I am delighted to speak on the issue of how we can fix our broken water and sewerage sector, and get serious about cleaning up our rivers and lakes. I thank my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) for securing this debate.
My constituency of Witney, in west Oxfordshire, has borne the brunt of the sewage scandal. Many beautiful rivers flow through it, and the Thames bisects it. We have the Windrush and the Evenlode, Shell brook to the north, and the Ock to the south. They are all heavily and frequently polluted.
I welcome the calls from colleagues to introduce a new blue flag status so that we can guarantee that a river is clean enough to swim in. That would help to restore people’s confidence in swimming, and the bathing place in Witney would be a fantastic example. It is just north of Early’s mill, where generations of people have spent their summer swimming but no longer do so.
We know what a car crash our sewerage network is, thanks to the many campaigners who have gone to so much trouble in their own time, and often using their own money, to bring this issue to our attention. At the top of the star is WASP—Windrush Against Sewage Pollution—which is run by Professor Peter Hammond, Ash Smith, Vaughan Lewis and Geoff Tombs, who have worked tirelessly for the last five years to highlight what has gone wrong. I thank them and all the other citizen scientists in my constituency and beyond, who have done so much to bring this issue to national attention. We owe them all a huge debt of gratitude.
I will focus on failures of regulation—specifically, Ofwat’s failures. Ofwat is responsible for holding water companies accountable against the terms of their operating licences. DEFRA has oversight of Ofwat, sets the policy framework and provides strategic guidance to Ofwat on key environmental and social policies. As many Members have said, Ofwat is clearly failing on pollution. The Environment Agency’s own data shows that Thames Water discharged raw sewage for almost 300,000 hours in 2024—up by almost 50% on the 196,000 hours in 2023. That is well known.
Ofwat is also failing to enforce financial viability. Just like every other water company in the country, Thames Water, which serves my constituency, has to have two investment grade credit ratings, but it has not done so for nearly a year. It has been beaten with limp celery, but that is about it. It has £19 billion of debt and is quite possibly heading towards £23 billion of debt, and it has cash flows of just £1.2 billion. That obviously makes no financial sense, yet Thames Water is allowed to breach the rule with impunity. I have no doubt that other water companies, and companies in other sectors, take note of what Thames Water has been allowed to do and say, “We, too, can cross that line in water and other regulated sectors.” How is that good news? It introduces a moral hazard that does enormous damage to our country. Who is ultimately paying the cost of all this debt, and the enormous interest and advisory fees that go with it? Of course, it is the bill payers.
Ofwat fails to provide value for money. As per the Water Industry Act 1991, it has a statutory duty “to protect the interests of consumers” and “to promote economy and efficiency” on the part of water companies. As WASP’s recently published note on water companies’ capital project costs states, the costs that companies are proposing are extraordinary. In some cases, they are almost an order of magnitude higher than those in comparator companies in countries such as the USA and Denmark. Why is this, and why is it being allowed to happen?
Why are our costs so much greater? Is it because our regulatory capital value pricing model is based on asset values, and therefore gives an incentive to water companies to boost their asset bases? They do this through extraordinarily long depreciation periods for network assets such as pipes, which were installed 50 years ago, but somehow have depreciation periods of 100 years and are leaking like sieves. It also gives them an incentive to pour really expensive concrete. Why is it that something built over here costs eight times the price in Denmark? Why has, say, the Oxford sewage treatment works gone from £40 million to more than £400 million in planned spend in the last four years? What sort of inflation is that?
Ofwat fails to provide fair pricing. Water companies have a requirement to demonstrate fairness, transparency and affordability to customers, which, again, Ofwat is supposed to uphold. Water companies have been allowed to hike bills this year—in the case of Thames Water, by 31%, although some of my constituents have come to me and said they have received increases of 50%, 70% or even more than 90%—and what are bill payers getting for that? This is not fair when more than a quarter of the bills in Thames Water’s case are just paying the interest—not paying down the debt, but just paying the interest. Again, Ofwat is continuing to allow the pockets of water company creditors to be lined at the expense of ordinary households.
Ofwat fails to be awake. It has a responsibility—bear with me on this one—for tracking who are the ultimate controllers of the water companies. That should be pretty simple; there are not many of them. In Thames Water’s case, it is taking wilful ignorance to an extreme of utterly determined ignorance. Last May, Thames Water’s largest shareholder, OMERS, wrote its stake in Thames Water down to zero and pulled its directors off the board. This has been widely reported in the press—it is not secret—yet I got a letter from Ofwat last month confirming that it believes OMERS is still the ultimate controller of the company. Why is Ofwat ignoring this, and why does it matter? Being the ultimate controller of the company means it has certain responsibilities. Those responsibilities are just being ignored, and Ofwat, which is exactly what is supposed to be holding the company to account, is hiding under a stone somewhere. It needs to stop doing this.