How will the new Labour government affect the UK’s water industry?

read time: 5 mins

The water sector has been at the centre of much political attention over the last couple of years.

The new government has made fixing polluted waterways a key part of its manifesto, but the detail is light. This means that Labour’s victory poses some uncertainty, but also a window of opportunity to show the problems can be fixed on its own terms. 

This article shines a light on the key proposals from Labour’s manifesto that will impact the water sector. We also explore what’s missing and provide insight on the opportunities and risks that these promises could bring.

What did Labour propose?

‘Forcing water companies to clean up our rivers’ is something Labour has identified as a political opportunity, with the policy making it into one of five headline bullet points in the section of its manifesto on making Britain ‘a clean energy superpower’. 

The document says that the Conservatives have ‘turned a blind eye and weakened rather than strengthened regulation’ while Labour will ‘put failing water companies under special measures to clean up our water’. 

Specifically it’s proposing giving regulators the power to block bonuses and bring criminal charges against ‘persistent law breakers’. There is also a promise of ‘automatic and severe fines for wrongdoing’ and ‘independent monitoring of every outlet’. 

How deliverable is it?

There aren’t any supporting documents for the manifesto policies, which means we don’t know much about the detail of what Labour will do. It will be some time, at least until the first Autumn Budget, before we have a really clear idea. 

However it goes without saying that while a focus on bonuses and individual wrongdoing may garner headlines, this tough talking approach is several degrees short of an actual plan to solve what many see as the consequence of a structural problem.

The more pragmatic members of the party will know they do not have the money to solve the problems on their own, and therefore need the buy-in and support of the sector to achieve its ambitions.  

The Environment Agency already has powers to impose unlimited fines, and while talk of criminal charges sounds tough, Sir Keir Starmer will know better than anyone that decisions about prosecuting are not made by politicians. He will also be extremely aware of how difficult proving liability on directors will be in practice. 

A major question about deliverability is capacity. Neither Ofwat, the Water Services Regulation Authority, nor the Environment Agency monitoring every outlet and taking the hard-nosed approach to regulation implied by the manifesto will take resource which the Environment Agency currently does not have at its disposal. 

What’s not in there?

Notably absent is any proposal to nationalise water companies, which was in the party’s 2019 manifesto but has been branded too expensive and out of tune with the ethos of the more business-friendly party of 2024. 

The party has not talked about setting up a new water regulator, or overhauling the existing system of regulation - although it is has not ruled it out either. 

Also absent from the manifesto is a clear plan about how to build the new water infrastructure the country will desperately need in a hotter, wetter century. 

Who will pay for the new reservoirs London needs if it’s not to experience regular droughts by mid-century? Who will pay for the new, larger sewers to cope with additional rainfall that are ultimately the biggest solution to the problem of polluted waterways? 

With public finances constrained, this investment will need to come from a thriving private sector and bleeding water company shareholders will not provide all the capital required for this. The only alternatives for Labour will be higher bills, more borrowing or taxes which it may find politically unpalatable. 

What are the risks?

No one in the industry should be complacent – Labour is keenly aware of the political potency of this issue and the emotion it inspires among voters. The party will want to show it has delivered on this, and views it as a very obvious way to put clear water (pardon the pun) between themselves and the Conservatives in the minds of voters.
In fact, it has identified water and the pollution of rivers as a key differentiator from the Conservatives for months leading before the election. 

Nationalisation has not been taken up, despite pressure from the remaining left-wing MPs in the party, and it will be hard for the party to reverse on this given it has won the election on a manifesto which promised the opposite. 

But it may be the case that headline pressure in the early days of their government forces them into a tougher approach than currently stated - such as a hosepipe ban after a wet winter and spring, a widespread pollution incident or financial instability of one of the regional water companies. 

Fergal Sharkey, the former Undertones frontman now a vocal water campaigner and close to Sir Keir, has been seen socialising with him and has appeared on their campaign. It may be that tougher ideas have not gone away, but are being kept on hold for later in the parliament, when difficult questions from the Conservatives about expenditure are less of a pressing concern.  

What are the opportunities?

Labour’s rejection of nationalisation is a show of faith in the current industry, and demonstrates an understanding that water companies can and should be part of a lasting and pragmatic solution to the issues. 

This creates a great opportunity for the sector to show that it has smart solutions to the problems and it’s better placed to fix them and more nimble than a nationalised provider would be. With good leadership and smart political sense, it could come out of this with an enhanced reputation publicly and as a valued ally of government. 

Liv Garfield, the chief executive of Severn Trent, was recently quoted by The Guardian as saying that Labour might warm to the idea of companies rebranding as “a new breed of declared social purpose companies – companies that remain privately owned, who absolutely can (and should) make a profit, but ones that also have a special duty to take a long-term view”. 

In a restricted financial climate, the new government does not have enough money to fix the water crisis purely from the public balance sheet. They need private capital. If the industry can show they are the partners to help achieve this, they can move forward into a productive and mutually beneficial relationship with the new government. 

For further information, please contact the energy and resource management team.

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