Government to take on five recommendations straight away
And finally… over in parliament, environment secretary Steve Reed has told MPs he will be immediately taking forward five of Sir Jon’s recommendations. As well as abolishing Ofwat and creating a new ombudsman, the government will be ending self monitoring of sewage dumping into rivers and seas. Reed said this will be the “end of the era of operator self monitoring”. Sewage spills will be automatically recorded and posted online in real time.
He also committed to creating regional water boards which bring together environment groups as well as water companies and local councils to speed up the cleaning of local rivers and lakes, as well as integrating water infrastructure into local plans.
Reed said:
“The lack of water infrastructure that held back Cambridge and Oxford for so long will not happen again.”
Finally, Reed committed to giving strong ministerial directives to the EA and Ofwat- while it still exists and said these will “set out our expectations and requirements”. Cunliffe had recommended ministers showed more leadership to the regulator and ended a “light touch” approach.
Asked by Clive Lewis, Labour MP for Norwich South, why the report did not consider nationalisation, he said: “we have to take a rational and not an ideological approach” and said Defra had independently calculated that nationalising the water industry would cost £100bn.
Updated
Closing post
Time for a recap…
A new water regulator will replace the powers of Ofwat, the Drinking Water Inspectorate and the Environment Agency to “reset” a sector tarnished by scandals over sewage spills and financial mismanagement, after a major review of the sector.
The environment secretary, Steve Reed, said:
“The government will abolish Ofwat. In the biggest overhaul of water regulation in a generation, we will bring water functions from four different regulators into one.
“A single, powerful regulator responsible for the entire water sector will stand firmly on the side of customers, investors and the environment and prevent the abuses of the past.”
The creation of a new regulator was one of 88 recommendations made by Sir Jon Cunliffe in his review of the England and Wales water industry.
Cunliffe warned:
This sector requires fundamental reform on all sides – how we manage the demands on water, how the system is regulated, how companies are governed and how we manage the critical infrastructure on which we all rely.
Speaking to reporters this morning, Cunliffe compared the current situation to the Great Stink of 1858.
Cunliffe also suggested that it could take two years to set up the replacement for Ofwat, and suggested some civil servants could lose their jobs under the shake-up.
But, there was disappointment in some quarters that the Independent Water Commission was not allowed to give full consideration to the hypothetical renationalisation of the sector.
As Unite general secretary Sharon Graham puts it:
“Water workers and the public will just think this report is a bad joke - it doesn’t even consider returning water to public ownership.
“If the government thinks a new regulator will solve the problems of privatisation they will be badly disappointed. The public’s bills are due to rise by a third over the next five years, we are experiencing hosepipe bans, seeing rivers clogged with sewage and CEOs making millions for overseas shareholders.
“Our collapsing water system is a mark of shame for this country and any sensible government would be taking steps to nationalise Thames Water and all the other failed companies.”
Here’s the full story:
And here’s our key takeaways from the report:
Updated
The Prospect union are warning that the upcoming water regulatory regime must give the industry’s workforce “the power and investment” to do their jobs properly.
Steve Thomas, Prospect deputy general secretary, said of today’s Cunliffe Review:
“This is an important and timely review, following years of underinvestment in the water sector and its regulators.
“It is essential that the specialist workforce of the new single regulator is given the requisite power and investment to do its job effectively, whilst ensuring that environmental regulation remains robust and is not diluted.
“Recommendations around strengthening the regulator’s ability to recruit and retain the right staff through greater pay flexibility would be a welcome first step in achieving this.
“The Government must also ensure that any decisions regarding the abolition and merging of arms-length bodies in this space is done through meaningful engagement with trade unions and the specialist workers in the sector and does not come at the expense of the vital work carried out by existing environmental regulators.”
Seven key takeways from the Water industry report
Here’s our breakdown of the key recommendations in Sir Jon Cunliffe’s review of the water industry:
Professor Hannah Cloke, Professor of Hydrology at the University of Reading, warns the water industry against wasting years creating new structures to tackle its problems….
“Water industry reforms are long overdue and badly needed. A single regulator instead of multiple overlapping bodies makes perfect sense, as does giving local areas more say in water planning. But we can’t spend years setting up new structures while our rivers stay polluted and reservoirs run dry.
The real challenge isn’t designing better systems on paper – it’s getting companies to actually fix leaking pipes, stop dumping sewage, and build the infrastructure we need. Less reorganising, more doing.”
Record highs on Wall Street
Back in the financial markets, US stocks have hit a new record high.
Both the S&P 500 shares index, and the tech-focused Nasdaq, have hit new intraday peaks in early trading on Wall Street.
That extends the rally that began when Donald Trump delayed his new tariffs in mid-April.
David Morrison, senior market analyst at Trade Nation, says the Trump trade war is still a big issue for the markets, along with company results as Alphabet and Tesla are both due to report this week.
With the earnings season picking up several gears and trade tensions heating up again, markets look poised for a week of headline-driven swings, especially as investors look to tech giants for reassurance on sales and earnings.
Trade tensions remain a central theme as the countdown to the 1st of August tariff deadline proceeds. On Sunday, US Commerce Secretary Howard Lutnick reinforced the administration’s firm stance, insisting that the 1st of August was the “hard deadline” for countries to begin paying tariffs. He did, however, leave the door open for post-deadline negotiations, saying, “Nothing stops countries from talking to us after August 1st.”
Markets have taken note. With talks ongoing and few signs of any last-minute breakthroughs, investors remain wary of further escalation. The clarity from Mr Lutnick suggests that the administration intends to follow through this time, meaning the clock is now ticking for key trading partners to strike deals or face penalties.
As well as leading to hosepipe bans, the recent dry spell has left some some narrowboat owners at risk of homelessness.
Boaters at Islington Marina in Manchester have said they are worried their floating homes could become damaged by the rugged base of the canal, or even keel over, following a drop in water levels.
IFS urges Reeves to tweak fiscal rules margin
Away from the water sector, the Institute for Fiscal Studies (IFS) is urging Rachel Reeves to build some extra leeway into her fiscal rules, by tweaking her plan to allow herself a 0.5% margin of error in two years’ time.
In a short policy note published on Monday, the IFS said fiscal policy is in a “bad equilibrium,” with spending policies hurriedly adjusted in response to the Office for Budget Responsibility’s twice-yearly forecasts.
The IFS rejects the idea the OBR should only produce one forecast a year, as some commentators have suggested. Instead, it says Reeves should implement plans to give herself a 0.5% margin next Spring, instead of in 2027 as planned.
It says:
“This is an elegant and sensible solution to the tension between having a single fiscal event but two forecasts each year. If at the second forecast the government is slightly on the wrong side of where it wants to be, no immediate action is required.
If it’s a long way on the wrong side, with a current budget deficit of more than 0.5% of GDP, then the Chancellor does need to respond.”
However, the IFS said this extra cushion should only apply at Spring statements - allowing the chancellor time to think about how to respond to modest forecast changes - and not at budgets in the autumn, in case a deficit of 0.5% risks effectively becoming the new target.
The opposition Conservative party “cautiously welcomed” Sir Jon Cunliffe’s report into the water industry this morning.
Shadow environment minister Robbie Moore told Sky News that there was a ‘huge amount of detail’ in the report, including 88 recommendations such as creating a new water regulator.
Moore says there needs to be reassurance for investors, satisfaction for bill payers, and higher water quality.
Moore adds that the Conservatives (who bear a lot of responsibility for the state of the water industry) did give regulators tougher enforcement powers to increase water company monitoring when they were in government.
Q: Do you agree that Ofwat has failed?
There have been failures within the regulatory system, Moore agrees.
'There have been failures within the [water] regulatory system, ' shadow environment minister Robbie Moore MP tells @WilfredFrost
— Sky News (@SkyNews) July 21, 2025
He says the Conservatives 'cautiously welcome' the water industry review. https://t.co/ub6Li2Qzs6
📺 Sky 501 pic.twitter.com/gBIj9UTGFp
Water company shares has pushed higher during today’s trading.
Pennon Group (owner of South West Water, Bournemouth Water and Bristol Water) is now up almost 1.5%.
Severn Trent has gained 0.5% while United Utilities is up 0.6%.
This is partly because analysts at Bernstein have lifted their price targets for all three companies this morning, saying “We remain constructive on UK water utilities”.
Bernstein added:
Alongside the new regulatory period, the sector is also entering a structural growth super-cycle.
That is a reference to AMP8 (Asset Management Plan 8) the five-year regulatory period for the UK water industry which started in April.
Here’s a video clip of Sir Jon Cunliffe explaining to Sky News why he compared today’s water sector to the Great Stink of 1858 this morning.
Are we in a modern-day 'Great Stink'?
— Sky News (@SkyNews) July 21, 2025
Sir Jon Cunliffe, the author of the water sector report, joins @pkelso to discuss his comparison of today to the Great Stink of 1858.https://t.co/6OsS0NypJo
📺 Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/6lQY78C9aK
As covered earlier, drinking water quality and sanitation today is still unimaginably better than in the grim summer of 1858; Cunliffe’s point is that today, like then, we have a failing infrastructure, debates and arguments about how to proceed, and public anger about the situation.
The Labour party are pitching their water regulatory shake-up as an example of ‘putting working people first’, a popular – if hard to define – target for the government.
NEW: Labour is abolishing Ofwat and putting working people first by preventing water pollution and protecting families from bill hikes. pic.twitter.com/GZlIG07wlX
— The Labour Party (@UKLabour) July 21, 2025
This morning, though, Steve Reed was pushing a Blytonescue vision of children frolicking in the sea or hauling on an oar without the risk of catching something nasty.
Clean water, of course, is vital for everyone, whether they’re in the ‘working people’ bucket or not.
Here’s a reminder of how pollution incidents across England jumped last year, according to last week’s data:
Updated
Prime minister Sir Keir Starmer has pledged that the new water regulator will end ‘the chaos of the past’:
This is the biggest overhaul of the water sector in a generation.
— Keir Starmer (@Keir_Starmer) July 21, 2025
My government will abolish Ofwat and establish a single powerful regulator to prevent water pollution and protect families from bill hikes.
Ending the chaos of the past.
Delivering for working people.
Green Party: Public ownership only way to clean up water sector
The Green Party argue that only renationalisation of the water industry will fix its problem.
Co-leader of the Green Party, Adrian Ramsay MP, says it was a mistake for the government not to allow the Cunliffe review to explore a return to public ownership.
Ramsay says:
“Expecting a different form of regulation to fix the water industry is, frankly, rearranging the deck chairs on the Titanic. Not only that but the majority of the public are going to be expected to pay more in bills, as we watch the industry continue to sink under the failed model of privatisation.
“The government deliberately left out the option of public ownership from the review, but that’s the only real way to get the water industry to clean up its act, end millions being siphoned off for huge CEO salaries and shareholder dividends and instead see this money invested into ending sewage dumping and fixing leaks.”
Cunliffe: Civil servants could lose jobs under regulatory shake-up
Civil servants could face the chop under plans to merge the functions of Ofwat, the Environment Agency and Natural England, Sir Jon Cunliffe has suggested.
He told reporters this morning:
“You have to think about when you do it, you can bring the organisations together, and then, more slowly integrate the staff.
What tends to happen the mergers I’ve been involved with, they stay in separate units and come in, and then once they’re in, you start to think about, well, actually, there are savings here - You’ve got people doing the same thing.”
He added that Ofwat could start acting on his recommendations right away before it is abolished:
“I think economic regulation can start to move to that new model. I mean, it takes time to build a supervisory function, as I called it, but Ofwat can start to engage with companies on that basis.
We don’t want to reopen the price review because that’s destabilising, but they can start to look and manage and oversee the companies with different perspectives, different lenses.”
[several water companies are already appealing against Ofwat’s latest price review, pleading to be allowed to raise customers’ bills even higher than the regulators has allowed].
Philip Duffy, chief executive of the Environment Agency, says putting its water regulatory functions into a new regulator should help improve the sector.
Duffy says:
“There is a great deal in today’s report that the Environment Agency supports. It’s a milestone in turning around the water industry. On structure, none of us who have worked in the regulation of the water industry in recent years would defend the current system.
The brilliant and hard-working officers, scientists and engineers at the Environment Agency know much more must be done to protect rivers and guarantee clean and plentiful water – but too often they lack the means to deliver these aims. Today’s announcement of a merger would help resolve that.
Duffy adds that it will take time to work through the full implications of the government’s decision to abolish Ofwat, and also give its replacement the water functions across the Environment Agency, Natural England and the Drinking Water Inspectorate.
(under this proposal, the Environment Agency and Natural England will retain their non-water remits and responsibilities.)
UK rules prevent special treatment for Thames Water, minister says
Britain’s water legislation does not currently allow the government to give a struggling company, such as Thames Water, any leniency on sewage fines, environment minister Steve Reed has said today.
As we flagged earlier, Sir Jon Cunliffe is recommending the creation of a new formal turnaround regime to allow struggling companies space to recover under so-called “regulatory forbearance” which could let them avoid fines (as Thames has been trying).
But Cunliffe’s suggestion might not help heavily indebted Thames, as it tries to stabilise its finances and agree a rescue plan funded by its creditors.
Reuters reports that Reed has explained:
“The legislation currently doesn’t allow for that.
“We’re going to publish a white paper in the autumn, which will be our response to Jon’s report today, and then consult, but as things stand, Thames need to resolve the situation themselves as a stand-alone, private company.”
Reed said the government was prepared for Thames to enter special administration, a form of temporary nationalisation, if that became necessary, adding:
“My hope and expectation is that the creditors will come to an agreement themselves.”
Updated
Ofwat: We will help ensure a smooth transition to new regulator
Ofwat appears to be resigned to its fate, following DEFRA’s announcement that the regulator will be abolished.
In its official response to the Independent Water Commission, and the government’s reaction, an Ofwat spokesperson says:
“The Cunliffe Report sets out a new direction for the water sector.
“While we have been working hard to address problems in the water sector in recent years, this report sets out important findings for how economic regulation is delivered and we will develop and take this forward with government. Today marks an opportunity to reset the sector so it delivers better outcomes for customers and the environment.
Ofwat will now work with the government and the other regulators to form this new regulatory body in England and to contribute to discussions on the options for Wales set out in the report.
“In advance of the creation of the new body, we will continue to work hard within
our powers to protect customers and the environment and to discharge our responsibilities under the current regulatory framework.We will also work collaboratively with all our stakeholders to ensure a smooth transition.”
The High Pay Commission is unhappy that Sir Jon Cunliffe’s review has not recommended capping the pay of water industry executives.
Luke Hildyard, executive director of the High Pay Centre, fears this failure could undermine long term public confidence in the sector, adding:
At a time when so many households across the country are struggling with bills and the cost of living, the review continues to indulge executives’ sense of entitlement to pay awards that go far beyond what is necessary to provide a sensible, proportionate reward for competent management.
A reasonable cap - for example, one set at 10 times the annual pay of a worker on the UK minimum wage - would have sent a firm but fair message about the culture of public service that we should expect from water and other utilities.”
Before last year’s election, Labour promised to ban the payment of bonuses to polluting water bosses. But although legislation has been pushed through, water companies have been finding ways to wriggle around it, through ‘retention payments’ and hikes to basic pay, as my colleague Helena Horton explains here:
Updated
Independent Age, the charity supporting older people facing financial hardship, has welcomed the Independent Water Commission’s recommendation of a national water social tariff.
Independent Age director of policy and influencing Morgan Vine says this is a “welcome development”, adding:
If implemented effectively, a national water social tariff in England would help people of all ages living on a low income, including the older people Independent Age supports, afford their bills and end the postcode lottery that currently blights the system. Where you live shouldn’t dictate how much financial support you receive.
Updated
Reed: children shouldn't have to worry about toxic sewage pollution once we've cleaned the sector up
Steve Reed ends his response to the water review by saying today is the start of a ‘water revolution’ to clean up the sector.
The Secretary of State for the Environment says:
This is our chance to make sure our children, and their children, can create the same wonderful memories we remember from our own childhoods.
Splashing around in the waves on a beach, rowing along a river, without having to worry about toxic sewage pollution.
Reed promises a new partnership between water companies, investors, communities and the government will work together to clean up rivers, lakes and seas for good.
Back at Kingfisher Wharf, Steve Reed is running through the failings of the water industry.
Responding to the Cunliffe report into the water sector, Reed points out:
Our rivers, lakes and seas are polluted with record levels of sewage
Water pipes have been left to crumble into disrepair
Soaring water bills are straining family finances
Hosepipe bans are coming into force because no new reservoirs have been built in the last 30 years.
Reed then blames a “broken regulatory system” for allowing water companies to profit at the expense of the British people, rather than investing in the water infrastructure.
Reed then explains that Ofwat will remain in place until the new water regulator has been created.
Updated
Replacing Ofwat could take two years, Cunliffe tells the Guardian
Setting up the new regulator to replace Ofwat will take around two years, Sir Jon Cunliffe has predicted.
“We looked at Ofcom, which took two years,” he told the Guardian.
Cunliffe added:
“Some of it depends on how fast legislation could be introduced, because you can do things before legislation, but actually you need the legislation to come in, and it was two years to bring the regulator together. I’m under no illusion that there is a whole tale of culture and systems that have to happen after that.”
Sir Jon suggested the leadership of Ofwat has to change.
He said:
“On leadership, this sort of thing requires very high level leadership, but it also requires a sort of balance of skills and expertise that we don’t have at the moment because the regulators aren’t set up in that way.”
Government: Ofwat to be abolished in biggest overhaul of water since privatisation
Newsflash: water regulator Ofwat is to be abolished, the government has announced.
Ministers are promising the “biggest overhaul of water since privatisation”, as they pledge to take on one of Sir Jon Cunliffe’s 88 recommendations to fix the sector.
Ofwat will be replaced by a “new, single, powerful regulator”, which will also take on water-related responsibilities of the Environment Agency, Natural England and the Drinking Water Inspectorate (as recommended by Cunliffe’s Independent Water Commission at 6am this morning).
Secretary of State for the Environment, Steve Reed, says this move will end the “complexity” that is hurting customers.
In a speech at Kingfisher Wharf now, Reed is pledging to strengthen regulation, clean up the country’s rivers and protect the public from soaring water bills.
Reed says:
“Our water industry is broken. That is why this Government will fix our broken regulatory system so the failures of the past never happen again.
“The Government will abolish Ofwat. In the biggest overhaul of water regulation in a generation, we will bring water functions from four different regulators into one.
“A single, powerful regulator responsible for the entire water sector will stand firmly on the side of customers, investors and the environment and prevent the abuses of the past.”
“It will provide the clarity and direction required for a strong partnership between Government, the sector and investors to attract billions of pounds of new investment.”
Updated
Water companies, and their owners, must bear a major part of the responsibility for the failures we have seen in recent decades, Sir Jon Cunliffe adds.
He repeat that some companies have pursued short-term private interest at the expense of public interest, and at the cost of the long-term resilience of their companies.
Cunliffe says the Commission’s call for evidence heard a lot of disquiet and real concern about the inclusion of the profit motive in the provision of water.
He says he understands those concerns, given recent experiences.
But the Commission’s terms of reference was to focus on a regulated, privately owned water sector.
Cunliffe adds that the Comission did look at ownership structures, and did not find a ‘causal link’ between ownership models and a range of environmental and performance indicators.
The Independent Water Commission has recommended reducing regulatory risk to investors and making investibility of water companies a duty of the new regulator, Sir Jon Cunliffe says.
He tells his audience at the London Water and Steam Museum:
“The changes to regulation we propose, particularly to economic regulation are intended in part to lower regulatory risk and to reduce the variability of returns to deter such investments.
The Commission has also recommended that the government make the stability of the regulatory system an objective in the National Water strategy, and that maintaining the investability of the sector become one of the duties of the new regulator for water”
Cunliffe added that the evidence does not show privatisation is a problem:
“And I have to say on the data and on the comparable metrics available, which are not strong, I admit we did not see evidence of a causal link between ownership models and a range of environmental performance indicators.”
Cunliffe: Ofwat's econometric approach has gone before limits of effectiveness
Speaking in front of a display of sewage pumps at the London Water and Steam Museum in west London, Sir Jon Cunliffe then adds that the regulatory system had become “too adversarial on both sides” and that Ofwat had made overuse of its “econometric tools and industry wide benchmarks”.
He said:
“The Commission recognizes the motivation behind this, but our assessment is that it has taken this approach beyond the limits of its effectiveness, and indeed to a point where it may have become counterproductive in terms of the performance of the industry as a whole and of its ability to attract investment.”
Watching the speech is Iain Coucher from Ofwat, who may soon find himself out of a job as Sir Jon has recommended Ofwat is abolished and replaced with a more powerful regulator.
Cunliffe adds that a “rebalancing” is needed, adding:
“In the Commission’s view, it is important to have an objective framework for setting prices and incentives based on model outputs and based on comparability between companies. But this approach alone, no matter how aggressively pursued, cannot drive the improvement of the sector to deliver the public goods that are necessary, nor to attract the investment that is now required.”
Cunliffe added that companies “could be fined by Ofwat and the Environment Agency for the same pollution”.
Cunliffe: current regulators will not achieve what is needed
Sir Jon then runs through the main recommendations from his report (see here).
Delivering the outcomes we want to see in the water sector depends, crucially, on having the right regulators, he says.
That means…
Regulators that command public confidence and industry respect. Regulators that have the capacity and the capability to do their job effectively.
And most importantly… a structure of regulation that can focus on the water system as a whole.
Our assessment is that the current environmental and economic regulators have not achieved what is needed, and will not achieve what is needed.
Cunliffe adds that the Environment Agency has not been given the resources, people, skills or technology needed to hold the water industry and other sectors to account.
And Ofwat, he adds, was encouraged to regulate with a lighter touch and keep bills down for most of the last 20 years, and didn’t have the powers or capability to supervise the financial structure of much of the industry.
That allowed some companies and their owners to take decisions that “reflected their private interests” but badly damaged the companies and the public interest.
Cunliffe says:
We are seeing some of the consequences of that failure to defend the public interest in the news every day.
Cunliffe: water industry has not met public expectations
Sir Jon Cunliffe then defends the length of his report (465 pages), comparing it to a Russian novel.
If we are to achieve the water sector we need, we need to look at all the factors that have contributed to our Great Stink moment.
He adds that the water industry has not met public expectations or maintained public trust in recent years.
He tells his audience at the London Water and Steam Museum:
Some companies have manifestly acted in their private interest but against the public interest. That must be prevented in future.
The industry does not exist in a vacuum, though, he adds – it sits in a framework of law and regulation operated by the government (who must now decide which of Cunliffe’s 80-plus recommendations to implement).
Cunliffe: the UK is facing another “Great Stink Moment”
Sir Jon Cunliffe is presenting his report into the water sector to the media now, at the London Water and Steam Museum.
Cunliffe starts by producing a small vial, which he says he was given by River Action, containing water from all around the country.
He now plans to present it to DEFRA, so it can be kept at the department as a reminder of the (poor) state of the water sector today.
Cunliffe runs through a brief history of how Victorian water companies had grown as they supplied clean water, and handled sanitation, saying:
20 years after this pumping house opened, London experienced the Great Stink of 1858. After years of suffering a cesspit and sewer system that could not cope with London’s growth, with the Thames a pestiferous and reeking abomination, to quote a newspaper of the time, the decision to close the cesspits followed by a hot, dry summer, brought matters to a head.
This crisis finally forced parliament to act, Cunliffe explains, leading to the construction of 1,100 miles of sewers, and massive pumping stations, by Joseph Bazalgette.
Cunliffe reveals he has thought about the Great Stink more than once while conducting his commission into the water sector.
Launching his report, Sir Jon Cunliffe says the UK is facing another “Great Stink Moment” pic.twitter.com/NUeTjYBcft
— Helena Horton (@horton_official) July 21, 2025
He says there are many parallels with today (although water and sanitation standards are much better than in 1858!), including the strain on the system from economic and population growth, years of discussion as the problem grew, a government that did not give clear direction, pollution levels that the public would not tolerate, until it became apparent to all that a fundamental reset.
Bazalgette, Cunliffe grins, even had a bonus blocked because it was seen as too high, another parallel with today.
Toilets proudly on display at Sir Jon Cunliffe’s water commission announcement pic.twitter.com/jJpWNgeYfO
— Helena Horton (@horton_official) July 21, 2025
Updated
Full story: New ‘powerful water regulator to replace failed Ofwat’ in drive to reset sector
A new, “powerful” water regulator should replace Ofwat, the Drinking Water Inspectorate and the Environment Agency to “reset” a sector tarnished by scandals over sewage spills and financial mismanagement, a major review has recommended.
The government is expected to adopt the recommendation for England and Wales made in the review it commissioned from Sir Jon Cunliffe, a former deputy governor of the Bank of England, which was released on Monday.
Critics have said Ofwat has presided over a culture of underinvestment in infrastructure and financial mismanagement by water companies since its creation in 1989, when the industry was privatised.
Thames Water, the most troubling case for the government and the UK’s largest water company, is loaded with £20bn in debt and struggling to stave off financial collapse into a special administration, a form of temporary nationalisation.
The push for more water smart meters (see earlier post) is part of the Commission’s call for concerted efforts to prepare for a drier future.
They say:
Over the coming decades, demands on water will increase, driven by water needs for the environment, an expanding population, climate change, land use pressures and economic growth – with an expansion of the technology sector being a particular driver of demand.
They are also recommending changes to the tariffs paid by businesses, warning that the current system of “falling block tariffs”, where customers pay a lower unit rate when their usage rises “disincentivise efficient management of water by businesses”.
The key recommendations in the water sector review
Here, via PA Media, is a round-up of the key recommendations in Sir Jon Cunliffe’s report into England and Wales’s water sector (some of which we’ve covered already in this blog).
Overhauling the current system of regulation
The review recommends overhauling the regulators and replacing them with one body for England and one body for Wales.
For England, this would see Ofwat and the Drinking Water Inspectorate abolished, and the removal of the environmental regulation functions for the Environment Agency and Natural England.
Instead, a “joined-up” and “powerful” single integrated water regulator would be established.
In Wales, Ofwat’s economic responsibilities would be integrated into Natural Resources Wales, the review said.
Setting up regional planning authorities
Eight new regional water system planning authorities in England and one national authority in Wales should be set up, the review says.
This would involve devolving current planning responsibilities and transferring resources from the regulators to these new authorities, which would be responsible for developing water investment plans that reflect local priorities and voices.
Introducing stronger consumer protections
The commission recommends measures such as expanding the role of the voluntary Consumer Council for Water into an ombudsman to give stronger protection to customers and a clearer route to resolving complaints.
It also proposes the introduction of a national social tariff to provide consistent support for low-income customers who need help to pay their bills and to transfer responsibility for consumer advocacy to Citizens Advice.
Stronger environmental regulations
The report proposes stronger regulation on abstraction, sludge, drinking water standards and water supply.
It also recommends improving the process where companies collect and analyse wastewater discharges they make into waterways by introducing more digitalisation, automation, third-party assurance and inspections.
After one of the driest springs on record, it recommends compulsory water metering, changes to wholesale tariffs for industrial users and greater water reuse and rainwater harvesting schemes.
Tightening oversight of water company ownership and governance
The commission recommends new regulatory powers to block changes to water company ownership, for example, where investors are not seen to be prioritising the long-term interests of the company and its customers.
It also suggests new “public benefit” clauses in water company licences and recommends the regulator set “minimum capital” requirements so that companies are less reliant on debt and more financially resilient.
Public health reforms
The report covers legislative reforms to better manage public health risks in water, recognising the many people who swim, surf and enjoy other water-based activities.
These include public health objectives in water quality legislation, senior public health representation on regional water planning authorities and legislative changes to address emerging pollutants such as PFAs, also known as forever chemicals, micropollutants and microplastics.
Fundamentally resetting economic regulation
This recommendation includes a new “supervisory” approach that supports tailored decisions and earlier interventions in water company oversight.
The report also makes recommendations on the Price Review process, including changes to ensure companies are investing in and maintaining assets and to help attract long-term, low-risk investment.
Providing a clear strategic direction
The commission said both the UK and Welsh governments should publish a new long-term National Water Strategy with a minimum horizon of 25 years and interim milestones.
It also says a set of ministerial priorities specifically for the water industry should be issued to regulators every five years, replacing the current strategic policy statement.
Infrastructure and asset health reforms
The report sets out changes in how water infrastructure is managed, monitored and delivered to better safeguard the provision of water and management of wastewater for future generations.
They include new requirements for companies to map and assess their assets – such as pipes, treatment works and pumping stations.
It also calls for resilience standards that are forward-looking and applied consistently across the industry.
Updated
Accelerated rollout of compulsory smart water meters recommended
The Independent Water Commission is also recommending that compulsory smart meters should be rolled out “for a wider range of circumstances”, in a push to reduce household water consumption.
Today’s report says:
The Commission concludes that a move to compulsory household smart metering, under a wider range of circumstances, is required to drive down water demand.
Options within the water sector could involve looking at expanding criteria for compulsory water metering to be beyond ‘areas of serious water stress’ and the other limited existing circumstances in which compulsory metering can apply currently.
They suggest water companies learn from the energy sector, where suppliers must install a smart meter if they are replacing a meter or installing a meter for the first time, unless there is good reason not to.
Supporters of smart water meters argue they could help to limit future water deficits, by incentivising customers to use less.
However, larger households with high water usage would risk paying more than a standard flat rate tariff.
New 'regulatory forbearance' could allow water companies to dodge fines
Water companies could be let off fines if the government accepts one of the recommendations from the Independent Water Commission.
Today’s report into the water sector argues that a formal turnaround regime should be established to help improve the performance of strugging water companies, through new government legislation.
That regime should allow “enhanced power of direction” (allowing regulators to steer a company) as well as regulatory forbearance (allowing companies to dodge financial penalties).
Recommendation 58 of the 88 ideas in Sir Jon Cunliffe’s report (see introduction for details) says:
The Commission believes it is important that, where companies fail to comply with requirements, there is accountability and consequence. However, these may sometimes need to be pursued within the context of the broader public interest.
A turnaround regime would comprise a set of defined tools for the regulator to deploy when a company enters the regime, the Commission explains, adding:
These tools would include both supportive levers to improve performance, and sanctions to ensure there is sufficient consequence that prevents moral hazard and that ensures enforcement in relation to regulatory breaches.
The prospect that water companies could swerve financial penalties could enrage water users, who are understandably furious about the rise in pollution incidents.
Back in March, the Guardian revealed that Thames Water was asking to be spared billions of pounds of costs and fines over the next five years, claiming that potential investors would be scared off otherwise.
Today, the Commmission argues that a turnaround regime could allow the water regulator to defer or waive fines and penalties “where it is in the broader interest of customers”.
It adds:
This may include, for example, circumstances where additional fines are likely to hinder the ability of the company to invest in infrastructure improvement.
Companies in the turnaround regime could also be given flexibility on deadlines by which projects must be delivered, meaning they would not be fined for the non-delivery of projects.
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Shares in stock market-listed water companies are rising a little in early trading, as investors digest Sir Jon Cunliffe’s report into the sector.
Pennon Group, which operates South West Water, Bournemouth Water and Bristol Water, has gained 0.2% so far this morning.
Severn Trent has risen by 0.26%, while United Utilities, the UK’s largest listed water company, are up 0.1%.
Campaigner Feargal Sharkey: Steve Reed should resign over 'utter shambles'
Former Undertones frontman and water campaigner Feargal Sharkey said environment secretary Steve Reed should resign over a fail to grip the issue of sewage pollution.
He told ITV’s Good Morning Britain:
“I think Steve has got to reflect very carefully on the shambles that the last 12 months has been. He should go.
The Labour government has had 14 years to look at this, he should have walked into the office on July 5th last year and taken control of the industry. He has failed to do so.”
Sharkey said Labour’s handling of the issue has been an “utter shambles”, adding “it was announced on Friday a 60% increase on serious sewage pollution, there is no control of sewage pollution in this country”.
The singer added that the responsibility for the water sector lies ultimately with ministers:
“Where Jon [Cunliffe] and I agree is he castigates the board of Ofwat and the Environment Agency. He says he wants to abolish Ofwat but then I don’t see how you don’t add the Environment Agency to that. And both these organisations have their boards appointed by the Secretary of State for the Environment. Steve Reed could have come in on his first day and abolished both the boards of those organisations.”
Surfers Against Sewage: this is putting lipstick on a pig
Abolishing Ofwat will not stop sewage dumping or profiteering, unless the finance and ownership structures in the water industry are also changed, warns campaign group Surfers Against Sewage.
Giles Bristow, chief executive at Surfers Against Sewage, says:
“Look past the glossy veneer of today’s Independent Water Commission recommendations and you’ll see it utterly fails to prioritise public benefit over private profit. This is not transformational reform, this is putting lipstick on a pig – and you can bet the champagne is flowing in water company boardrooms across the land. Prime Minister, you must abandon the dangerous fantasy that the current privatised water industry can be patched up – it can’t, and the public knows it. Your party was elected on a pledge to clean up our rivers and coasts; now deliver on that promise, and go far beyond these half measures.
“For 35 years, profit has come first – and our waters have paid the price. Only one path forward remains: a full, systemic transformation that ends the ruthless pursuit of profit and puts the public good at the heart of our water services. We welcome Sir Jon’s calls for a national strategy, enshrining public health objectives in law and regional water planning. But we won’t be taken for fools — abolishing Ofwat and replacing it with a shinier regulator won’t stop sewage dumping or profiteering if the finance and ownership structures stay the same.
“Voters are tired of swimming in sewage and drowning in ever rising bills. They won’t accept any more toothless tinkering or PR spin—they demand specific, radical reform. Delay any longer, and you risk losing not only public trust but the confidence of your own MPs. Let the water companies keep raking in dirty profits at our expense, and the electorate won’t forgive you.”
One of Sir Jon Cunliffe’s many recommendations is that regional planning for the water sector should be based on river basin districts.
His report explains:
The Commission believes that more effective planning at the regional water system level is needed to deliver what people want where they live, within the broader strategic guidance from government.
It is clear to the Commission that decision-making across the water system is fragmented – across both regions and sectors – and is failing to deliver much of what society demands and expects, including for the economy. Reflecting this view, the Commission is recommending a new approach to the planning and management of regional water systems.
Emma Hardy, the Minister for Water and Flooding, has told BBC Breakfast said she will be “looking at the report all the way through the summer” in order to create a white paper outlining how many of the 88 recommendations in today’s report will be adopted.
She explained:
We are going to introduce a water bill next year that will change the law and put many of them into law. Exactly how many of the 88 we will put into law we will figure out over the summer.”
On the recommendation to abolish Ofwat and create a new regulator, Hardy said:
It’s a really important recommendation, the secretary of state will be talking about this later today.”
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Report criticises Ofwat's 'desk-based' approach to regulation
Sir Jon Cunliffe’s report contains some specific criticism of how Ofwat has regulated the water industry.
The Commission says Ofwat “relied too heavily on a datadriven, econometric approach”. That means the regulator failed to take sufficient account of company-specific conditions and challenges.
The “over-reliance” on industry-wide benchmarking has led to “sub-optimal outcomes for the sector, for customers, for investors and for the environment”, the report finds.
It adds:
The increasing complexity of the challenges facing water companies – and of the challenges facing the regulator in regulating private monopoly utilities – require a broader, less monolithic and a less desk-based approach to economic regulation and to the oversight of companies’ performance against their licences.
Also, Ofwat’s approach failed to provide sufficient oversight of water companies’ delivery of infrastructure, management of their finances, or the health of the sector’s infrastructure, the Commission concludes.
But, it adds, the blame lies in Westminster too! The report says:
The Commission recognises that, until more recently, Ofwat was encouraged by the government to scale back its oversight of the sector, that it has paid closer attention to these issues in recent years
GMB: It's time to renationalise water
The GMB union are calling for the privatisation of the water sector to be reversed.
Gary Carter, GMB National Officer, says this morning:
The Cunliffe report lays bare what GMB has said for years - water privatisation has been a disastrous failure.
Our rivers and waterways have been fouled, while bills rocket and fat cat bosses get rich.
Meanwhile the water infrastructure crumbles through lack of investment.
It’s a disgrace - and one Ofwat has overseen.
Now is the time to fundamentally reform the water sector and renationalise this vital resource.”
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The government has confirmed that it will create a water ombudsman with legal powers to protect customers in disputes with their water company, as the Guardian reported last night.
This single, free point of contact will build on the Consumer Council for Water’s role (see earlier post) which is currently voluntary for water companies to follow.
The changes will bring dispute resolution processes for water in line with other utilities such as energy, the Department for Environment, Food & Rural Affairs says.
DEFRA add:
[Environment Secretary] Steve Reed is expected to announce ‘root and branch’ reforms on Monday to clean up rivers, lakes and seas and make the water sector one of growth and opportunity that serves hard-working families and businesses, as part of our Plan for Change.
He is expected to make assurances that government action will protect hardworking families from massive water bill hikes in future.
Public ownership of water left UK 'dirty man of Europe', says Sir Jon Cunliffe
On BBC Radio 4’s Today Programme, Sir Jon Cunliffe said Ofwat has “failed” because “for many years it didn’t have the powers”.
He added:
To be blunt about it, it was directed by government to take a light touch to regulation.”
Cunliffe defended the review’s terms of reference set by the environment secretary, Steve Reed, which banned it from exploring the nationalisation of water.
He said:
I understand that many people who responded to our work are concerned about profit in the provision of water through a monopoly system and how that has impacted what has happened. However I believe the system can work.
There was that massive increase in investment, and I am old enough to remember how it was before and the public funding of our water systems left us as the ‘dirty man of Europe’.”
The former Bank of England deputy governor defended the high pay of water company executives after widespread anger caused by Southern Water’s chief executive receiving a doubled pay package.
He said:
We are not proposing the regulator should set pay scales for the industry. They do need to recruit, and you have to attract the best people. What really makes the public angry is when the pay is there but the performance is not.”
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Commission recommends 'new mandatory Water Ombudsman' to handle complaints
Today’s report also recommends upgrading the existing Consumer Council for Water into a fully fledged ombudsman for customers and transferring responsibility for consumer advocacy to Citizens Advice.
This new ombudsman would give customers a clearer route to resolving complaints, they say.
Mike Keil, chief executive of the Consumer Council for Water (CCW), is ‘delighted’ by the recommendation, saying:
People should also be able to use water without the worry of being able to afford their bill, but April’s unprecedented rise in charges has compounded the struggles of millions of households. More people are turning to CCW to complain about not being able to afford their bill at a time when over 2 in 5 households have told us they’ve cut spending on essentials like food to make ends meet. The case for a single social tariff for water has never been more urgent or compelling and we’re pleased the Commission has recognised this.
“CCW already runs a successful voluntary ombudsman scheme for water customers and one of our key asks of the Commission was to make this mandatory, so people can have absolute confidence that when they complain they have robust protection.
“We’re delighted the Commission has recommended building on our work at a time when we’re seeing more people turn to us for help resolving complaints against water companies.”
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Reaction to this morning’s report into the water industry is pouring in.
Water UK, the trade association for the sector, says the Cunliffe review is a ‘significant step forward’ towards fixing the industry, while pointing out that ministers must choose which recommendations to take forward.
Everyone agrees the system has not been working. Today is a major moment and this fundamental change has been long overdue. These recommendations should establish the foundations to secure our water supplies, support economic growth and end sewage entering our rivers and seas.
“The Independent Water Commission has written a comprehensive, detailed review of the whole sector, with many wide-ranging and ambitious recommendations. We now need some time to consider the detail and understand the implications.
“Crucially, it is now up to Government to decide which recommendations it will adopt, and in what way, but the Commission’s work marks a significant step forward.”
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Concerns raised about profit motive of privately owned water customers
Today’s report also highights concerns about the “ownership model” that operates within the water industry, after it was privatised in 1989.
The Independent Water Commission says there are four main areas where the ownership model impacts company performance:
profit in the provision of water and wastewater
public listing versus ‘private’ (for example unlisted) ownership
particular types of private investors and the investment vehicles they use
Ofwat’s control and powers over water company ownership
However, the potential nationalisation of the water industry was out of scope of the Commission, under the terms of reference set by the government.
The report says many members of the public raised concerns about the profit motive of privately owned water customers, explaining:
A large number of respondents stated that they believed there was a conflict between the profit-making incentive of companies and their environmental and customer focused duties.
“Some respondents commented that the Commission’s Terms of Reference should have allowed the Commission to look at nationalisation and publicly funded solutions.”
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Commission recommends new integrated water regulators to replace Ofwat
One of the Independent Water Commission’s most important recommendations is the creation of a new integrated water regulator for the sector in England, and a new economic regulator for Wales.
These new bodies would replace Ofwat, the criticised regulator which the Guardian reported on Friday was to be abolished.
The new integrated regulator in England would combine the functions of Ofwat, the Drinking Water Inspectorate, as well as taking on the water functions from the Environment Agency and Natural England.
The commission says this could ‘significantly strenthen’ oversight of water companies, arguing:
A single regulator would be able to oversee all operations of a water company from all angles and come to a ‘whole firm view’ of performance issues and compliance failures – some of which may interrelate and may not have been adequately understood in the current model, where cooperation between regulators is limited. This could deliver greater accountability in the regulatory framework with one organisation and one board responsible and accountable for the outcomes of the sector.”
It could also mean “more joined-up approach to regulation overall”, allowing issues to be tackled faster and more effectively.
There would also be increased accountability for delivery, as well as reduced regulatory burden by simplifying water company and stakeholder interactions with regulatory bodies, the Commission suggests.
A more joined-up, coherent and streamlined approach to regulation could also benefit investor confidence, the Commission suggests, adding:
Although a merger inevitably presents uncertainty in the short-term, in the long-term it should create greater stability overall for the regulatory system – establishing the clear and objective conditions necessary to attract investment.”
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Introduction: Independent Water Commission pushes for 'fundamental reform'
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
England and Wales’s water industry requires “fundamental reform” to address the problems that have dogged the sector, a new review has found.
A new official report into the water sector, just released, is recommending a swathe of new measures, including new regional water authorities with responsibility for ‘integrated and holistic water system planning’.
The Independent Water Commission has found that a fundamental ‘reset’ of the water sector is needed, to raise standards across the industry, in a 465-page report which just landed.
Sir Jon Cunliffe, the former civil servant and central banker who led the Commission, is warning this morning that “no single, simple change” will fix the water industry, which has been beset by under-investment, rising pollution incidents, soaring customers bills and meaty shareholder payouts.
Cunliffe says:
This sector requires fundamental reform on all sides – how we manage the demands on water, how the system is regulated, how companies are governed and how we manage the critical infrastructure on which we all rely.
He also calls for “a long-term, cross-sector strategy for water”, explaining:
It may sound academic, but it is profoundly important. A clear set of national priorities for water – covering the water industry, agriculture, land-use, energy, transport, housing development – is essential. Without it, we will continue to be dogged by inconsistency, short termism, unintended consequences and risk willing the ends without ever fully understanding the means required.
Cunliffe’s report has 88 recommendations in total, which include:
a long-term, cross-sector strategy for water.
the modernisation of the legal framework for water
regulatory changes, including a new integrated regulator for water
greater transparency in areas such as operator self-monitoring and scrutiny of water company reporting
the introduction of a single social tariff, to improve affordability and customer service
Changes to the economic regulation of water companies, including “a company-specific supervisory function” that would feed into the current price review structure
New national resilience standards for infrastructure, to help guarantee the maintainance of underground pipes and other water and wastewater assets
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