The government’s pledge to raise the cap on the amount of money the Environment Agency can fine water companies for sewage pollution to £250m has been described as “hot air”, as the Guardian can reveal the regulator has failed to levy any such penalties since it was given powers to do so 12 years ago. Variable monetary penalties (VMPs) were introduced in 2010 to enable the Environment Agency to directly levy fines for serious environmental offences without having to go through expensive and lengthy court proceedings, but to date the agency has not levied a single VMP against water companies. Despite this, the environment secretary, Ranil Jayawardena, last week announced a 1,000-fold rise in the cap on VMPs, from £250,000 to £250m, and said the 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” and that “the polluter must pay”. But the Environment Agency does not appear to be in a position to underpin the move. After frequent deep budget cuts, the agency’s chief executive, Sir James Bevan, has said the regulator is no longer sufficiently funded and that it would have to pause or stop some of its environmental protection activities. The lack of VMPs is part of a broader picture of dwindling enforcement on the part of the regulator, which has told its staff to “shut down” and ignore reports of low-impact pollution events, saying it does not have enough money to investigate them. The Environment Agency has also slashed its water-quality monitoring regime, has downgraded 93% of prosecutions for serious pollution over four years, despite recommendations from frontline staff for the perpetrators to face the highest sanction, and agency staff say that cuts and operational decisions have made it “toothless”. Between 2010-11 and 2020-21 the amount of grant-in-aid the Environment Agency allocated to generic enforcement activity fell from £11.6m to £7m, according to a report by the National Audit Office (NAO). This includes enforcement associated with the regulation of industrial facilities, storm overflows and fisheries, as well as response to serious pollution incidents. Over the same period, the NAO says the number of prosecutions undertaken by the Environment Agency has plummeted, from 768 in 2009-10 to 17 in 2020-21. “Punishments are only relevant if you have a regulator who is willing to impose them,” an Environment Agency insider said, adding that water company self-regulation was not working. “The Environment Agency has been deregulating water quality for a number of years, and that shows no sign of slowing down. Increases in funding are still directed away from frontline regulation. It appears punishments such as VMPs will only be imposed if a water company chooses to report and punish itself.” Richard Broadbent, director of the law firm Freeths and the former head of legal services at the nature regulator Natural England, said that “whilst reliance of regulatory tools are a matter of judgment for the regulator, they exist in order to be used, and a failure to do so for long periods may in time suggest a fettering of discretion. “It seems odd for the government to tout the benefits of [an] increase in water pollution penalties when that is in connection with a regulatory tool the regulator does not favour, and does not directly assist it in terms of managing its operational costs,” he added. The only way increasing the penalties would make sense would be “if the government combines it with a package of measures designed to give the Environment Agency the resources it needs to properly carry out its functions”, said Broadbent. Ash Smith, the founder of Windrush Against Sewage Pollution, said: “Presumably, someone at Defra [Department for Environment, Food and Rural Affairs] was tasked with coming up with something that sounded powerful and cost nothing. Raising the level of monetary penalties that are not even used would have been the perfect soundbite, but for the fact that no one trusts government ministers any more and even the most cursory look under the bonnet shows that there is no engine in the car Mr Jayawardena is trying to sell to the public.” Smith described the announcement as “more hot air from a government that could very easily stop pollution from being profitable but simply refuses to do so and passed an Environment Act that allows illegal pollution to continue. “The reality is that deliberately weak regulation and flawed privatisation has created a polluting for-profit-fest which has attracted ownership from all over the globe to extract money for nothing and take it offshore tax-free. “We can expect more desperate threats and promises like raising penalties that won’t really be used, as the government tries carefully not to scare the shareholders or show what a massive scam has been perpetrated on the public.” Defra declined to comment on the lack of VMPs, but said it was reviewing the Environment Agency civil sanctions regime more broadly to consider further opportunities for improving water company compliance with environmental law. An Environment Agency spokesperson said: “VMPs have so far had limited use against water companies. A reason for their limited use so far is the current £250,000 cap, which has prevented the Environment Agency from using a VMP if they think a higher fine is warranted. By raising the cap up to £250m we will enable the Environment Agency to issue VMPs in more cases, and with greater impact in disincentivising non-compliance.”