It's Tempting to Demand Penalties and Punishment for the Directors of Water Companies - but are they the right Targets?
These people are operating within the terms of a contract awarded to their companies by the UK Government.
They also have to ensure that their companies comply with the directions and instructions of the Regulator, Ofwat, who sets price controls and has a statutory duty under the Water Industry Act 1991 to make sure that companies are able (in particular able to secure a reasonable return on their capital) to finance the proper carrying out of their functions - including being able to get the funding they need from capital markets.
The Companies are responsible for proposing the level of investment as part of their business plans submitted to Ofwat every five years and Ofwat will make a judgement on the cost of raising the capital and the value for money in the elements of the investment plan and use this in calculating the increase the prices in the light of the conditions in the financial markets.
The important point to grasp is that the money for infrastructure improvements and for capacity increases must come from the consumer. It does not come either from Ofwat or from the Government.
The Regulator of course receives political guidance and direction from the Secretary of State for Environment, Food & Rural Affairs, who in turn has to follow the instructions and policies arising for the Cabinet and/or the Prime Minister.
So there will be an overriding political judgement on the amount that prices are to go up and this might mean that the Regulator goes back to the companies to say that the full amount of the original investment plan cannot be supported and must be reduced. This means in effect that that both the amount of capacity or improvement investment can be controlled by the government.
And of course the Water Company Directors have to ensure that their Companies have to abide by the existing legislation - unless the Government gives them immunity from this - and comply with EU Directives as long as these remain in force. But now read on...
There is, however, an important change in the new Environment Act. It varies the treatment of a "breach" of environmental law, which now becomes a "state of non-compliance" and is set as the default position. It no longer necessarily requires such non-compliant actions (although still considered as unlawdul) to be reversed or voided. In these instances there is now a presumption that unlawful acts by a public authority can be valid. Furthermore the unlawful action by a public authority cannot be quashed by a court "if doing so risks causing substantial hardship to, or would substantially prejudice, a third party. This means that a clear unlawful action must be allowed to continue if a third party stands to benefit from it, or would suffer a loss if it does not continue. This approach fails to take account of the other factors such as harm to nature and to people. It would have the net effect of introducing a new "polluter doesn't pay" principle into environmental law." (Bingham Centre for the Rule of Law)
Such matters are now to be administered by a new body with the Orwellian title of Office of Environmental Protection. It can carry out environmental reviews of states of non-compliance, but the Act specifically provides that damages cannot be granted following such a review.
On 21st October 2021 the Commons voted on Lords Amendment 45 of the Environment Bill (now the Environment Act 2021).
So perhaps there ar other people we should punish first before we come to the Water Company Directors!
Please note that matter of the Office of Environmental Protect may be the subject of second posting. (pic Unsplash)