UK plans to put failing water companies into ‘special measures’

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The government is drawing up plans to put failing water companies into “special measures” to force them to clean up Britain’s waterways, in a move that could result in new legislation as early as next week.

Environment secretary Steve Reed has drafted measures including banning bonuses for executives of heavily polluting water companies, imposing criminal charges on the worst lawbreakers, and introducing tougher monitoring of sewage overflows.

The plans come as industry regulator Ofwat prepares to announce on Thursday how much water companies in England and Wales can raise their bills by over the coming five years.

Thames Water, which is at risk of financial collapse, has said it needs big increases in bills to persuade investors to put fresh equity into the business. South East Water warned in its annual report on Wednesday that it also needs equity from shareholders to stay afloat.

Industry figures believe legislation for the government’s “special measures” regime will be included in a new package of laws due to be unveiled by ministers next week.

Allies of Reed refused to say whether the legislation would be in the King’s Speech on July 17. 

The most eye-catching proposal by Reed would give Ofwat new powers to block the payment of bonuses to executives of heavily polluting water companies.

Criminal charges could be brought against the most persistent offenders, as well as the introduction of “automatic and severe fines” for wrongdoing by water companies.

The government would introduce independent monitoring of so-called combined sewage overflows, which release untreated effluent and stormwater into rivers, lakes and coastal waters. 

Although all the overflows have monitors installed, they measure the frequency of spills rather than the quantity, with water companies self-reporting the data to the Environment Agency.

Reed has summoned the heads of all 16 water companies to a meeting at the environment department soon after the Ofwat announcement on Thursday, to discuss the regulator’s decision on bills.  

Although Ofwat is not expected to agree to all of the companies’ demands for bill increases, the regulator is likely to allow a sharp rise in water prices, according to Whitehall and industry figures. 

Thames Water, Britain’s biggest water company, has warned that without a generous settlement from Ofwat it will struggle to raise the financing it needs for its financial survival. 

There was fresh controversy at Thames Water on Tuesday after it emerged that chief executive Chris Weston, who joined the company in January, took a £195,000 bonus for the three months to the end of March.

South East Water said it was in discussions with lenders and shareholders over a cash injection.

It added in its annual report that any failure to raise the money could “cast significant doubt on the ability of the group and company to continue as a going concern”.

Water companies have asked Ofwat to be allowed to spend £100bn over the five years to 2030, almost half of which would be used for infrastructure improvements amid a public outcry over sewage pollution. 

Some of the £100bn will be raised from water companies’ customers through their bills, while the remainder is meant to be secured by the businesses through a combination of debt and equity.

It is not clear how the government’s plans to crack down on the industry will tally with a separate Ofwat proposal for a new “recovery regime” for the most financially stressed water companies.

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