will provide resilience to climate change. Countless reports have highlighted our nation’s lack of resilience. Increasing resilience is not something that can be done with a few feel-good projects; it needs to be hard-wired into the management of landscapes and decision-making at every level to address the critical threats to the economy and society in general from water supply shortages and flood risk. Restoring resilience would also reverse the decline in biodiversity, reduce pollution of water supplies, improve people’s health and happiness, and reduce greenhouse gas emissions. It’s a no brainer for the economic and social well-being of our nation.

The two key benefits of these new systems planners would be integration and localism. The water sector is awash with individual plans for water resources, pollution-control, flooding, drainage and nature-recovery, but they do not join up into any form of coherent management of the system at a catchment scale. This leads to countless missed opportunities for integrated solutions that address all of the pressures on the water environment simultaneously, and far more cost-effectively. Planned measures are formulaic and hypothetical, when they could be specific and deliverable if they were designed locally, and funded regionally.

Setting up these systems planners could start this autumn. There is also no reason to hesitate in increasing funding to the Catchment Partnerships so that they can get started on developing robust catchment management plans. Indeed, these plans could form the basis of the next round of River Basin Management Plans, programme of measures which are required to be produced in the next two years, but only if the partnerships are funded to start work immediately. The failure of these RBM Plans to be anything other than a paper exercise for the past couple of decades has been one of the main failings of our current water system. We should start now as we mean to go on, and we need to start soon, because work has already begun on planning the water company investment programme from 2030-2035.

As well as integrating functions at a regional level, water must move beyond being the responsibility only of Defra. It is too important to be pigeon-holed in one department and the actions required need other government departments to have involvement in decision-making and to contribute to funding. For example, MHCLG is focused on building a million and a half homes, but they will be pointless if they don’t have a reliable water supply or if they are flooded. They also need to be designed to have the smallest possible water footprint.

A single water regulator

The Rivers Trust was very clear in its evidence to the Cunliffe Review that many of the failings of the water management system are due to the tangle of regulators, and legislation, that has been created over the years. The Environment Agency’s poorly funded and ill-informed attempts to direct water companies to improve the water environment, and OFWAT’s control of expenditure in 5 year investment cycles have not led to good outcomes. This has led to many problems not being addressed. There has been far too much focus on capital investment in hard-engineering assets and not nearly enough funding for asset maintenance or for nature-based solutions that can generate far better value for society. Irrational schemes have been forced on companies that do not address the highest priority needs in a catchment. There are also huge disparities between the attention afforded to different pollution sources. Whatever you might think about the outcomes, sewage is very intensely regulated in comparison to pollution from highways and agriculture.

The headlines following the publication of the Cunliffe report were dominated by the government’s instant response to ‘abolish OFWAT’, but the Defra press releases and the report itself are less clear about what this means in practice for the Environment Agency, Drinking Water Inspectorate and Natural England.

We think it would be potentially positive for economic and environmental regulation to fall to a single regulator, and for that regulator to focus on regulation, rather than having lots of other activities such as planning and partnership working in the same organisation. There are legitimate concerns about the cost and disruption of public sector re-organisations but these need to be balanced with the benefits of having a regulator that is really good at regulating.

However it is formed, this new single regulator will only be effective if three key conditions are met.

First, it will need to be properly funded. The Environment Agency is increasingly reliant on income from permits to pay for its regulatory activity as its grant-in-aid has been steadily reduced. Water companies and factories have to pay permits for discharge consents, whereas highways, dairy farms and many others do not, and so they don’t get regulated. The government needs to decide if it will apply permits to other polluters, or if it will fund the regulator with taxpayers’ money. In recent weeks, the Chancellor Rachel Reeves has proposed a reduction in the number of environmental quangos, which nearly every government has proposed for the past few decades until they realise how important much of the work of these regulators is. Rationalisation is sensible if it provides greater clarity and reduces complexity, but it should not be seen as a cost-cutting exercise and must not erode environmental protection.

Second, the new regulator will need to be more independent of government micro-management. The Environment Agency has increasingly become subsumed into Defra and unable to provide a much-needed independent voice. The regulator needs to be free to take enforcement action against anyone breaking the law and polluting or otherwise damaging rivers, however politically awkward that might be for the government of the day.

Third, there needs to be a much clearer legislative framework in which it can operate. The Drinking Water Inspectorate has been so successful at ensuring that our drinking water is of high quality, nearly all of the time, because it has very clear objectives and legislation. Natural England and the Environment Agency have to deal with multiple – often conflicting – pieces of legislation that have been introduced as Ministers have played whack-a-mole with individual problems over the years. The recent Environment Act was one such example: it brought in a target to reduce phosphate pollution from water companies by 80% and from agriculture by 40%. There is no mechanism for even monitoring agricultural pollution and no-one accountable for achieving the target. This blunt approach also fails to address phosphate pollution sufficiently in the many river catchments where agriculture is by far the biggest polluter. We also need new legislation to tackle the rising tide of pollution from chemicals, wet wipes, vehicle tyres and pharmaceuticals.

Reforming decades of environmental legislation is not an easy or quick task. Dan Corry recently wrote an excellent blog post stressing that fundamental change is required in the regulation of the water sector, but that fundamental change cannot be done in a hurry or on the cheap. Unpicking multiple layers of legislation and replacing it with something fit for purpose will require a few years of careful work and detailed consultation, and Defra will need more resources to do the work properly.

However, this doesn’t mean that this process shouldn’t start immediately, or that the other recommendations need to wait for it to be completed.

A collaborative monitoring system

Anyone managing a complex system needs good information to be able to make well-informed decisions. One of the key failings of our current system is that multi-billion-pound decisions are being made with very patchy and often erroneous data. Official water samples taken by regulators were sparse and infrequent 15 years ago, and have since been reduced dramatically and stored in antiquated systems that are no longer fit for purpose . Many other organisations are now gathering data on rivers and catchments – from water quality and wildlife to pollution pathways, soils, habitats and land use. This includes Rivers Trusts, catchment partnerships and a fast-growing community of citizen scientists. These volunteers are not only donating thousands of hours to monitor their local waterways, but also deepening their knowledge, inspiring their communities, changing their own behaviours and pushing for wider environmental change.

Despite the enormous value of this effort, the full potential of these datasets isn’t being realised. The information is often fragmented, inconsistent, and collected without shared standards or coordination, making it difficult to understand the purpose and quality, or to combine the data and use it effectively in decision-making.

To tackle this challenge, The Rivers Trust has been leading CaSTCo, a 3 year, £7.2m project involving more than 30 partner organisations. Its aim is to create a clear and consistent national system that brings together data from regulators, NGOs, and citizen scientists, making it easier to share, compare, and trust the evidence. The project has nearly concluded and will be making recommendations to the government in the next couple of weeks for a national system that would weave all these strands together into a coherent, rich picture of the health of our nation’s water. We believe that this is absolutely fundamental to the success of the government’s mission to restore our rivers.

Again, there is no reason to delay the establishment of such a system, which would provide a clear baseline and a much clearer understanding of the health of our rivers and the pressures they are under. This would make the work of the new single regulator and the Regional Systems Planners much more likely to succeed, and would drive huge cost-efficiencies in the system.

Conclusion

Water is vital for all life, and for a thriving economy and society. We face unprecedented threats to our way of life from climate change and biodiversity decline, the severity of the impact will largely depend on our management of the water system. These carefully considered reports from Sir Jon Cunliffe and Dan Corry must be taken seriously not just by Defra, but by the Prime Minister and the Chancellor and every other department. They deserve a well-resourced, urgent and comprehensive response by the whole of Government. We need to move from an expensive, confusing mess of undelivered plans and siloes to a system based on clarity, collaboration and accountability for dramatically improving our critical national infrastructure.