Lib Dems accuse water bosses of bonus rebrands and moral bankruptcy

(by Karma Loveday)

Tom Gordon, Liberal Democrat MP for Harrogate and Knaresborough, led a lively Westminster Hall debate last week on the enforcement of the Water (Special Measures) Act.

The thrust of his case was that while the Act promised to clamp down on undeserved executive bonuses and poor service, the reality has proved different: “In the months since its introduction, we have seen companies complying with the letter of the law while confidence continues to drain away. When regulation is drafted so narrowly it can be complied with but the purpose is undermined, it is quite clearly not fit for purpose and not strong enough. That brings me to a central question of this debate: how do we ensure that the principles of the Act are properly enforced, and that water companies are genuinely held to account?”

He cited ongoing sewage discharges and poor service, now amid higher bills, but his particular focus was on companies sneaking around the payout provisions of the legislation. “Water companies are upping their game and thinking about the way that they structure their payments to try and circumvent these measures and the bonus ban.”

Gordon’s ire was directed particularly at his local water company, Yorkshire Water: "Ofwat investigated Yorkshire Water last year, but said that it did not breach the legislation or regulatory guidance on executive pay. The payments made to the chief executive of Yorkshire Water, Nicola Shaw, through the offshore parent company Kelda Holdings were what they called ‘fixed fees' for group-level responsibilities and funded by shareholders. While technically that might not constitute a breach of the ban, it is a demonstration of how open to exploitation the system and the legislation are. Rather than a bonus ban, we have ended up with a bonus rebrand.”

He pressed three points with water minister Emma Hardy in light of the White Paper publication: “First, will the Minister confirm that the new regulator will have an explicit duty to close remuneration loopholes, so that executives cannot simply comply with the letter of the law while undermining its purpose? Secondly, will the Minister commit to ensuring that criminal liability for water bosses is not merely theoretical but actively pursued where there is evidence of serious or repeated environmental harm? Thirdly, will the Minister set out how enforcement action will target decision makers, not just balance sheets, so that customers are no longer left paying for failure through higher bills? Those are the tests that will determine whether today’s White Paper represents a genuine reset or simply another missed opportunity.”

Gordon also pressed the Lib Dem case for the creation of public benefit companies. “The water sector is, frankly, morally bankrupt. There is no interest in the public good. That is why my party has long been calling to see these companies reformed, where they have to put public benefit interest first rather than corporate shareholder responsibilities.”

Many other MPs echoed the concerns, referring to their own local firms. There was a particularly colourful performance by Mike Martin, Lib Dem MP for Tunbridge Wells, who spoke about the recent outages. His comments included that: “In the first crisis in December, people had to receive lifesaving treatment because a dialysis centre got knocked out. South East Water is a hair’s breadth away from a corporate manslaughter charge. These people are gangsters.”

Tim Farron, Lib Dem EFRA spokesman, listed off the firms he deemed to be “making a mockery of that legislation” with rebranded bonuses. He said: “Although I am critical of the Government, my main criticism is reserved for the water company bosses themselves, who have the nerve to go looking for ways to get around the bonus ban to enrich themselves, often out of bill payers’ money. I tell water industry bosses this: your customers see you, our constituents see you and your hard-working frontline employees see you. Your authority is diminished because your integrity is diminished. That proves the Liberal Democrats right: we need far more radical change in our water industry.”

Responding, water minister Emma Hardy leant heavily on the White Paper’s promised changes, particularly the ‘prevention rather than cure’ philosophy. She said: “I would like to be in a situation — as we will be when we implement all these measures — where we do not need to compensate customers because we are not continually seeing failure. But until that moment, I will continue to work hard, push on and deliver the changes that the industry so desperately needs.”

She also shared that the first sessions of the new customer panels promised by Special Measures would be held this Spring, “requiring customers’ views to be taken into account in company decision making and allowing those customers to hold companies to account”.

A notable aside throughout the debate was widespread praise for the Drinking Water Inspectorate, including from Hardy who commented: “I share the love expressed in the Chamber for the Drinking Water Inspectorate, particularly for Marcus Rink and all the work he does”.