A Sea Change or Just a Ripple? Examining Proposed Reforms to England and Wales' Water Industry
A monumental 465-page report by Sir Jon Cunliffe has landed, proposing radical overhauls to the water industry in England and Wales, including the scrapping of Ofwat, the current economic regulator. While Environment Secretary Steve Reed heralds a new single watchdog to "prevent the abuses of the past," skepticism abounds, with campaigners dismissing the recommendations as merely an "illusion of change" and "putting lipstick on a pig." The core concern? Without fundamentally incorporating "skin in the game" (Taleb) into the design of Key Performance Indicators (KPIs) and applying rigorous systems thinking to avoid unintended consequences, this report risks falling short, leaving consumers to continue suffering both physically through inadequate service and financially through escalating fees.
The announcement to dissolve Ofwat and establish a new unified regulator aims to address widespread public frustration over poor performance and underinvestment in infrastructure. However, the continuity of many of Ofwat's existing staff within the new body raises immediate questions about the true extent of the proposed transformation. Campaigners are quick to point out that the report deliberately avoided considering nationalization, a measure many believe is essential for genuine reform.
Adding to consumer woes, Sir Jon Cunliffe himself warns that bills are likely to surge, potentially by 30% above inflation in the next five years, to fund much-needed infrastructure investment. While Water UK boss David Henderson welcomes the report as "exactly what's needed," he conveniently shifts blame for past underinvestment onto the very regulator now facing abolition.
The critical missing link in these proposed reforms, as highlighted by critics, is the absence of mechanisms that genuinely align the interests of water companies with those of their consumers. The concept of "skin in the game," popularized by Nassim Nicholas Taleb, argues for accountability through shared risk. If the new regulatory framework does not embed this principle – for instance, by linking executive bonuses directly to tangible improvements in water quality, reduced leakages, and fair pricing, rather than just abstract financial metrics – then the cycle of consumer suffering is unlikely to break.
Furthermore, any significant restructuring of a complex system like the water industry demands a deep understanding of systems thinking. Without meticulously mapping out potential knock-on effects of each proposed change, there's a high risk of creating new, unforeseen problems while attempting to solve old ones. If the new KPIs are not carefully designed to account for interdependencies within the system, companies might optimize for one metric at the expense of others, leading to continued suboptimal outcomes for consumers.
In conclusion, while the report signals a political acknowledgment of the deep-seated issues within the water industry, its ultimate success hinges on moving beyond superficial organizational changes. True reform requires a radical rethinking of how accountability is enforced, how performance is measured, and how the entire system interacts. Without "skin in the game" for the industry and a comprehensive systems thinking approach to prevent unintended consequences, the promised "prevention of abuses of the past" may prove to be little more than a mirage, leaving consumers to navigate a continued torrent of poor service and high costs.