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Water regulator Ofwat employed several consultants at the same time as advising water and sewerage companies, raising concerns about conflicts of interest.
Five consultancy groups, including PwC and Deloitte, contracted with the regulator for England and Wales in the past six years and also provided regulatory or management advice to water companies, according to research by government contracting specialists Tussell.
Ofwat remains in talks with water companies over the price increases they can charge customers for the next five years. It is also pending to hear whether a government commission will recommend a complete replacement of the regulator, after criticism that it was too soft on the businesses it oversees.
Last year, Ofwat engaged PA Consulting to help with Price Review 2024 on a “needs only” basis in a £1.2m contract it shared with Grant Thornton, according to publicly available tender documents. At the same time, PA has been providing consultancy services to Thames Water, which is seeking leniency from Ofwat on fines and larger increases in customer bills.
Baring, another consultancy, was hired by Ofwat this year to provide business support and management advice on contracts worth £112,560, tender documents drawn up by Tussell show, while at the same time providing regulatory advice to Thames.
Ofwat has also paid PwC more than £1m in 2020 and 2021 to help it with its regulatory settlement over the next five years. At the same time, PwC advised Southern Water on price negotiations with Ofwat.
In 2018 and 2019, Ofwat engaged Baringa, KPMG, Deloitte, PA Consulting and PwC to help with final price negotiations. At the same time, PA Consulting and Deloitte advised Anglian Water on “business and management consultancy services”, including reporting and governance.
Overall, Ofwat, which regulates 16 water companies in England and Wales, paid £25.9 million to consultancies — including EY, KPMG, Deloitte, PA Consulting, Baringa, Grant Thornton and PwC — between 2016 and 2024, Tussell figures in which he saw the Financial Times show. Some payments were for audit services rather than advisory services.
Tim Farron, the Liberal Democrats’ environment spokesman, said the revelations showed “Ofwat was a broken regulator and needs to be replaced immediately”.
He added: “How can Ofwat properly hold these polluting companies to account when they employ the same people who work for water companies?”
Ofwat said there are “rigorous conflict procedures which require consideration of all mandates which may be considered to give rise to an actual or potential conflict of interest before work commences”.
It was emphasized that they ensure “that there can be no harm or hindrance to our regulatory decision-making”.
On the Price Review 2024 contract, Ofwat said it required “flexible access to high-quality resources across a range of technical skills”.
The regulator faces a delicate balancing act between cracking down on water companies’ failings amid widespread public anger, while securing enough funding to deliver the billions of pounds of new infrastructure needed and keeping bills at a sustainable level for customers.
Several companies are also struggling under a combined £73 billion debt burden, and the regulator must try to prevent water companies from going bankrupt.
Environmental campaigners have accused Ofwat of running a lax regime that has failed to clamp down on dividends and seniors’ pay at the expense of investment in infrastructure such as sewage treatment plants and the pipe network.
Ministers have ordered a commission to regulate the water industry to consider scrapping Ofwat entirely, after admitting that “the whole water sector has failed”.
PwC said it adheres to “all regulatory, professional, ethical and independence standards. We have ongoing procedures in place with Ofwat to ensure transparency with our clients and address any potential or perceived conflicts of interest.”
Thames Water said it was the responsibility of consultants to protect themselves from conflicts of interest. “We expect Thames Water’s information to be confidential at all times,” it added.
PA Consulting said it “employs rigorous procedures to ensure client confidentiality is maintained and any potential conflicts of interest are effectively resolved”.
Baringa said it had implemented “a number of robust measures, including maintaining strictly separate project teams, to ensure we adhere to the highest professional standards”.
Southern Water, Severn Trent, Anglian Water, Yorkshire Water, KPMG, Deloitte, Grant Thornton and EY declined to comment.
