Latest news with #SirJonCunliffe
The Guardian
21-07-2025
- Business
- The Guardian
Cunliffe's reforms for water should have happened 20 years ago
Farewell, Ofwat, soon to disappear down the regulatory U-bend. Its leadership has been up against some serious corporate miscreants and boardroom financial engineers over the years, but abolition is the right decision. The original sin – overseen by New Labour – was to allow the leveraged takeover boom of the mid-2000s, which was the point at which regulatory control over the sector started to be lost. The past decade has been about trying to undo the damage, which has only exposed yawning gaps in regulatory knowledge, such as the storm overflow scandal that broke in 2021. A 'reset' moment is overdue by about 20 years. Sir Jon Cunliffe's review goes to the heart of one main problem: the fragmented, overlapping and inflexible nature of a regulatory system that takes in not just Ofwat and the Environment Agency (a regulator that lost its way as severely) but also the Drinking Water Inspectorate, Natural England and Natural Resources Wales. That structure is simply confused. A super-regulator in England (and equivalent in Wales) should, the theory goes, solve the problem of duplication and lack of coordination. Simpler is better. One line of criticism says the government is merely rearranging the deckchairs. Not necessarily. The bite in Cunliffe's recommendations, if they are to succeed, will be the switch to a 'supervisory' model. The description is bland but, if done correctly, it could make a difference, as it has in financial services, from where Cunliffe, one of the clean-up officials at the Bank of England after the great crash, has drawn his analysis. The Prudential Regulation Authority is capable of striking fear in bank boardrooms. For water, it will require the regulator to know a company's operations in detail at a basic engineering level, and thus be equipped to know when excessive returns are being made or when, genuinely, the company hasn't been given the financial resources to do the job. It is, for example, amazing that Ofwat's board does not include anyone with the job title 'chief engineer'. (The new regulator should have one, says Cunliffe.) And it is even more astonishing, 36 years after privatisation, that nobody seems to have a clear idea of the real state of companies' assets. (Fix that too, says the report.) Add it up and there is a framework for a more commonsense approach than the current cycle of reviews and exchanges of documents running to thousands of pages. 'Ofwat has relied too heavily on a data-driven, econometric approach, and has not taken sufficient account of company-specific conditions and challenges,' says Cunliffe's commission. It is hard to disagree. In the end, it is not possible to run a privatised system without strong regulators who form their own judgments. New powers, under Cunliffe's advice, would allow regulators to block certain owners and to apply a financial-style suitability test for senior executives. Both sound like improvements if backed by 'public benefit clauses' in water company licences that would allow the regulator to interfere more aggressively. Given the sector's history of financial engineering, Cunliffe could have gone further and suggested caps on debt levels. Instead, he opted for new regulatory powers to set minimum capital levels. That is weaker, but at least we may see an end to the nonsense of Ofwat announcing a leverage ratio for its 'notional' company (55% of assets currently) and then being ignored. In other respects, the report will read as investor-friendly: 'company-specific' supervision and the possibility of 'regulatory forbearance' in turnaround situations will be music to the ears of the sector laggards. If the latter is to achieve public consent, the other side of that coin will have to be tougher day-to-day enforcement of environmental laws, which comes down to the government's willingness to fund boots on the ground. That part is the gift of ministers. Indeed, Steve Reed, the environment secretary, should take note of what this report demands of government – a 'step change' in strategic approach, including setting medium- and long-term priorities and an acknowledgment of trade-offs. Step one, one can suggest, would be for Reed to stop claiming the government has 'secured £104bn of private sector investment' when everybody knows the vast bulk of the sum comes from customers' bills. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion For some, nothing less than full nationalisation will do. On that score, the government's resistance is justified. Nationalisation would take years, would be challenged in court if attempted at less than market value, and offers no guarantee of success if the HS2 debacle is a guide to departmental talents in building critical infrastructure. Cunliffe's vision of a 'low-risk, low-return' sector for investors is a better pragmatic bet if the goal is to clean up lakes and rivers as quickly as possible and actually build some reservoirs. Low-risk cannot mean risk-free: it must still be possible for the owners of outright corporate flops to lose their shirts, as the mugs who bought Thames Water from Macquarie will. Everything will depend on execution, of course. In the meantime, the Thames crisis rumbles on and special administration remains a highly possible outcome for that disaster, not least because Cunliffe's review should remove the 'contagion' risk for the wider sector. For now, the forward-looking aspect of his review is the thing to focus on. A tally of 88 recommendations illustrates how much has gone wrong. But the core advice to create a single, stronger regulator – one that can throw its weight around on the basis of up-to-date information – should be unarguable.
Times
17-06-2025
- Business
- Times
Water review will not recommend changes to ownership structure
The head of the Independent Water Commission will not recommend that the government change the ownership structure of water companies in his review of the sector. Sir Jon Cunliffe, a former deputy governor of the Bank of England, has served as the chairman of the commission since it was established in October 2024, after Labour came to power, to make recommendations on reforms to the water sector. Speaking to MPs on the Commons environment, food and rural affairs committee, Cunliffe suggested that questions about the ownership structure of water companies were outside the commission's terms of reference. Challenged on how he could assure MPs he would look at other models of ownership given the sector's failings, he said the commission could do so only in certain circumstances. 'What we won't do is say 'We need to move the whole sector to a different model', for two reasons. If the question is, will we recommend a wholesale move to another [ownership] model?' He added: 'I don't think looking at the models, the evidence we have, it's not a big data set, but I don't think the conclusive evidence is there to make a big change like that.' Cunliffe's commission published an interim report this month, and a final version is expected in July. In the interim version, it said that there were 'deep-rooted, systemic' problems in the water industry in England and Wales. However, the report added that there was 'no simple, single change, no matter how radical, that will deliver the fundamental reset that is needed for the water sector'. • Feargal Sharkey: Cunliffe report won't make one atom of the UK's water any cleaner The former civil servant has suggested his final report could include recommending better water planning across river basins and new laws on the health of wild swimmers. Cunliffe also told MPs that his commission had not looked at the security aspects of foreign ownership, and that, due to time limits, his report was less exhaustive than it could have been. 'Without sounding like a Treasury official, there's a trade-off here between how fast we do this and how detailed we are, and how much we leave with a direction for other people to do after us,' Cunliffe said. 'We're probably about eight months in total for a report this size. You could argue that you could take two or three years dealing in detail with everything that is here.'
The Independent
17-06-2025
- Business
- The Independent
Independent water commission chair denies probe into reforms is ‘tinkering'
The chair of the Independent Water Commission has defended his ongoing probe into the water sector reforms. Sir Jon Cunliffe addressed recent criticism that he has been 'tinkering' with the industry's deep-rooted issues as he was quizzed by MPs on Tuesday. The Independent Water Commission was tasked by the UK and Welsh governments to carry out the largest review of the sector since privatisation in the face of widespread public anger over pollution, bills and bosses' bonuses although ministers ruled out nationalising water companies. The final report is expected in mid-July but earlier this month, the commission published an interim report which said the industry needs a 'fundamental reset'. But this initial paper was criticised for not going far enough to deliver recommendations that would engender a complete industry overhaul. The Government outlined the scope of the probe to focus on what changes could be made within the current privatised regulated ownership model rather than considering a wholesale shift to other models such as not-for-profit or nationalisation. Giles Bristow, chief executive of Surfers Against Sewage, said the interim report was tinkering around the edges and he called for the commission's final recommendations to 'end pollution for profit' as well as 'reshape the water industry to put public health and environment first'. Asked by MPs if the review is 'tinkering' given the broken culture found across the sector, Sir Jon said: 'No I don't accept it at all. I just don't, I'm sorry. 'First of all, you wouldn't expect me to think, to accept, that this was a report that was tinkering. 'But just moving past that… I do not think the problems you see in the culture of the water companies that you've identified, and the problems we've seen in performance, are the inevitable consequence of the ownership model that we have.' Sir Jon continued to say the commission will look at other ownership models, such as not-for-profit, and make recommendations where companies are feasibly able to make a transition without public spending. Challenged on how he can assure MPs he will look at other models of ownership given the current failures, he said the commission could do so only in certain circumstances. 'But what we won't do is say: 'We need to move the whole sector to a different model' for two reasons,' he said. Sir Jon outlined that he is not sure how the sector can do this without large public spending to buy the assets but also that he has not found a 'strong correlation' between models and outcomes. 'It's not tinkering, it's trying to be evidence-based,' he said. His comments come after the Environment, Food and Rural Affairs Committee released its own report into the sector on Tuesday morning, which concluded the industry is 'failing' while water firms are 'deaf to the crisis' it is facing. The MPs also argued the Government 'should feel able to use its temporary nationalisation powers' when needed. Sir Jon was also questioned about criticism that the review is not truly independent from the Government due to Environment Department staff helping to carry out the work. In response, he said: 'I'd like to put this on the record, if I can chair. 'I've been given a secretariat of high-quality Defra officials. 'I have not felt in any way that I am being channelled down any particular route outside of my terms of reference and I'd also say that they are incredibly hard-working, and they are in seeker after truth mode.' He added that while the commission has had to draw on some departmental expertise, the recommendations 'will be my own'.
Times
16-06-2025
- Business
- Times
Water industry is ‘deaf' to crisis facing sector, warn MPs
The culture of the water industry is 'deaf to the crisis the sector is facing', MPs have warned. The environment, food and rural affairs committee said the water sector had 'completely lost sight of its purpose' and urged a government review to recommend a bold overhaul. A report by the committee said that special administration for debt-laden firms such as Thames Water should remain a last resort. But it was unclear if it was better to let a 'failing company' keep piling up more debt or to assume temporary national control more quickly, it said. The prospect of the collapse of Thames Water, Britain's biggest water firm, increased after a US private equity firm withdrew its rescue plan this month. The wide-ranging report by the committee, published on Monday, painted a damning picture of the state of the water industry and regulation. 'The water sector is failing. During the course of our inquiry, we have heard too many examples of corporate failure and unacceptable pollution incidents,' the MPs said. They said 'root-and-branch reform' of the sector's culture was now needed. Their verdict follows an interim report by the Independent Water Commission, which was appointed after Labour came to power. Sir Jon Cunliffe, chair of the commission, suggested his final report — expected in July — could recommend rationalising decades of legislation, better water planning across river basins and new laws on the health of wild swimmers. Campaigners fear it won't go far enough. • Thames Water's future in doubt after KKR abandons rescue Cunliffe should be 'open-minded' about alternative ownership models for water firms, the MPs said, though the government has ordered him to rule out full nationalisation. The committee's report said alternatives such as not-for-profit enterprises, community interest companies and co-operatives should 'be on the table'. 'The control of seven out of ten water and sewerage companies by private equity investors (serving over 60 per cent of the population) and approximately 70 per cent foreign ownership may not be fostering the necessary culture for the sector,' the MPs said. The report said companies had been allowed to rack up too much debt in the past, which must not be allowed to rise again. Despite poor performance, there had been 'egregious examples of dividend and bonus payments', it added. Six water company leaders recently had their bonuses banned this year for failing to meet standards, after a new law was passed in February. With water bills rising by 36 per cent on average by 2030, the MPs urged Cunliffe to consider establishing a single social tariff rather than the current arrangements for lower-income households, which vary from company to company. Citizen's Advice, the consumer group, welcomed the idea, which would end a 'postcode lottery for support'. However, the environment committee said it feared government limitations on Cunliffe could mean his final recommendations disappoint. 'A lot of onus has been placed on the commission to deliver, but the limitations of its scope may mean its proposals fall far short of what is needed to reform the sector.' • I've driven 4,858 miles around the UK coast. Our seas are in a bad way A spokesman for industry group Water UK said: 'Everyone agrees that the water system is not working, and we have been calling for fundamental reforms which allow investment to get quickly to where it needs to go.' The Times' Clean It Up campaign is calling for better regulation, effective investment and greater transparency to improve the country's waterways
The Guardian
09-06-2025
- Business
- The Guardian
Thames Water's creditors are being too greedy
If you would kindly rip up the regulatory system, move the goalposts on sewage and spills and promise not to fine us too much, we'd be delighted to rescue Thames Water. If these requests cause you political difficulty, dear secretary of state, consider how much worse it could be if you end up controlling this failing company yourself. Do you really wish to be responsible for every burst water main in London and every drop of effluent in Didcot? That seems to be the pitch from the 100-plus group of lenders to Thames Water who are now the only game in town in terms of a 'market-led' recapitalisation, the alternative to special administration, AKA temporary nationalisation. It is expressed in the bland language of 'regulatory support', but the meaning isn't hard to translate. A 'rebased' performance target is a lower one. A 'pragmatic approach to historic and future legal and regulatory compliance' means letting Thames off substantial financial penalties – maybe a billion or two over the next five to 10 years – that would otherwise come its way. If the proposal sounds outrageous (it does), in one sense you can't blame the creditors for giving it a go. Sir Jon Cunliffe's Independent Water Commission, in its interim report last week, nodded to the general idea that failing water companies will need a helping hand from regulators to haul themselves off the floor. 'The commission is of the view that a more formal framework for supporting companies to turnaround performance may be needed, to avoid a future 'doom loop',' the report said. The use of the loaded 'doom loop' phrase will have delighted the creditors. It is exactly how they describe Thames's predicament of fines out to the horizon. If you want to improve the assets, goes their argument, something has to give – and would have to give even under a nationalised setup. There are, though, at least two enormous difficulties to the creditors' plan. Most obviously, how could Steve Reed, the environment secretary, possibly sanction legal immunity for serious environmental crimes for private sector owners of Thames? Remember Reed's refrain every time he bashes a bonus: 'With this government, the era of profiting from pollution is over.' It is hard to walk back that statement. Second, even if the Cunliffe commission's thinking provides philosophical support for regulatory 'flexibility', the final report is still a couple of months away, and parliamentary scrutiny will be needed before the regulatory system for the water industry could be changed fundamentally. The timeframe is beyond the would-be new owners' plan for recapitalising Thames. Thus, if the creditor group has any prospect of getting its proposal to fly, a few of its big numbers will have to look very different from the ones presented in the self-serving outline version. In short, the senior lenders are being far too greedy in imagining they can escape with writedowns on their debt of just 20%, the ratio implied by the proposed £3.2bn hit to total A class debt of £16bn. Come on. The haircut for lenders cannot be that light. The market value of the debt is already implying 30% writedowns. Some of the opportunistic vulture funds are thought to have got in at as low as 60p in the pound; Reed and Ofwat, the water regulator for England and Wales, would look like fools if they approved, in effect, hefty day-one paper profits for them. But it is – just about – possible to imagine a deal in which Thames pays its fines upfront, as it were, in the interest of allowing managers to concentrate on the day job of running the business rather than hiring lawyers to fight Ofwat and the Environment Agency. Add £1.6bn as a settlement of outstanding bad behaviour and in effect you'd get a haircut for senior lenders of 30%. Or maybe the figure would have to be closer to 40% to allow Reed to save face. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Alternatively, the environment secretary may decide that negotiations are a waste of time, that legal shenanigans don't work, or that regulatory get-outs set a bad precedent, or that Thames is too far gone. It would be a reasonable point of view: if you really want to clear the decks, special administration is the surest route. The next step – deal or no deal – looks to be genuinely in the balance; don't underestimate the government's desire to avoid nationalisation. Haircuts of only 20%, however, just don't work. If the bondholders wish their inflammatory proposal to be taken seriously, they should be told to come back with a proper number, or have one imposed on them.
