Ofwat should have to approve water firms’ bonuses and dividends, say MPs | Water

Bonuses and dividends for water company bosses and shareholders should be approved by the regulator before they are paid, as billpayer funds are being used irresponsibly, MPs have said.

They also recommended that the government consider ending the profit-driven water company model and making English companies non-profit, similar to how the system works in Wales, in the report by the Environment, Food and Rural Affairs (Efra) select committee.

The report notes: “Welsh Water’s gearing levels are lower and its financial resilience is better than many of the main water companies. Not-for-profit models lack one of the negatives of private ownership, dividends, which have contributed to the worsening finances of several water companies, most notably Thames Water.”

The committee uncovered in recent weeks that Thames Water executives had been paid bonuses worth millions of pounds from a controversial £3bn loan, the purpose of which was to stabilise the company’s finances and save it from collapse.

Ministers recently set up an independent water commission to produce a report on the future of England’s struggling water industry, which is globally unique in that it is fully privatised and run for profit. Companies have presided over sewage spills and financial mismanagement leading to environmental destruction, a waste of customer money, large bonuses for executives and the risk of companies collapsing and requiring a taxpayer bailout.

The Efra committee report is aimed at guiding the commission after months of collecting evidence from experts in the sector.

Recommendations from the report include allowing the regulator, Ofwat, to block inappropriate owners from buying water companies and veto the hiring of executives.

The government recently passed new laws that allow it to ban bonuses for chief executives, but the report notes that the weak standards currently underpinning this means water bosses who had recently overseen sewage spills were allowed to be paid bonuses. The new law bans performance-related bonuses only, so water companies can get around this by labelling them as something else, for example as retention payments, the report adds.

The chair of the Efra committee, the Lib Dem MP Alistair Carmichael, said: “Amidst growing public outrage at the poor performance of water companies, some companies have been paying out high dividends to shareholders and excessive bonuses to their senior executives.

“Water companies’ complex and sometimes impenetrable financial structures, with their myriad subsidiaries, holding companies and parent organisations, seem to suggest that their purpose is less to provide a good service to their customers and more to allow them to juggle their finances and their increasingly unsustainable levels of debt.

“This has got to stop now. Trust and accountability in the water sector are very low. It is not acceptable that it has fallen to commendable citizen scientists to expose issues with local water resources. Environmental protection and the delivery of a reliable and safe water must be the first priorities of water companies and regulators.”