Just what is Ofwat good for?

Maison Taylor

February 26, 2024

The theory of regulation is a far cry from the reality. Above all, the key reason is regulatory capture. This is when regulators serve the interests of entrenched companies as opposed to the people. 

This certainly does not imply a conspiracy is at play. Primarily regulatory capture stems from entrenched companies having means and resources to sway regulators that individuals do not. Thus, blind eyes are turned and favourable policies arise. The victims of all this are the public, the very group that regulators are employed to protect. An interesting case is OFWAT, The Water Services Regulation Authority, who are responsible for overseeing the privatised water industry. OFWAT is supposed to oversee an accessible water industry, with integrity. Yet, with them, the question arises, do they truly act with integrity? 

The water industry is suffering the burden of severe debt. There is a cumulative £60.3bn debt looming over the industry. An unacceptable figure, particularly in an industry where £4bn was made in profits last year. This pairs with constant demand for government financial support. We see providers privatise their profits and socialise their losses, especially when the private sector inherited a debt-free industry in 1989. It is inexplicable that a regulator has overseen such mismanagement. 

The key issue with mounting debt is servicing it – a corporation induced burden that falls on the individual. Consumers are forced to overspend; water bills are almost 20 per cent more expensive due to the servicing debt (Guardian), which is unsustainable in a society that is struggling to make ends meet. Compare this with publicly owned Scottish Water, which the Guardian discovered only uses 10 percent of revenue to service their debt. And, looking forward, a six per cent average rise in water bills has been confirmed by industry bodies. This will hurt. Especially paired with the current economic stagnation. 

Another concern is the employee overlap. It is much too common for regulators to be awarded – or rewarded with – jobs by suppliers and subsequently they jump ship. It is also clear that those with experience at OFWAT would be best at helping to navigate and therefore circumvent regulations. Firms can cherry pick those who make the rules, so they can help them avoid them. ‘The Observer’ discovered 27 former OFWAT directors, consultants and managers were working within senior posts in the water industry. The economist, Sir Dieter Helm referred to the industry as “a merry-go-round”. An example is Cathryn Ross, former OFWAT CEO who left to be strategy and external affairs director at Thames water, also serving as interim CEO of Thames last year. It is interesting that those who govern the water industry are allowed to undertake private roles afterwards – an obvious conflict of interest.

Back to the point of rising bills, it is nothing short of unfair that OFWAT has approved this hike in prices – when we’re seeing companies be rewarded for environmental damage. It is worth acknowledging that the Environment Agency bears some responsibility for overseeing pollution, but wouldn’t you expect the body responsible for the water and wastewater sector to intervene when the situation is so dire? OFWAT met with chairs of southern and southwest water at a member’s club last month, discussing something meaningful one would hope? Unfortunately, not. Instead of discussing the reduction of consistent pollution, they were caught discussing how to influence the public’s perception of the pollution. In the UK there were 390,000 separate sewage discharges in 2023, which is astounding when you realise that only one fine has ever been issued by OFWAT in over 30 years. How can a regulator possess the ability to fine providers 10% of their revenue, but never even consider the option – toothless…

It is clear that OFWAT oversees a murky industry. There could not be a more obvious need for reform. Perhaps reducing their presence in some areas could be a solution. An idea for the market is partial deregulation; regulators can make it easier for firms to trade water. We could hopefully expect more competition, and thus some forced innovation from firms. The firms could buy water in batches from existing providers and sell it on to households. 

Companies could also offer bundles of services, selling gas, electricity or broadband alongside water. This is essential with the current mounting debt. However, it should be seen that de-reg is not a total solution. An idea is the introduction of non-compete agreements or similar, whereby regulators are banned from joining the private sector for a specified period. This would help solve the “jobs for the boys” perception, hopefully creating some impartiality.  In terms of pollution, there is not a huge need to reform OFWAT’s fining powers. Regulators need to be more proactive using their muscles, as opposed to flexing them regarding the use of their powers.

There is too much potential in this industry that we’re seeing wasted.  The public continues to suffer, and we will continue to do so unless we take a rigid look at the regulation of the water industry in England and Wales.


  • Maison Taylor

    Maison will begin studying Politics with Economics at the University of Bath in 2024 and has studied A-Levels in Law, Criminology, Sociology, and Economics.

Written by Maison Taylor

Maison will begin studying Politics with Economics at the University of Bath in 2024 and has studied A-Levels in Law, Criminology, Sociology, and Economics.


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