Ofwat considers cutting sewage fines for financially struggling water firms

<span>Companies such as Thames Water could face fewer or no fines for outages and sewage leaks, instead being encouraged to invest in infrastructure.</span><span>Photograph: Maureen McLean/REX/Shutterstock</span>
Companies such as Thames Water could face fewer or no fines for outages and sewage leaks, instead being encouraged to invest in infrastructure.Photograph: Maureen McLean/REX/Shutterstock

Ofwat, the water regulator for England and Wales, is understood to be considering cutting fines for sewage-dumping water companies if they are facing financial pressures.

According to the Financial Times, which first reported the plan, the regulator intends to draw up a “recovery regime” for Thames Water, which is facing collapse or restructuring owing to its high debts, and others that find themselves in similar positions.

Under the proposals, the companies could face fewer or no fines for water outages and sewage leaks and instead be encouraged to invest in infrastructure, in an effort to reduce the threat of nationalisation. Other debt-laden water companies, including Southern Water, South East Water and Yorkshire Water, may also be eligible for the recovery regime.

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The water industry has long been lobbying for such measures, with sources briefing ministers and journalists that fining companies such as Thames Water over sewage spills is like “shooting the company in the leg and then expecting them to win the race”. Their argument is that the large penalties make it harder to invest in remedying the situation.

Under the plans seen by the FT, the utilities would be given lower targets for reducing sewage and water leaks and outages, in exchange for more regulatory oversight for a period of up to five years.

Shares in England’s water companies rose on Wednesday morning after the publication of the FT’s story. Shares in United Utilities, which has historically been fined hundreds of thousands of pounds at a time for outages and sewage spills, were up 2.6%, leading the FTSE 100 risers. Severn Trent, which recently was hit with a £2m fine for pollution, rose 1.4%, while on the smaller FTSE 250 index, Pennon Group was 2.2% higher.

Ofwat is increasingly coming into the crosshairs of the opposition parties. The Guardian understands Labour is looking at plans to reform the regulatory system that could involve reshaping Ofwat, while the Liberal Democrats are calling for it to be scrapped and replaced with a stronger body.

The Lib Dem environment spokesperson, Tim Farron, said: “Any attempt to let these polluting giants off the hook would be an utter disgrace. This plan is proof Ofwat should be scrapped. This Conservative government has allowed this toothless regulator to stagger on too long. It is time someone finally stood up to these water firms.”

MPs including Labour’s Clive Lewis and John McDonnell have been pushing for a nationalisation of all water companies, starting with Thames Water. This is not Labour policy, but Thames Water may have to be temporarily nationalised if it fails.

Campaigners have spoken against the Ofwat proposals. Ash Smith of Windrush Against Sewage Pollution said: “Privatised water companies feed on captive billpayers and the ability to break the law with occasional token fines that achieve nothing as shareholders and senior executives continue to profit.

“The industry captured regulators long ago and is frightening politicians with debt mountains and the results of 34 years damage from what has been shown by expert analysis to have been no more than a financial scam.”

Thames Water’s shareholders recently refused to give the company £500m of emergency funding after labelling its business plan “uninvestable”. The Guardian revealed last month that under plans being drawn up in Whitehall, codenamed Project Timber, ministers would turn Britain’s biggest water company into a publicly owned arm’s-length body.

Thames Water was privatised in 1989 with no debt. In the decades since, the water supplier has taken on more debt to help fund its infrastructure projects while paying large dividends to investors, most notably the Australian investment bank Macquarie.

Ofwat declined to comment.