After years of bobbing along, the water regulator may be waking up and smelling the sewage

“This is a last chance to restore regulatory credibility on a problem that should have been tackled a couple of decades ago.”

Nils Pratley 

Has Ofwat woken from its slumbers? There are encouraging signs. On the troubled issue of sewage – specifically, the vast quantities of the stuff pumped into rivers – the water regulator in England and Wales is suddenly talking as if it means business.

“From what we have seen so far, the scale of the issue here is shocking,” said David Black, chief executive, in unusually strong language as he added South West Water, owned by quoted group Pennon, to the list of firms targeted with enforcement cases connected to the management of treatment works.

There is a question of whether Ofwat has a right to be shocked. It has regulated the sector since privatisation 30 years ago, so should have uncovered the industry’s dirty secrets by now. But the joint investigation with the Environment Agency (EA) into potentially illegal spills at treatment works, launched last November, is shaping up – possibly – as a major event.

The stench of a scandal grows with every update. South West joins Anglian, Northumbrian, Thames, Wessex and Yorkshire on the regulator’s list for specific targeting. So more than half the sector is now in a process that can lead to fines of up to 10% of turnover.

The City is starting to take it seriously. Analysts at Jefferies, who recently hosted the chief executive of campaign group Surfers Against Sewage to address fund managers on the grim technicalities of waste dumping, have been warning for a while about “increasing regulatory risks for UK water”. They called Ofwat’s Pennon move “a strongly toned update that signals to us that further scrutiny and regulation is to come”.

About time too. Data from the EA revealed an astonishing 2.7m hours of spills in England in 2021. Only 14% of English rivers are deemed to be of good ecological standard, a grotesque statistic. Sewage isn’t the only cause of poor river health, it should be said, but the gamechanging development for the water companies may be better monitoring equipment.

One suspicion is that companies have been interpreting previously ambiguous data in their favour. Another is that claimed capacities at treatment works have not been maintained, leading to excess discharges. Both touch on basic licence conditions. If evidence of breaches is found, the authorities would be virtually obliged to get heavy.

Despite the regulators’ deserved reputation for timidity, there is a precedent. Southern Water was ordered by Ofwat to pay £126m to customers in 2019 for enormous spills plus deliberate misreporting of data, and a £90m fine followed in 2020 in a criminal case brought by the EA. The sums represented a rare instance of when owning a water company is not a one-way bet in which the customers pay via their bills. The owners of privately held Southern promptly sold it.

Customers should still brace to fund future upgrades of the network that are plainly needed to meet tougher storm overflow requirements. Jefferies put the cost at £23bn-£80bn, implying £69-£140 a year on average household bills. But the backward-looking focus of the Ofwat/EA investigation is the first event. It is vital that both bodies hold the line against inevitable corporate lobbying. This is a last chance to restore regulatory credibility on a problem that should have been tackled a couple of decades ago.