The number of pollution incidents allegedly perpetrated by water companies in the UK has risen sharply in the last few years. On 3 October 2022, the UK Government shared proposals to raise the maximum cap on civil penalties for pollution incidents to unprecedented levels – from £250,000 up to £250 million per violation.
If retained by the Sunak Government, the proposals will be subject to consultation. If implemented, they would represent a 1,000-fold increase on current levels.
Why the increase?
Water pollution is a serious environmental concern and is increasingly gathering public attention, particularly in recent years following reports of discharges into watercourses and the sea. Many incidents investigated by the Environment Agency today involve discharges into waterways of raw sewage that are attributed to old, faulty machinery and tanks that can no longer withstand the volumes that they take.
In a 2021 judgment against a water company, the judge declared: “history shows that fines of hundreds of thousands or low millions of pounds have not had any effect on the Defendant’s offending behaviour.”
The rationale behind raising fine levels is to incentivise the UK’s water companies to invest in modernising their infrastructure and limit the chances of pollution incidents occurring in the first place. The current level of fine for such discharges is thought to not be enough for industry to decide to take the meaningful (and costly) action to replace aged infrastructure.
Announcing the proposals, the Environment Secretary, Ranil Jayawardena, said: “Bigger financial penalties will act as a greater deterrent and push water companies to do more, and faster, when it comes to investing in infrastructure and improving the quality of our water.”
Where are we now?
The civil sanction regime works by way of Variable Monetary Payments imposed directly by the Environment Agency, which are currently capped at £250,000.
The civil sanctions are only one string to the Environment Agency’s bow of enforcement measures, but they are swifter and less expensive than bringing criminal proceedings (where, in contrast, fines are unlimited). The Environment Agency had recently called for Courts to impose much higher fines for serious and deliberate incidents, prison sentences for chief executives, and for company directors to be struck off after illegal environmental damage.
Though these proposed fines are in the spirit of the government’s Storm Overflows Discharge Reduction Plan, the scale of the increase comes as a surprise to many. The proposed fines could put the highest fines for water pollution offences in the same rank as in other areas of corporate crime, such as fines by the Financial Conduct Authority for breaches of money laundering rules and regulations.
The current highest record fine against a water company is £90m, levied against Southern Water in July 2021 for widespread pollution. The judge initially fined the company £135m, reduced as a result of an early guilty plea to over 6,000 unpermitted sewage discharges. These offences included 21 billion litres of raw sewage being discharged off the coast of Kent. The Court heard that the company deliberately presented misleading information to the Environment Agency about its compliance, and that discharges were made into highly sensitive protected areas. However, only one year on, the company has been charged a further £28m by Ofwat for failing to accomplish pollution incident goals and was named by Ofwat as one of the poorest performers amongst other national water companies. This is a widespread issue, with 10 other water companies facing financial penalties from Ofwat for missing targets on supply interruptions, pollution incidents and internal sewer flooding.
The proposed increase in civil penalties are a bold attempt by Government to incentivise the industry, as well as a signal towards a changed relationship between Government and water companies. On the one hand, the proposed changes suggest that the ‘polluter pays’ principle is now being taken more seriously by Government. However, it is unclear whether such penalties would ultimately be enforced by the regulator. This is partly on account of resourcing issues, which could hinder how incidents are documented by the regulator, but also because the system partly relies on companies self-reporting incidents.
Next, the Department for Environment, Food and Rural Affairs will likely publish a consultation document (though no timeframe has been set) containing more detail of the proposals, and invite stakeholders across the industry to comment on the proposed fine levels. Any changes will not happen overnight – the consultation, Government response, and ensuing legislative process are lengthy processes and we are only at the beginning.
With the new Government coming under increased pressure on environmental issues, we will continue to follow progress on this particular issue and any consultation resulting from the announcement.