Water: a failed experiment

By Richard North - July 23, 2026

In 2009, at the fag-end of the Brown government, a new system of water quality monitoring of discharges from the 7,000 sewage treatment works owned by Britain’s water and sewage companies was introduced. This included the 11 major regional water and sewerage companies in England and Wales, all but one of them privately owned after the Thatcher privatisation of 1989.

The particular change was to shift the burden of compliance monitoring from the Environment Agency (EA) to the companies themselves, in a system called Operator Self-Monitoring (OSM), where they took on the responsibility for the sampling and testing of sewage waste water discharges.

There is little dispute that the primary motivation behind the introduction of OSM was cost-cutting, one of a raft of “austerity” measures following the 2008 financial crisis.

The government halved the EA’s environmental protection budget from £170 million in 2009–10 to just £76 million by the late 2010s. With fewer resources, the EA was forced to roll back physical site inspections and rely almost entirely on the data provided by the water companies, leaving major gaps in independent verification

However, there was also an element of wishful thinking in that this was the right way to achieve “administrative efficiency” in an agency considered by many to be bloated and inefficient. The government and the EA aimed to reduce regulatory overheads by transferring the financial burden and logistics of the monitoring to the operators.

The EA believed that forcing water companies to pay for and conduct their own testing would free up public resources while keeping them accountable via desk-based audits, carried out by EA officials.

This type of system had been trialled more or less successfully with the chemical industry, and it was reasoned that the water industry could be trusted to self-report compliance under a strict set of accredited guidelines. How wrong that turned out to be.

The rules established at the time inadvertently created loopholes that companies could (and did) exploit. In particular, there were the provisions for “no-flow” events – times when plants were temporarily not discharging effluent.

When these were observed at the time of sampling, or the effluent flows were “insufficient”, sites were granted a “compliance exemption”. The lack of a sample in any particular plant was not registered as a failure. Rather, it was recorded by default as “compliant”, and the company was often excused from further sampling for the rest of that testing period.

As we are now seeing, with the indictment of former CEO Matthew Wright and three other ex-employees of Southern Water, companies started deliberately engineering “no-flow” situations when sampling was due, to avoid having to submit results which they knew would not comply with their statutory obligations.

In the case of Southern Water, it is alleged that, under direct instructions from the topmost tiers of management, when poorly performing treatment plants were due for testing, local managers arranged for large fleets of commercial tanker trucks to physically remove waste water from the plants.

Alternatively, operational teams allegedly manipulated and turned off internal pumping equipment, manually halting the discharge of effluent at precisely the times sampling was planned. By stopping the pumps, they ensured the final treated wastewater channels ran completely dry, preventing compliance checks.

By deliberately engineering these temporary, artificial drops in plant output, Southern Water successfully masked severe underlying pollution, avoiding tens of millions of pounds in criminal fines environmental penalties.

Matthew Wright is accused of conspiring to defraud the Environment Agency (EA) and water regulator Ofwat between 2012 and 2017, along with Philip Barker, Clive Massey and Mark Gregory, who also worked at the firm.

Wright’s solicitor, we are told, says he “denies all wrongdoing and has co-operated fully” with the EA’s investigation.

Southern Water say the charges relate to “a historic set of failures” uncovered in an internal investigation. They say they are a “completely different” company from a decade ago.

The case might have come to light earlier as the EA had asked a judge to issue a summons against the four, charging them with the offence last year. Wright, however, launched a legal challenge which was only dismissed by two senior judges yesterday.

In fact, though, this has been grumbling on for some time. On 18 November 2021, the EA and Ofwat announced major investigations into potential widespread non-compliance by water and sewerage companies at wastewater treatment works and, on 12 May the following year, was able to issue an update.
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The investigations, the EA said, had been launched after companies had revealed to it that they may have been in breach of their permit conditions, a situation brought about by the EA’s action in demanding improvements in the monitoring and management of “flow-to-full” treatment at wastewater treatment works through the installation of new monitors.

This became known as the “Flow to Full Treatment” (FFT) investigation which, at the time, the EA thought was likely to be the largest of its kind for the agency. It involved criminal investigations into all ten private water companies and was expected to take at least two years to complete.

More than 2,200 of the main sewage treatment works spanning all water and sewerage companies with wastewater treatment works that discharged into English waters were being scrutinised by EA experts.

The investigation team was working through hundreds of documents received from the water companies – and were expecting to analyse up to 2 billion data points. The initial analysis of the information collected by that time indicated that there may have been widespread and serious non-compliance with the relevant regulations.

Then, on 7 March 2023, the iPaper published a report which had the EA admitting: it had “no target for inspecting sewage works despite visiting just 6 percent in a year”.

The regulator, it said, “already relies on water companies to self-report any illegal sewage spills, but in 2019 it dropped goals to scrutinise sites at least once every eight years”.

This brought a plaintive respnse from Defra, under Sunak’s dying regime. The department pleaded that, despite the OSM system, the EA also did its own monitoring and on-site inspections, both announced and unannounced.

In 2019, it said, the EA had increased, not decreased, its regulatory scrutiny of sewage treatment works to include auditing, data analysis and other interventions as well as inspections.

These “interventions”, it argues, removed “the outdated inspection guidance and replaced it with action to use a wider range of regulatory tools”, increasing the level of scrutiny, rather than reducing it.

But the cat was out of the bag. By October 2024, three months into the Starmer regime, the Observer was confirming the widespread nature of the fraud, under the headline “Revealed: water firms in England ‘passed’ pollution tests that were never carried out”, telling us that the self-monitoring regime would be changed.

In its text, the paper told us that water firms had “passed” thousands of pollution tests under the self-monitoring regime, yet the tests had never been conducted, after relying on the “no-flow” loophole. But the paper also confirmed that it had been EA “guidelines” rather than statute law that had allowed “no-flows” to be recorded as compliant with the environmental conditions of the company’s operating permits.

A degree of independent analysis also came with the report, which cited Peter Hammond, from the campaign group Windrush Against Sewage Pollution (Wasp).

The group had conducted an analysis of no-flow events from 2021 to 2023 where the sewage plants had been deemed to be compliant with their permits. Hammond argued that such incidents should be properly investigated by the regulator and the regime should be overhauled. “Water companies cannot be allowed to mark their own homework”, he said.

And so it came to pass, only last year after 18 years of mayhem, that monthly manual testing of treated sewage is being supplemented by continuous automated sampling.

OSM is still required but as of March this year the rules have changed.

If there is an insufficient flow of effluent during a pre-scheduled testing window, the company is legally required to document exactly when and why the no-flow event occurred. It has to reschedule the missing test immediately and log the event clearly so it can be made available for subsequent EA audits.

Furthermore, the EA no longer relies solely on data from water companies. It deploys its own sampling teams to carry out unannounced shadow testing. Its results are systematically cross-referenced against the water companies’ internal logs to catch any ongoing manipulation. Amazingly, the number of “no-flow” episodes has dwindled to insignificance.

But whoever thought that, back in 2008, the bunch of crooks that is the water industry in England could be trusted with anything should be pilloried, stripped of his (or her) pension and written into the textbooks as an example of failed public administration.

From that legacy, though, much is yet to come and we may well see other water company executives in the dock (where they truly belong) and potentially in prison – more evidence of a failed experiment in privatisation that may soon come to a head with Thames Water and its multi-billion-pound debt.