Holly Lynch MP: Failures in governance and regulation allowed water companies to let their customers down

Posted On: 
20th June 2018

Shadow Flooding & Coastal Communities minister Holly Lynch says that the Government is intentionally failing to properly regulate water companies: ‘We have to find a better way of ensuring that water companies cannot leave customers without water for days due to their own failures, only for those at the very top to be rewarded with multi-million pound packages’.

Thousands of people were left without water for more than 36 hours in March 2018 after extreme weather caused burst pipes. Thousands of people were left without water for more than 36 hours in March 2018 after extreme weather caused burst pipes.
Credit: 
PA

‘The Beast from the East’ and the changes in temperatures associated with it, brought severe disruption to our water supplies, leaving over 200,000 customers cut off for more than four hours with tens of thousands without water over a number of days.

Yesterday regulator Ofwat published its report into the disruption.

Whilst the failings of the four worst performing companies were laid bare, the report failed to acknowledge Ofwat’s own role in allowing the relationship between investment, resilience and customer experience, and the remuneration packages paid to chief execs to become so grossly unrelated.

Prior to ‘the Beast from the East’, Ofwat had made it clear that direct action on executive pay, tax structures and a cap on dividends was not in its current thinking. It had ruled this out of its work stream without considering the relationship between prioritising investment in resilience and infrastructure, and paying out millions to executives.

Analysis by the House of Commons Library shows that executives at the top nine water and sewerage companies operating in England earned a combined total of nearly £23 million in 2017. The highest paid executive is Liv Garfield, CEO of Severn Trent, who took home £2.45m; a figure which equates to 16 times the Prime Minister’s salary. This is on top of the billions paid to shareholders. The owners of these companies paid out £18.1bn in dividends in the 10 years to 2016.

Severn Trent pays out £2.45 million per annum to its CEO yet was consistently one of the worst performers over the winter period. Not only were residential customers affected but two of the country’s flagship businesses, Jaguar Land Rover and Cadburys, were amongst the firms forced to cease production at the request of Severn Trent Water, as it sought to prioritise household water supplies.

Jaguar Land Rover has two plants in the region, which employ 14,000 people between the two sites. The firm would ordinarily see more than 1,200 cars a day roll off the production lines and is asset to the UK economy, yet during the crisis, production was forced to a stand-still at the request of Severn Trent.

Worse still, Ofwat’s report is clear that performance was not directly linked to the severity of the weather and instead was a reflection of their own internal procedures such as the quality of their plans for handling major incidents. Some companies including Severn

Trent Water and Thames Water, simply did not have appropriate plans in place for responding to this type of incident.

Further to this, research conducted by the Consumer Council for Water found that in seven of the worst affected areas, 40% of customers impacted received no communication from their water company during the incident and that the distribution of substitute bottled water was managed so poorly in some areas that councils and voluntary groups had to step in.

We cannot allow a situation where voluntary groups are stepping in to cover the failings of a water industry where executive pay is into the millions.

 

Which begs the question how has this happened? Ofwat’s after the event report is too little too late, and Government’s approach of standing back and leaving Ofwat to get to the bottom of the crisis, a position they adopted unwaveringly when challenged in the House of Commons, exposes their own weakness.

The Tories are intentionally failing to properly regulate water companies. We have to find a better way of ensuring that water companies cannot leave customers without water, a resource vital to life, for days due to their own failures, only for those at the very top to be rewarded with multi-million pound packages.

Some water companies are involved in responsible and innovative operations and I was pleased to see this reflected in the report, yet where water companies are not, only a regulator and a Government prepared to step in, will protect customers from the type of disruption we saw last winter. That is not this Conservative Government.

Holly Lynch is the Shadow Minister (Environment, Food and Rural Affairs) (Flooding and Coastal Communities) and the Labour MP for Halifax