(Bloomberg) -- The UK water regulator’s future hangs in the balance as an independent review into the embattled industry kicks off on Wednesday.
Former Bank of England Deputy Governor Jon Cunliffe will lead an evaluation of privatized water firms as they face mounting public anger over sewage spills and rising bills.
Cunliffe could suggest abolishing regulator Ofwat, which was established in 1989 by former Prime Minister Margaret Thatcher. But Environment Secretary Steve Reed has already ruled out the possibility of renationalization.
Reed has also previously said his “instinct” is to empower rather than ditch the regulator.
Water companies have proposed hiking prices for consumers by an average of 40% to fund a £107 billion investment program aimed at tackling chronic leaks, pollution and climate change. That’s led to calls by some politicians and companies for a more fundamental overhaul of the industry.
Cunliffe will appoint an independent panel of experts which will report back by June, according to a statement by the Department for Environment, Food and Rural Affairs.
Chancellor of the Exchequer Rachel Reeves last week blamed regulators for “crumbling” infrastructure by failing to prioritize investment in assets such as new reservoirs and sewage treatment works. Industry rules set by Ofwat also allowed investors to take advantage by raising debt to pay high dividends.
Some water companies — most notably Thames Water Utilities Ltd. — now face unsustainable debt levels. The UK’s largest water supplier risks entering special administration if it can’t raise £3.3 billion in new equity. Rising interest rates in 2022 added to its financial strains just as it faced pressure to spend billions of pounds to fix its leaking infrastructure.
Asked last month if he wanted to scrap Ofwat, Reed said “it’s better to give the regulator the powers they need to do their job, but I’m going to wait and see what comes from the review.”
Ofwat’s chief executive David Black welcomed the review and said he wanted to work with the government on the changes needed.
“We are ready to back record investment,” he said. “The challenge for water companies is to match that investment with the changes in company culture and performance that are essential to rebuilding the trust of customers and the public.”
Ofwat separately started a consultation on Tuesday seeking to ban bonuses for water company executives if they fail to meet environmental standards. At the moment, Ofwat can only ensure bonuses are not paid using customer money, though they can still be paid by shareholders.
Chris Weston, the chief executive officer of Thames Water, has already come under fire this year for taking a £195,000 ($253,000) bonus, despite only starting the job in January.
(Updates from first paragraph with details on review’s scope)
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