Sir Jon Cunliffe’s review of the water sector is comprehensive, clear-eyed, and about as radical as allowed by terms of reference that explicitly ruled out renationalisation of England’s private water and sewage companies.
With that key demand of many campaigners off the table, the former Bank of England governor has focused on more effective regulation and securing a better deal for consumers and the investors without whom the industry will sink.
So Ofwat, the embattled current regulator, is to be swept away on the tide of public anger at sewage outflows and shareholder dividends, and the disgruntlement of all its stakeholders.
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Having succeeded in its primary aim of keeping consumer bills down, it is now a victim of the consequences: a shortage of investment in infrastructure and a failure to apply similar rigour to shareholder dividends and executive pay.
While campaigners and customers say it has failed to hold companies to account, the companies complain they are too tightly controlled to attract investment.
Ofwat privately points out it can only apply the powers and political direction it is given – but the new government, going with the flow of angry voters, will not hesitate to pull the chain.
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The new regulator that follows will have control over environmental as well as economic standards, which has to be better than the current division between three different bodies, and may help define targets and priorities for the industry, like cutting sewage outflows in half by 2030.
But to deliver those targets, water companies need to be both sustainable and financially attractive.
Like it or not, that means paying a return to investors, a fact that Sir Jon, a veteran of the financial crisis, does not attempt to hide.
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So while there will be tougher powers to vet and even block potential company owners, he wants to create a low-risk, low-return environment for investors who currently see better returns elsewhere without any of the political and public heat that comes with water.
