Politics
Abolishing Ofwat and compulsory water meters – key recommendations from landmark report into ‘broken’ water industry
The system for regulating water companies in England and Wales should be overhauled and replaced with one single body in England and another in Wales, a once-in-a-generation review of the sector has advised.
The report, which includes 88 recommendations, suggests a new single integrated regulator to replace existing water watchdogs, mandatory water metering, and a social tariff for vulnerable customers.
The ability to block companies being taken over and the creation of eight new regional water authorities, with another for all of Wales to deliver local priorities, has also been suggested.
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The review, the largest into the water industry since privatisation in the 1980s, was undertaken by Sir Jon Cunliffe, a career civil servant and former deputy governor of the Bank of England who oversaw the biggest clean-up of Britain’s banking system in the wake of the financial crash.
File pic: iStock
He was coaxed out of retirement by Environment Secretary Steve Reed to lead the Independent Water Commission.
Final recommendations of the commission have been published on Monday morning to clean up the sector and improve public confidence, as bills rise 36% over the next five years. Here are its nine key recommendations:
• Single integrated water regulators – a single water regulator in England and a single water regulator in Wales. In England, this would replace Ofwat, the Drinking Water Inspectorate and water-environment related functions from the Environment Agency and Natural England. In Wales, Ofwat’s economic responsibilities would be integrated into Natural Resources Wales.
It’s hoped this will solve the “fragmented and overlapping” regulation, and more stable regulation will improve investor confidence. Communications regulator Ofcom was given as an example of how combining five existing regulators into one worked.
• Eight new regional water system planning authorities in England and one national authority in Wales to be responsible for water investment plans reflecting local priorities and streamlining the planning processes.
The new authorities would be independent, made up of representatives from local councils, public health officials, environmental advocates, agricultural voices and consumers. The aim is they could direct funding and ensure accountability from all sectors impacting water.
• Greater consumer protection – this includes upgrading the consumer body Consumer Council for Water, into an Ombudsman for Water to give stronger protection to customers and a clearer route to resolving complaints. Advocacy duties are to be transferred to Citizens Advice.
• Stronger environmental regulation, including compulsory water meters. Also proposed by Sir Jon are changes to wholesale tariffs for industrial users and greater water reuse and rainwater harvesting schemes. A new long-term, legally binding target for the water environment was suggested.
• Oversight of companies via the ability to block changes in ownership of water businesses when they are not seen to be prioritising the long-term interests of the company and its customers, and the addition of “public benefit” clauses in water company licences.
To boost company financial resilience, as the UK’s biggest provider, Thames Water struggles to remain in private ownership, the commission has recommended minimum financial requirements, like banks are subject to. This could mean utilities hold a certain amount of cash. It’s hoped this will, in turn, make companies more appealing to potential investors.
• The public health element of water has been recognised, and senior public health representation has been recommended for regional water planning authorities, as have new laws to address pollutants like forever chemicals and microplastics.
• Fundamental reset of economic regulation – including changes to ensure companies are investing in and maintaining assets to help attract long-term, low-risk investment. A “supervisory” approach has been recommended to intervene before things like pollution occur, rather than penalising the businesses after the event.
• Clear strategic direction – a long-term, 25-year national water strategy should be published by the UK and Welsh governments, with ministerial priorities given to water firms every five years.
• Infrastructure and asset health reforms – companies should also be required to map and assess their assets and resilience.
Nationalisation of the water industry was not in the Independent Water Commission’s terms of reference and so was not considered.
How has the report been received?
In a speech responding to Sir Jon’s report, Mr Reed is set to describe the water industry as “broken” and welcome the commission’s recommendations to ensure “the failures of the past can never happen again”.
The water industry lobby group Water UK said “fundamental change has been long overdue”.
“These recommendations should establish the foundations to secure our water supplies, support economic growth and end sewage entering our rivers and seas,” a spokesperson said.
“The Independent Water Commission has written a comprehensive, detailed review of the whole sector, with many wide-ranging and ambitious recommendations.
“Crucially, it is now up to government to decide which recommendations it will adopt, and in what way, but the commission’s work marks a significant step forward.”
Campaign group Surfers Against Sewage said the report “utterly fails to prioritise public benefit over private profit”.
“This is not transformational reform, this is putting lipstick on a pig - and you can bet the champagne is flowing in water company boardrooms across the land,” said its chief executive, Giles Bristow.
“Only one path forward remains: a full, systemic transformation that ends the ruthless pursuit of profit and puts the public good at the heart of our water services,” he said.
“We welcome Sir Jon’s calls for a national strategy, enshrining public health objectives in law and regional water planning. But we won’t be taken for fools - abolishing Ofwat and replacing it with a shinier regulator won’t stop sewage dumping or profiteering if the finance and ownership structures stay the same.”
Annealed neodymium iron boron magnets sit in a barrel at a Neo Material Technologies Inc. factory in Tianjin, China on June 11, 2010.
Bloomberg | Bloomberg | Getty Images
China’s exports of rare-earth magnets to the United States in June surged more than seven times from the prior month, as American firms clamor to get hold of the critical elements following a preliminary Sino-U.S. trade deal.
In April, Beijing placed restrictions on several critical magnets, used in advanced tech such as electric vehicles, wind turbines and MRI machines, requiring firms to receive licenses for export. The move was seen as retaliation against U.S. President Donald Trump’s steep tariffs on China.
Beijing has a stranglehold on the production of rare-earth magnets, with an estimated 90% of the market, as well as a similar hold on the refining of rare-earth elements, which are used to make magnets.
The U.S. received about 353 metric tons of rare-earth permanent magnets in June, up 660% from the previous month, data released by China’s General Administration of Customs showed, though the exports were about half that from June last year.
The U.S. was the second-largest destination for China’s rare-earth magnets, behind Germany, as it relies heavily on their imports for its large manufacturing sector, particularly automotive, electronics and renewable energy.
In total, China exported 3,188 metric tons of rare earth permanent magnets globally last month, up nearly 160% from May, but 38% lower compared with the same period last year.
The growth in exports came after Washington and Beijing agreed last month on a trade framework that included easing controls on Chinese rare-earth exports as well as a rollback of some American tech restrictions for shipments to China.
AI behemoth Nvidia said last week it was planning to resume shipments of its H20 AI chips to China, after the exports were restricted in April. Last month, controls on American AI chip software companies’ business in China had also been rolled back.
Chinese rare-earth magnet producers started announcing the approval of export licenses last month.
If exports continue to increase, it will be of great benefit to companies that have been suffering from shortages of magnets due to the lengthy time required to secure export licenses. For example, several European auto-parts suppliers were forced to halt production in recent months.
The magnet shortages had also hit emerging industries such as humanoid robotics. In April, Elon Musk said production of Tesla’s Optimus humanoid robots had been disrupted.
China’s controls on its rare-earths sector have prompted some global governments to reexamine their rare-earth supply chains and search for ways to support domestic mining of the minerals.
However, experts say that setting up alternatives to China’s rare-earth magnet supply chain could take years, as it requires an intricate process of rare-earth element refining and separation.
“The separation process is quite complex, and China has a lot of advantages in this after putting in decades of research into the processes,” Yue Wang, a senior consultant of rare earths at Wood Mackenzie, told CNBC last month.
One way that the U.S. has been trying to compensate for lack of rare-earth magnets is through increased recycling. Apple and miner MP Materials announced a $500 million deal last week for the development of a recycling facility that will reinforce the iPhone maker’s U.S. magnet supply chain.
Peter Alexander from financial consultancy Z-ben Advisors said that Washington’s latest concessions on tech restrictions were a reflection of just how much leverage China has in its trade relationship with the United States, speaking on CNBC’s “China Connection” on Monday.
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