Ofwat boss denies failing to regulate water firms despite huge debts

The head of Ofwat has denied failing to police water firms, despite admitting companies’ records on pollution “must change” and that they should not have been allowed to rack up huge debts.

Speaking to the Environment, Food and Rural Affairs (Efra) Committee of MPs, David Black said firms need to make “changes across the board” but he “wouldn’t agree” that the regulator has failed.

Mr Black said: “The issues around public anger over storm overflows, sewage discharges, concerns about companies’ corporate behaviours, very clearly signal the need for change.”

The privatised water companies have faced growing outrage over vast amounts of sewage pollution and steep planned hikes to bills, while paying large bonuses to directors and dividends to investors.

In the most extreme case, Thames Water has piled up debts of more than £16 billion and is seeking another £3 billion loan to bail the business out.

If it fails to get the financing it needs, it could collapse and meawould need to be effectively renationalised.

Mr Black said the regulator “should have had tighter controls” on the amount of debt water companies have racked up since they were privatised in 1989.

He said regulators had historically put “additional protections in place” like forcing companies to get so-called investment grade credit ratings from financial ratings firms.

But on preventing companies piling up huge debts, as Thames did in the 2000s and 2010s, the regulators “didn’t take more active steps than that”, he added.

Mr Black said: “I don’t think that model has been successful, I think we should have had tighter controls. That’s why we have changed the regime since we’ve got new powers to do so.”

Asked by MPs if Ofwat and fellow regulator the Environment Agency should get companies to take pollution more seriously, Mr Black said: “That is an area of poor performance.”

He added: “There are some areas where companies have made substantial improvements since privatisation. On pollution incidents they did so up until about 10 years ago but since then the record has been poor.

“It’s either been stagnant or increasing in recent years. That must change.”

He also admitted public anger over water companies’ performance is making it harder to attract fresh investment into the sector.

Mr Black said some companies are still able to raise fresh financing, which suggests the sector remains “attractive to investors”.

“But it is a challenge in terms of a lot of the criticisms of the sector. That does unsettle investors,” he added.

“Investors are looking at the sector with a fresh eye and that does make it challenging for water companies.”

The evidence session comes weeks before Ofwat gives its final verdict on water firms’ planned increases to bills over the coming five years.

Some companies have asked for hikes of up to 84% for the period to 2030, but Ofwat has indicated they will be lower.

At one point in the session, while pressing Mr Black on supply failures, committee chairman Alistair Carmichael asked: “How much worse are things going to get before we call it failure?”

He added: “It sounds to me that we’re almost heading to that old territory of the same, ‘The operation was a success but the patient died’.”

Mr Black said: “I appreciate that people have had very challenging experiences but when we look across the data of water supply disruptions we actually see significant improvements in the period since privatisation.

“So the question is will there still be incidents? Yes. Do we want companies to improve performance? Yes. Do we have companies that are not good enough in the space? Yes. Are we taking action to drive better actions? Yes.”