River pollution and the regulation of private water companies

On 29 February 2024, the House of Lords is due to debate the following motion:

Baroness Bakewell of Hardington Mandeville (Liberal Democrat) to move that this House takes note of (1) the state of pollution in rivers, and (2) the case for regulation of private water companies.

1. Pollution in rivers

1.1 Measuring the state of England’s rivers

According to 2019 data from the Environment Agency, just 14% of rivers in England have a good ecological status, and no rivers in England have a good chemical status.^[1]

Ecological status is assessed using various water, habitat and biological quality tests. The tests look at the physical and chemical conditions that affect wildlife, like the dissolved oxygen levels and nutrient concentrations, and the health of wildlife populations themselves, such as insect and fish communities.^[2] Status is assessed in five classes: bad, poor, moderate, good and high.^[3] A ranking of ‘good’ is defined as “slight change from natural state as a result of human impact”. A ranking of ‘bad’ means there has been “severe change from natural state as a result of human activity”. Under what is known as the ‘one out, all out’ rule, failure of any one individual test means that the whole water body fails to achieve good ecological status or better. Therefore, while only 14% of rivers in England were assessed as having a good ecological status overall, a higher proportion of rivers reached ‘good’ status within different sub-categories, as shown in Table 1 below:

Table 1. Ecological status of rivers in England 

Source: Environment Agency and Natural England, ‘State of the water environment indicator B3: supporting evidence’, updated 22 May 2023

Chemical status is calculated by assessing 52 different chemical elements (individual chemicals and groups of chemicals). Water bodies are classified as either ‘good’ or ‘failing’. For the 2019 chemical classifications, new assessments for ‘ubiquitous, persistent, bioaccumulative, toxic substances’ (uPBTs), new standards, and improved techniques and methods were used. This resulted in 0% of surface water bodies meeting the criteria for achieving good chemical status in 2019, compared to a 97% pass in 2016. Excluding the new uPBT assessments, 93% of rivers were at good chemical status in 2019.

Some updated data on ecological status, collected in 2022, was released in 2023. Analysis by the Wildlife Trusts found that the overall picture for rivers had not changed much since the 2019 assessment, with around 14% achieving a status of good.^[4] It also found that the single most common failure in the new data was for phosphate pollution, with more than half of the rivers assessed failing because of it. The Wildlife Trusts explained the effects of this:

Phosphorus, measured as phosphate, is a nutrient needed for plants to grow, but excess levels allow thuggish species to take over, outcompeting river plant communities; these die back, depriving aquatic wildlife of food and shelter. Nutrient-fuelled ‘algal blooms’ can turn waters pea-green smothering other plants and blocking out life-giving sunlight […]

A complete update of the 2019 data for both ecological and chemical status is not expected until 2025.^[5]

The House of Commons Environmental Audit Committee said in its 2022 report on water quality in rivers that “getting a complete overview of the health of our rivers and the pollution affecting them is hampered by outdated, underfunded and inadequate monitoring regimes”.^[6] It suggested that the current range of pollutants being monitored was “too narrow”, focusing on nutrients such as nitrogen, phosphorus and ammonia, but not routinely monitoring other substances that contribute to poor water quality, such as metals, pesticides, pharmaceuticals, industrial chemicals and plastics.^[7]

The Environment Agency also produces data on the number of serious pollution incidents to water each year.^[8] This shows the number of events classified as either ‘major’ or ‘significant’, for example because they have caused the death of fish, potential harm to bathers or the temporary cessation of abstraction from a river by a drinking water provider. The data shows the total number of incidents impacting rivers, lakes, reservoirs, canals, coasts, estuaries and groundwater (it is not disaggregated to show only incidents affecting rivers). Figure 1 below shows data for the period 2001 to 2021.

Figure 1. Serious pollution incidents to water in England, 2001 to 2021

The Department for Environment, Food and Rural Affairs (Defra) observed that the chart shows the total number of serious pollution incidents to water in England has fallen by almost two-thirds (61%) between 2001 and 2021, with the majority of the fall occurring in the first ten years (834 in 2001 and 337 in 2010).^[9] More recently, while there have been annual fluctuations in the number of category 1 (major) and category 2 (significant) pollution incidents in the last ten years, the overall trend has plateaued. In 2021, there were a total of 329 serious pollution incidents to water (47 major and 282 significant).

1.2 What are the sources of pollution in rivers?

Based on the 2019 data, the main three sources of pollution preventing water bodies in England from achieving a ‘good’ ecological status were:^[10]

• pollution from rural areas, affecting 40% of water bodies
• pollution from wastewater, affecting 36% of water bodies
• pollution from towns, cities and transport (urban diffuse pollution), affecting 18% of water bodies

The House of Commons Environmental Audit Committee noted that these figures represent estimates for all inland waters in England, and that the balance of drivers for not achieving ‘good’ ecological status will differ for each catchment (the area from which precipitation contributes to the flow from a river, including tributaries and the area the river drains) and each stretch of river.^[11] The committee said that sewage and urban diffuse pollution are likely to be the main pollutants in urban areas, whereas in rural stretches of river, agricultural practice is likely to be the dominant form of pollution.

1.2.1 Agriculture and rural pollution

According to the Environment Agency, the main pollutants from farming are:^[12]

• nutrients (phosphorus and nitrogen)
• chemicals including pesticides, veterinary medicines, and emerging chemicals (such as organic chemicals and anti-microbial resistance found in materials spread on land)
• faecal bacteria and pathogens (all livestock farming and some off-farm wastes are sources)
• soil sediment (both arable and livestock farming are significant sources)
• microplastics (present in sewage sludge, compost and other organic manures)

Fertilisers, pesticides and faecal matter can be carried into streams and rivers through rainfall run-off from farmland.^[13] As soil is eroded, it deposits silt and the phosphates contained within it into watercourses. Field drainage can also provide a rapid and direct pathway for nutrients to enter watercourses.

The Environment Agency said that pressures and impacts on water quality caused by these pollutants include:^[14]

• eutrophication: the enrichment of waters by nutrients, especially compounds of nitrogen and/or phosphorus, causing an accelerated growth of algae and higher forms of plant life, producing an undesirable disturbance to the balance of organisms present in the water and the quality of the water^[15]
• loss of biodiversity
• silting of fish spawning grounds
• risk to human health through bathing, water contact sports, and drinking waters
• increased water treatment costs
• damage to fisheries, tourism and recreation

1.2.2 Urban diffuse pollution

The Environment Agency states that urban areas and the transport network are a source of environmental contaminants, including hydrocarbons, metals (such as zinc, cadmium and copper), plastics, nutrients (including phosphate), ammonia, pathogens and sediment quantity and content (carrying solid pollutants).^[16] These contaminants have an adverse impact on water quality and ecology when they enter rivers and other water bodies. Contaminants enter the water environment through means such as:^[17]

• drainage misconnections, for example where a toilet or domestic appliance pipe discharges to the surface water network, resulting in inadequately treated effluent entering the environment
• urban run-off, where rainwater that runs off roads, car parks, industrial areas, contaminated land, pavements and roofs carries pollutants into the water environment
• inappropriate disposal of domestic materials such as wet wipes, sanitary products and fat through the foul water network, leading to overflow discharges and sewer failures
• disposal of commercial trade effluent through surface water drainage systems (for example, standalone commercial car washes discharging detergents through surface water drains)

1.2.3 Wastewater and sewage

The water industry collects and treats domestic and trade wastewater and sewage, including whatever is flushed down toilets, and water from baths, showers and sinks.^[18] The water industry also collects rainfall, sometimes separately from wastewater and sometimes mixed with it.

Generally, the network of sewers takes wastewater to a sewage treatment works where it is treated and returned to inland waters and the sea. However, in certain circumstances, water companies are allowed to release untreated sewage into inland waters. These are called storm overflow discharges.

Storm overflows are used to spill excess wastewater and rainwater into inland waters and the sea.^[19] They are “safety valves” used in combined sewer systems to protect properties from overloaded sewers causing flooding and sewage backing up into streets and homes during heavy storm events.^[20] Storm overflow discharges can also occur at wastewater treatment facilities. There are around 15,000 storm overflows in England and approximately 13,350 of those discharge to inland rivers.^[21]

Storm overflow releases happen when the sewerage system is at risk of being overwhelmed. Surges in flow usually occur in wet weather because of the extra volume of water passing through the sewer network. However, they can also be caused by a misuse of the system, such as people sending wet wipes, fats, and grease into the network. These clog up the pipes and reduce their capacity. The storm overflow releases are normally dilute compared to wastewater, with a very high rainwater content. They may also be screened to remove litter. However, they are untreated and contain raw sewage.^[22]

Sewage contains nutrients (such as phosphorus), chemicals and pathogens (such as viruses and bacteria) which can greatly alter the state of any receiving water. For instance, faecal bacteria can cause pollution of drinking water sources and bathing water, presenting a risk to human health.^[23] Sewage is also high in organic matter, which produces ammonia as it breaks down.^[24] The nitrification of ammonia in the water environment contributes to a reduction in dissolved oxygen in rivers, which can cause stress and have lethal effects on aquatic life.

The Environment Agency regulates intermittent discharges from sewer overflows and wastewater treatment works through environmental permits.^[25] If an overflow becomes ‘unsatisfactory’, the Environment Agency can review a water company’s environmental permit or take enforcement action against a company that is in breach of its permit. Reasons the Environment Agency can class a storm overflow as unsatisfactory include where it:

• operates in dry weather conditions
• operates in breach of permit conditions
• causes significant visual or aesthetic impact due to solids or sewage fungus
• causes or significantly contributes to a deterioration in the biological or chemical status of the receiving water
• causes or significantly contributes to failures in bathing water quality standards for identified bathing waters

Concerns have emerged in recent years about the frequency of storm overflow discharges. The House of Commons Environmental Audit Committee found in its report that:

Overflows are intended to be used infrequently and under exceptional conditions: this is reflected in the permit conditions stipulated by the Environment Agency. Their use nevertheless appears to be increasingly routine, as pressures on the sewerage network grow. Monitoring data seems to show instances where overflows are being triggered at times of low or no rainfall.^[26]

Event duration monitors (EDMs) on storm overflows record the number of times there has been a discharge of storm sewage and how long it lasted. This system started in 2016 with monitoring of a relatively small number of individual storm overflows focussed on more sensitive areas, such as bathing waters.^[27] All overflows in England were due to have an EDM fitted by the end of 2023. According to the most recent data release, 91% of storm overflows were fitted with an EDM by the end of 2022.^[28]

Table 2 below shows long-term trends in EDM data. From 2016 to 2020, the total number of monitored spill events and the total duration of monitored spill events increased. However, the average number of spill events per monitored overflow fell from 35.4 in 2019 to 32.6 in 2020, and the average duration of each spill event fell from 8.5 hours in 2019 to 8.1 hours in 2020. The total number of monitored spill events and the total duration of monitored spill events fell in both 2021 and 2022. This is despite the number of storm overflows with EDM commissioned increasing. The number of spill events per monitored overflow and the average duration of each spill event also fell in both 2021 and 2022, reaching 23.0 spill events and 5.8 hours in 2022.

Table 2. Storm overflow event duration monitors: Long-term trends

Source: Department for Environment, Food and Rural Affairs, ‘Event duration monitoring: Storm overflows—Annual returns’, 31 March 2023—see ‘EDM_Long-term_Trends_Storm_Overflow_Annual_Return.zip’ dataset

Despite the fall in the number and duration of storm overflow discharges, there are still concerns that water companies may be acting in breach of their licences. For example, BBC analysis of the 2022 data suggested that Thames Water, Wessex and Southern Water had collectively released sewage during dry weather for 3,500 hours in 2022, in breach of their licences.^[29]

2. Progress on tackling river pollution

2.1 Government targets and plans

In 2022, the House of Commons Environmental Audit Committee concluded that “rivers in England are in a mess”.^[30] The committee described a “‘chemical cocktail’ of sewage, agricultural waste and plastic […] polluting the water of many of the country’s rivers”. It believed that cleaning up rivers was “important for public health and vital to protect wildlife”. It argued “a step change in regulatory action, water company investment, and cross-catchment collaboration with farmers and drainage authorities is urgently required to restore rivers to good ecological health”.

The government agreed with the committee that restoring water quality was a priority.^[31] It said it had already taken “significant action in a range of areas”, including tackling sources of pollution, investing in river restoration and setting out long-term plans and targets to drive further improvements. However it agreed there was more to do.

The government’s ‘25 year environment plan’, published in 2018, set achieving “clean and plentiful water” as one of its ten goals. This included a target of improving at least 75% of waters to be “close to their natural state as soon as is practicable”.^[32]

The ‘Environmental improvement plan’, published in 2023 (EIP23), marked the first revision of the ‘25 year environment plan’. In this, the government set out the following targets and commitments relating to water quality:

• reduce nitrogen, phosphorus and sediment pollution from agriculture into the water environment by at least 40% by 2038, compared to a 2018 baseline, with an interim target of 10% by 31 January 2028, and 15% in catchments containing protected sites in unfavourable condition due to nutrient pollution by 31 January 2028
• reduce phosphorus loadings from treated wastewater by 80% by 2038 against a 2020 baseline, with an interim target of 50% by 31 January 2028
• halve the length of rivers polluted by harmful metals from abandoned mines by 2038, against a baseline of around 1,500km (approximately 930 miles), with an interim target to construct eight mine water treatment schemes and 20 diffuse interventions by 31 January 2028
• restore 75% of our water bodies to good ecological status
• require water companies to have eliminated all adverse ecological impact from sewage discharges at all sensitive sites by 2035, and at all other overflows by 2050

The headline targets shown in bold in the first three bullet points are legally binding under the Environmental Targets (Water)(England) Regulations 2023, which set targets under the Environment Act 2021. Additionally, the Water Environment (Water Framework Directive) (England and Wales) Regulation 2017 (also referred to as the Water Framework Directive Regulations) sets an objective to restore all surface water bodies (including rivers) to good ecological status by December 2027, unless “the natural conditions are such that the environmental objectives cannot be achieved by that date”.^[33] This deadline also applies to achieving good chemical status, with an exemption for some persistent chemicals (uPBT substances) that allows later deadlines of 2033 and 2039 depending on the substance.^[34]

The Environment Act 2021 also contained a duty for the secretary of state to prepare a plan for:

• reducing the frequency, duration and volume of discharges from the storm overflows of sewerage undertakers (in other words, water companies that operate public wastewater networks) whose area is wholly or mainly in England
• reducing the adverse impacts of those discharges, including on the environment and on public health

The government published its ‘Storm overflows discharge reduction plan’ in August 2022.^[35] The plan set a headline target that “water companies will only be permitted to discharge from a storm overflow where they can demonstrate that there is no local adverse ecological impact”. This would have to be achieved for:

• at least 75% of storm overflows discharging in or close to high priority sites (sites of special scientific interest, special areas of conservation, sensitive areas under the Urban Wastewater Treatment Regulations, chalk streams and waters currently failing ecological standards due to storm overflows) by 2035
• 100% of storm overflows discharging in or close to high priority sites by 2045
• 100% of storm overflows by 2050

To ensure that storm overflows would operate only during unusually heavy rainfall events, the plan also set a target that “storm overflows will not be permitted to discharge above an average of 10 rainfall events per year by 2050”. The plan also set a target for water companies to “significantly reduce harmful pathogens from storm overflows discharging into and near designated bathing waters, by either: applying disinfection or reducing the frequency of discharges to meet Environment Agency spill standards by 2035”. The plan also set out actions for government, such as legislating to bring into force requirements in the Environment Act 2021 for water companies to publish EDM data and collect data showing the impact of sewage discharges on water quality; and taking actions to better manage rainwater and surface water. For further information about the plan, see the House of Lords Library briefing on ‘Storm overflows discharge reduction plan’ (27 September 2022.)

In April 2023, Defra published ‘Our integrated plan for delivering clean and plentiful water’, also referred to as the ‘Plan for water’, which it said would build on the EIP23.^[36] In this, the government set out actions it had taken over recent years to improve water, including:^[37]

• setting legally binding targets to “significantly reduce” pollution from farming, wastewater and abandoned metal mines
• making the environment a key priority in the government’s strategic policy statements for Ofwat to channel water industry investment
• supporting funding for local catchment-based partnerships to develop local strategies for improving water quality and coordination between the public, businesses and environmental non-government organisations
• doubling funding to £15mn to cover all farmland in England under the catchment sensitive farming programme which gives free advice to farmers across the country to improve their practices and reduce pollution
• opened the first year of farming funding through the new sustainable farming initiative incentive to pay farmers to adopt more sustainable farming approaches
• providing funding of £34mn for grants to farmers to upgrade their slurry storage facilities
• requiring £2.5bn of investment in wastewater treatment works between 2020 and 2025 to halve phosphorus discharges
• introducing new legal requirements on water companies to upgrade wastewater treatment works to their highest nutrient removal level in designated areas where protected habitat sites are in an unfavourable condition
• publishing a ‘Storm overflows discharge reduction plan’, requiring water companies to deliver an expected £56bn of capital investment over 25 years
• expanding storm overflow monitors from only 10% in 2015 to over 90% in April 2023, with 100% coverage of storm overflows expected by the end of 2023
• unlocking an additional £469mn of investment to develop new large-scale water infrastructure, including transfers, recycling and reservoirs, and setting up the regulators alliance for progressing infrastructure development programme (RAPID) to support their delivery
• establishing the water and abandoned metal mines programme, which has started work on cleaning up legacy pollution from abandoned metal mines
• taking action on plastics, including banning microbeads from rinse-off personal care products and banning multiple single-use plastics
• improving water quality through the road investment strategy 2020–25
• providing £27mn of funding for local projects to improve the water environment in rural England through the water environment grant

The ‘Plan for water’ also set out new actions the government said it was taking to tackle “every single source of pollution”.^[38] These included:

• £1.6bn of new “accelerated” investment by water companies to spend on infrastructure to tackle water pollution and increase water resilience
• new plans to restrict the use of ‘forever’ chemicals (per- and polyfluorinated substances—PFAS) found in rivers and seas
• increasing the scope and maximum amount the Environment Agency can secure in penalties, with a preferred option for unlimited penalties
• ensuring that all fines and penalties are reinvested into a new water restoration fund
• a consultation to ban plastic wet wipes
• an extra £34mn for farmers to tackle water pollution, with an additional £10mn for farm reservoirs and irrigation
• increasing permit charges on water companies to fund more Environment Agency water company inspections, with new inspection targets
• streamlining the planning process so that water supply infrastructure—such as reservoirs and water transfer schemes—can be built more quickly

2.2 Office of Environmental Protection assessment of government progress

The Office for Environmental Protection (OEP) concluded in January 2024 that the government was “largely off track” in meeting its ambitions, targets and commitments for water.^[39] The OEP is a body created under the Environment Act 2021 to protect and improve the environment by holding the government and other public bodies to account.^[40] Its report covered the government’s progress in 2022/23. It found that despite “historic improvements” in the state of the water environment, “the pace of change has now stalled”, with no substantial improvement between 2015 and 2019 in the proportion of surface waters attaining good ecological status.^[41] However, it recognised that the headline figure of 16% of surface waters having a good ecological status could “lead to some improvements being overlooked”, because of the ‘one out all out’ approach under the Water Framework Directive Regulations.

The OEP also concluded that the “scale and pace of effort does not prioritise all major pressures”.^[42] It said that sewage overflows and sewage treatment were receiving attention. It assessed that the scale of delivery detailed in the government’s plan for reducing storm overflows was “proportionate to previous estimates of what is required to achieve a similar scale of ambition” and rated the prospects of meeting the overarching storm overflow target as “partially on track”.^[43] This was due to the government’s own assessment that there was not yet enough evidence to fully predict whether water companies could go faster to achieve targets in the 2030s and beyond. However, the OEP found that “detailed and specific plans to address wider pollution sources […] are not demonstrably adequate” and “policies to address pollution from towns, cities and transport are notably absent”.^[44] Overall, the OEP said it did “not see a clear path or plan for achievement of the commitments listed in EIP23 or the objectives set out in the Water Framework Directive Regulations”.^[45]

Commenting on the OEP report, the Rivers Trust, an umbrella organisation for river trusts across Britain, Northern Ireland and Ireland, said “the slow pace of progress and imbalanced, insufficient scale of delivery to secure clean and plentiful water is a particular, if unsurprising, concern”.^[46] River Action, a charity and campaign group, said it was “no surprise” the OEP had given “a largely damning report on progress towards legally binding targets”.^[47] The group has launched a ‘Charter for rivers’, backed by dozens of nature, environmental and sporting groups, calling for rivers to be restored to health by 2030. Actions set out in the charter include ending sewage and agricultural pollution, preventing harmful chemicals at source, increased monitoring of river pollution, and active enforcement against polluters.

3. Regulation of private water companies

3.1 Regulatory landscape

Different regulators have responsibilities for different aspects of the water industry and activities of water companies:^[48]

• Ofwat is the independent economic regulator of water companies in England and Wales. It is responsible for setting the price, investment and service package that customers receive. It grants licences to water and wastewater companies to allow them to operate and can issue penalties, such as fines, to companies that do not meet the conditions of their licences.
• The Environment Agency is responsible for regulating the environment, including in relation to water quality and resources, and overseeing the environmental performance of water companies. It monitors storm overflow use and tests water quality. It also advises the government on the matters it oversees. Environmental regulation is conducted separately by each of the devolved nations.
• The Drinking Water Inspectorate regulates the quality of drinking water in England and Wales. It checks that water companies in England and Wales supply water that is safe to drink and meets the standards set out in regulations.

3.2 Performance of water companies

The Environment Agency measures the performance of water companies using an environmental performance assessment (EPA) tool.^[49] For 2022, the most recent year for which the Environment Agency has carried out an EPA, there were seven metrics:

• total pollution incidents (sewerage assets only)
• serious pollution incidents (sewerage and water supply assets)
• self-reporting of pollution incidents (sewerage and water supply assets)
• discharge permit compliance (from sewage treatment works and water treatment work, not from storm overflows)—this metric is required to be rated at green for a water company to receive a four-star rating
• delivery of the water industry national improvement plan (WINEP), a programme through which the Environment Agency specifies works water companies must invest in to reach environmental goals
• satisfactory sludge use and disposal
• supply demand balance index (SDBI)

Out of the nine water companies providing both water and sewerage services in England, the Environment Agency assessed that five (Anglian Water, Southern Water, South West Water, Thames Water and Wessex Water) required improvement, each receiving two stars out of a possible four.^[50] Three water companies (Northumbrian Water, United Utilities and Yorkshire Water) received three stars out of four and were rated as good. Only one company (Severn Trent Water) received a four-star rating. Northumbrian Water and United Utilities failed to receive a four-star rating as they achieved only an amber rating on discharge permit compliance. The Environment Agency said there had been “minimal improvement” in the EPA star ratings compared to 2021. It found that “the majority of companies are not meeting basic environmental requirements and need to improve to achieve and sustain expected levels of regulatory and environmental performance”. Although the number of serious pollution incidents had decreased, the Environment Agency said it “remained unacceptably high” with “erratic numbers in recent years”. It said it expected to see “a more sustained reduction in numbers trending towards zero”.

Commenting on storm overflow EDM data for 2022 (published in March 2023), the Environment Agency said that water companies’ performance was “totally unacceptable”.^[51] Although there had been a decrease in the number of spills, the Environment Agency said this reflected drier-than-average weather in 2022. It said it was “very confident that water company action has not significantly contributed to the reduction in flows overall”, despite claims to the contrary by some water companies.

Table 3 below shows the EDM data for storm overflows in England by company in 2022. United Utilities had the highest number of monitored spill events (69,245), the longest total duration of monitored spill events (425,491 hours) and the highest average number of spills per storm overflow with monitored spill data (35.1). Thames Water had the longest average duration per monitored spill events (9.3 hours). However, the proportion of storm overflows with EDM commissioned varied from over 98% for Dwr Cymru/Welsh Water, Northumbrian Water, Severn Trent Water, South West Water, Southern Water and Yorkshire Water to below 70% for Anglian Water and Thames Water. This makes it harder to make meaningful comparisons between the performance of different companies.

Table 3. EDM performance in England by company, 2022 

Source: Department for Environment, Food and Rural AFfairs, ‘Event duration monitoring: Storm overflows—Annual returns’, 31 March 2023—see ‘EDM_Long-term_Trends_Storm_Overflow_Annual_Return.zip’ dataset, 2022 Summary Dataset, Tables 1 and 2.

Two of the EPA metrics—total pollution incidents and discharge permit compliance—are used as part of the performance commitments that Ofwat uses to assess water companies’ performance for 2020 to 2025.^[52] Ofwat published its ‘Water company performance report’ for 2022–23 in September 2023.^[53] Ofwat said that five companies had achieved their performance commitment on compliance with permit conditions for discharges from wastewater and water treatment works. This was two more than in the previous year, but just under half of all companies (including some in Wales).

Although there had been a small reduction in category 1–3 pollution incidents since 2019, Ofwat said that only five companies (four in England) had achieved their performance commitment level for pollution incidents in 2022. Ofwat said this was “unacceptable”. It said it had written to companies in March 2023 to ask them to provide detailed updates on their progress towards meeting their commitments on improving river quality, reducing storm overflows and eliminating reasons for not achieving good ecological status. Ofwat described itself as “concerned with the limited levels of detail some companies were able to provide on how they are making progress”. It said it was taking the matter forward with companies that would need to present comprehensive updates, and would make the updates accessible to stakeholders by the end of April 2024.

Water companies’ underperformance against their performance targets for 2022–23 led to them having to return £114mn to customers through bill reductions.^[54] This factored in performance against the range of targets, not just those relating to pollution.

In May 2023, water and sewerage companies in England apologised for not acting quickly enough on sewage spills.^[55] Water UK, a membership body representing the water industry, said water companies were ready to invest £10bn in a new national overflows plan over the next decade, aiming to modernise the sewage system and treat overflow spills so they would have less impact on rivers. In response to the Environment Agency’s annual EPA report published in July 2023, Water UK said the results “demonstrate the need to further accelerate improvements in environmental performance”, to which the industry was “strongly committed”.^[56]

Water companies published their draft business plans in October 2023 setting out their proposed spending on infrastructure and improvements to the water system from 2025–2030.^[57] These are due to be scrutinised by Ofwat to ensure they meet legal requirements and government targets. This takes place as part of Ofwat’s five-yearly price review, through which it sets price controls for water and sewerage companies.^[58] The final business plans and price controls will be agreed by Ofwat in December 2024, with changes to bills taking effect from April 2025. Water UK said that its proposed plans would see £96bn invested in water and sewage infrastructure between 2025 and 2030, including an £11bn investment to reduce overflow spills and the installation of advanced technology at sewage works to remove over a million tonnes of phosphorus from rivers.^[59] It proposed these investments would be funded by “incremental increases to bills over a five-year period”, with the average bill in England increasing by £7 per month by 2025, rising to an additional £13 per month in 2030.

Ofwat intends that the price review will “incentivise companies” to “enhance the environment” (among other objectives.^[60] It said it will introduce a “broader range of environmental commitments” including on the use of storm overflows and eliminating serious pollution incidents.

3.3 Actions taken against water companies

Water companies can be prosecuted for environmental offences. The Environment Agency has reported that between the start of 2015 and July 2023 (when the figures were published), there were 59 prosecutions of water companies in England (some involving multiple cases), with fines handed down by the courts of over £150mn.^[61] Over the same period, there were 72 enforcement undertakings (voluntary agreements offered by those who have committed a less serious offence that becomes legally binding once accepted) against water companies that resulted in payments of nearly £13mn to fund environmental improvements.

In November 2021, the Environment Agency and Ofwat announced investigations into all water and wastewater companies in England and Wales after several companies explained they might not be treating as much sewage at their wastewater treatment works as they should be, and that this could be resulting in sewage discharges into the environment at times when this should not be happening, in breach of permit conditions.^[62] The investigation would cover more than 2,000 sewage treatment works, and any company found breaching its legal permits could face enforcement action, including fines up of to 10% of annual turnover for civil cases, or unlimited in criminal proceedings.^[63]

The Environment Agency said this was its largest ever criminal regulatory investigation.^[64] In May 2022, it said that “initial analysis of the information collected to date has confirmed that there may have been widespread and serious non-compliance with the relevant regulations”^[65] In June 2023, the investigation moved to a new stage involving site visits by Environment Agency investigators to sites where offending may have occurred.^[66] In November 2023, the Environment Agency said it was analysing data and documents obtained from visits to over 100 ‘indicator sites’ representing all the water companies under investigation.^[67] The Environment Agency expected this analysis to take many months. It said when the investigation was complete, it would consider all options available under its enforcement and sanctions policy.

Ofwat’s investigation is a regulatory one rather than a criminal one. It is considering whether any potential non-compliance with environmental permits suggests the company concerned might not be complying with other legal requirements a water company has, which Ofwat is responsible for enforcing.^[68] These include requirements water companies have about how, overall, they operate, manage and report their performance, including of their wastewater treatment works. Ofwat’s investigation initially focused on how companies were managing the volumes of flows of wastewater being treated at a wastewater treatment works, the ‘flow to full treatment’ (FTT) level.^[69] Ofwat said the initial evidence it obtained on FTT performance revealed broader concerns about how companies managed other aspects of their compliance. Ofwat then gathered further information from companies to assess whether they were meeting their legal obligations around designing, building, operating and maintaining wastewater treatment works and how senior management and boards have sought assurance on these issues.

Ofwat opened enforcement cases against Anglian Water, Northumbrian Water, Thames Water, Wessex Water, Yorkshire Water and Southern Water in 2022, issuing them with formal notices to gather further information for enforcement purposes.^[70] As of December 2023, the cases against Northumbrian Water, Thames Water and Yorkshire Water had reached the next stage, with Ofwat notifying them of its provisional findings.^[71] The companies have an opportunity to respond to the provisional findings and to provide Ofwat with further relevant evidence for consideration. If Ofwat finds a company has breached an obligation that it is responsible for enforcing, Ofwat must, subject to certain exceptions, issue an enforcement order to require the company to take steps to secure compliance. Ofwat said it expected to publish its final proposed decisions on these cases for public consultation in the first quarter of 2024. It will take the consultation responses into account as part of its final decisions on each case. Ofwat said it was continuing to progress the three other enforcement cases opened in 2022, and to monitor the remaining wastewater companies that are not currently the subject of an enforcement case.

3.4 Government position: New powers for regulators

In December 2023, Rebecca Pow, parliamentary under secretary of state at Defra, set out actions the government was taking to ensure that water industry regulators were “fit for purpose”.^[72] She said the government had provided the Environment Agency an extra £2.2mn per year specifically for water company enforcement, and an £11.3mn funding increase to Ofwat to treble its enforcement activity. She said the government was bringing in “tougher regulations than ever before to hold water companies to account”. These included:

• Plans confirmed by Ofwat in summer 2023 to ensure that customers would no longer fund executive bonus payments where companies have not met Ofwat’s expectation on environmental performance.^[73]
• An announcement by Ofwat in March 2023 that it would take enforcement action against water companies that do not link dividend payments to environmental performance.^[74] Ms Pow said this was made possible by new powers given to Ofwat in the Environment Act 2021.^[75]
• Legislation to bring in unlimited penalties on water companies that breach their environmental permits. The government announced in July 2023, following a consultation, that the previous £250,000 limit on variable monetary penalties that the Environment Agency could impose directly on operators would be lifted.^[76] It said this would offer regulators a “quicker method of enforcement than lengthy and costly criminal prosecutions”, although the most serious cases would continue to be pursued as criminal proceedings. The government also said new powers would enable these higher penalties to be levied as a civil sanction for offences under the regime under which most Environment Agency investigations take place. The relevant regulations came into force on 1 December 2023.^[77] Ms Pow said this change would provide the Environment Agency with the tools it needed to hold water companies to account.^[78]

Steve Barclay, secretary of state for environment, food and rural affairs, wrote to the chair and chief executive of the Environment Agency in December 2023 following the removal of the cap on variable monetary penalties.^[79] He said that holding both water companies and their enforcement agencies to account was one of his top priorities in the role. He said he expected “significant improvements in the regulatory oversight of water companies”. Noting that the government had provided the agency with the new powers, he said he expected the Environment Agency to “deliver penalties, in line with your enforcement and sanctions policy, that are tough, whilst proportionate to the nature of the offence”.

In February 2024, the government announced a further measure intended to tackle poor performance by water companies. Mr Barclay said that water company bosses would be banned from receiving a bonus if a company had committed serious criminal breaches.^[80] Defra said that Ofwat would take forward a consultation to define the criteria for a ban; this could include successful prosecution for a category 1 or 2 pollution incident, or serious management failings. Ofwat would implement the measure by changing the conditions of water company licences using its regulatory powers under the Environment Act 2021. The policy would be expected to apply to 2024/25 financial year bonuses, but the government said it would expect companies to follow the proposed new criteria for 2023/24 bonuses on a voluntary basis.

According to press reporting, Mr Barclay is also planning to end the practice of operator self-monitoring, whereby water and sewerage companies must notify the Environment Agency if they are in breach of their permit conditions.^[81] The Times reported that Mr Barclay told water company bosses in January 2024 that they would “no longer ‘mark their own homework’”. He reportedly pledged a 470% increase in water company inspections by officials, although the newspaper said it was not yet clear what extra funding the Environment Agency might receive to take on this work. Defra has previously said that operator self-monitoring is not the only way the Environment Agency checks that water companies are complying with their permits: it also does its own monitoring and on-site inspections, both announced and unannounced.^[82]

3.5 Criticism of regulatory and enforcement position

The government and regulators have come in for criticism that not enough has been done to protect the environment, hold water companies to account and enforce the law.

In September 2023, the OEP said it had identified “possible failures to comply with environmental law” by Defra, the Environment Agency and Ofwat in relation to the regulation of combined sewer overflows.^[83] This related to discharge overflows on the sewer network rather than at sewage treatment works. The OEP launched an investigation in June 2022 following a complaint alleging the bodies had failed to comply with their legal duties relating to enforcing and monitoring of these overflow discharges. The OEP said it had issued information notices to the three public authorities setting out the details of their possible failures. They had two months to respond. The OEP said it interpreted the law to mean that untreated sewage discharges should be allowed only in exceptional circumstances, but it appeared that “the public authorities may have interpreted the law differently, permitting such discharges to occur more often”. The OEP said this had “consequences for the regulatory activity that follows”. It was therefore investigating:

• For the Environment Agency, the potential failures relate to the requirements of urban waste water legislation and the Agency’s resulting role in devising guidance, setting permit conditions for CSOs, and reviewing and enforcing of such conditions.
• For Ofwat, the potential failures relate to its interpretation of sewerage undertakers’ duties to effectually deal with sewage and Ofwat’s duty to make enforcement orders where sewerage undertakers fail to comply with such duties.
• For Defra, the potential failures relate to the requirements of urban waste water legislation, water quality legislation, and Defra’s duty to make enforcement orders where sewerage companies fail to comply with their own duties to effectually deal with sewage.

In response, Defra said it did not agree with the OEP’s initial interpretations but would continue to work constructively with the OEP on the issue.^[84] The Environment Agency said it welcomed the investigation.

Next steps in the investigation have not yet been announced. Once the OEP has considered the responses to its information notices, it may choose to end the investigation and publish a report on its findings, or to continue with enforcement activity.^[85] In the latter case, the next stage would be for the OEP to issue a decision notice—a formal document setting out its findings on the public authority’s failure to comply with environmental law and the steps the OEP considers it should take to put matters right. The OEP can bring an environmental review in the High Court if it determines court action is required to secure an appropriate outcome.

The House of Lords Industry and Regulators Committee investigated the regulation of the water industry in 2022 and 2023. It published its report, ‘The affluent and the effluent: Cleaning up failures in water and sewage regulation’ in March 2023. Although the committee welcomed planned improvements by regulators, it found that failures of regulators water companies and the government were leaving the public and the environment “in the mire”^[86] Its conclusions included that:

• Ofwat and the Environment Agency needed to go further to hold water companies to account for environmental pollution through penalties and prosecution, and the government must ensure adequate funding was available
• Ofwat had failed to ensure companies invest sufficiently in water infrastructure, choosing to keep bills low at the expense of “sorely needed” investment
• Ofwat needed to find ways to increase investment outside the price review process
• water companies had been overly focused on maximising financial returns at the expense of the environment, operational performance and financial sustainability
• water company bosses should not be able to receive substantial bonuses while their companies have missed performance targets and polluted the water environment
• the government had not put in place a joined-up approach to the key issues facing the sector, including reducing water pollution

The government published its response to the committee’s report in June 2023.^[87] The government highlighted that it had published its ‘Plan for water’ in April 2023, which it said was intended to “address sources of pollution, boost our water supplies through more investment, tighter regulation, and more effective enforcement”. More detail about the committee’s recommendations and the government’s responses to them is available in the House of Lords Library briefing, ‘Cleaning up failures in water and sewage regulation: Industry and Regulators Committee report’, 22 September 2023.

The committee held a short follow-up inquiry in summer 2023. Lord Hollick, the committee chair, wrote to Thérèse Coffey, the then environment secretary, with its findings in September 2023.^[88] Lord Hollick criticised the “dismissive brevity and complacent tone” of the government’s original response. He said the committee objected to the “apparent insinuation” that several of its recommendations were outside the scope of the original inquiry, which Lord Hollick said appeared to be an attempt by the government to “avoid parliamentary scrutiny”. Although the committee welcomed the publication of the government’s April 2023 plan for water, Lord Hollick said the committee was concerned there was “insufficient policy or drive to meet the government’s targets and what appears to be a lack of leadership demonstrating deep-rooted complacency”.

Robbie Moore, the minister for water and rural growth, responded on behalf of the government in December 2023.^[89] Mr Moore reiterated the government’s position that “the volume of sewage discharged by water companies is unacceptable”. He assured the committee that improving water quality remained a government priority. He said the government and regulators would “not hesitate to hold companies to account if they fall short of our expectations”. He said the government’s “clear vision for the sector” had been “communicated to regulators appropriately through legally binding targets, plans and policies”.

4. Read more

• House of Lords Library, ‘Water and sewage companies: Executive remuneration’, 16 February 2024
• House of Commons Library, ‘Opposition day debate: Bonuses for water company executives’, 5 December 2023
• House of Lords Library, ‘Cleaning up failures in water and sewage regulation: Industry and Regulators Committee report’, 22 September 2023
• House of Commons Library, ‘Performance of South West Water’, 23 February 2023
• House of Commons Library, ‘Q&A: Storm overflows discharge reduction plan’, 6 October 2022
• House of Lords Library, Storm overflows discharge reduction plan, 27 September 2022
• House of Commons Library ‘What is the government’s plan to reduce sewage discharges?’, 1 September 2022
• House of Commons Library, ‘Strategic priorities for Ofwat’, 27 May 2022
• POST, ‘Reducing agricultural pressures on freshwater ecosystems’, January 2022
• House of Commons Library, ‘Economic regulation of the water industry in England and Wales’, 4 June 2020

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Cover image by Aviavlad from Pixabay