Ofwat is to be scrapped as part of a radical overhaul of a “broken” water regulatory system, Environment Secretary Steve Reed confirmed today.
He said the regulator established at privatisation in 1989 to set limits on household bill rises will be abolished as part of the “biggest overhaul of water regulation in a generation”.
He said: “Today I can announce that the Labour Government will abolish Ofwat.”
He added: “In the biggest overhaul of water regulation in a generation, we will bring water functions from four different regulators into one,” he said.
He said the new single regulator would be “powerful” and “responsible for the entire water sector”, with a clear mandate to “stand firmly on the side of customers, investors and the environment”.
“It will prevent the abuses of the past,” he said.
“For customers, it will oversee investment and maintenance so hardworking British families are never again hit by the shocking bill hikes we saw last year.”
The announcement follows the publication of a much-anticipated final report from the Independent Water Commission, led by former Bank of England deputy governor Sir Jon Cunliffe, outlined 88 recommendations to the UK and Welsh governments to turn around the ailing industry.
The report, published on Monday morning, recommended abolishing the Ofwat, officially known as the Water Services Regulation Authority, as well as the Drinking Water Inspectorate (DWI), which ensures the quality of public water supplies.
It also advised removing the regulatory roles of the Environment Agency and Natural England, which monitor the sector’s impact on nature, such as companies illegally dumping sewage into waterways.
Instead, the review said a single integrated water regulator for England should be established with a seperate parallel body for Wales.
The current system of regulation has faced intense criticism for overseeing companies such as London’s supplier Thames Water during the years they paid out shareholders and accrued large debts while ageing infrastructure crumbled and sewage spills skyrocketed.
Other recommendations from the commission include stronger consumer advocacy, nine new regional water authorities to deliver on local priorities, significant improvements to environmental regulation and tighter oversight of company ownership and government.
It comes after nearly nine months of the commission analysing, researching and engaging with more than 50,000 responses to its call for evidence.
In the review, it has covered how the system is regulated, how to manage the competing demands on water, how water companies are governed and how critical water infrastructure is kept resilient into the future.
Sir Jon said: “Restoring trust has been central to our work. Trust that bills are fair, that regulation is effective, that water companies will act in the public interest and that investors can get a fair return.
“Our recommendations to achieve this are significant. They include the management of the whole water system, regulation of the water industry, the governance and financial resilience of water companies and a stronger voice for local communities and water customers.
“In this report I have considered what is best for the long-term future of water.
“This is a complex sector with a highly integrated system, responsible for the second-largest infrastructure programme in the UK.
“Resetting this sector and restoring pride in the future of our waterways matters to us all.
“In countless conversations in the last nine months I have been struck by the urgent need and passion for change.
“Doing this will require hard work, strong leadership and sustained commitment. But it can and must be done.”
The report also shares recommendations on implementation, including which reforms can be delivered in the short-term and which require new primary legislation.
In a speech responding to Sir Jon’s report later on Monday, Environment Secretary Steve Reed welcomed the commission’s recommendations to ensure “the failures of the past can never happen again”.
He also said : “The water industry is broken. 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.
“Today’s final report from Sir Jon Cunliffe’s Independent Water Commission offers solutions to fix our broken regulatory system so the failures of the past can never happen again.
“The Government will introduce root and branch reform in the biggest overhaul of water regulation in a generation.
An Ofwat spokesperson said: "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 Environment Secretary also pledged to set up the creation of a new, legally binding water ombudsman, expanding the role of the voluntary Consumer Council for Water and bringing the sector into line with other utilities.
And prior to Monday’s announcement, Mr Reed committed to halving sewage pollution in England’s rivers by 2030 thanks to a £104 billion investment from the sector in upgrading infrastructure.
Both the Conservatives and the Liberal Democrats have agreed that water regulation needs to change.
Lib Dem leader Sir Ed Davey called for the creation of a Clean Water Authority that could “hold these water companies to account” and “fine them when they fail”.
Tory shadow environment secretary Victoria Atkins urged the Government to be “transparent” about what would replace Ofwat but also accused Labour of copying the policies of the previous government.
Mike Keil, chief executive of the Consumer Council for Water (CCW), said: "People want to see meaningful change to the water sector at a time when anger over water companies' environmental performance and wider service failures has drained customer satisfaction and trust.
“The Commission has set out significant changes to the regulatory system, but water companies have always had the freedom to do what's right by their customers and many have made bad choices. Restoring public confidence in the sector hinges on whether water companies are committed to improving their culture, conduct and performance. “
Gary Carter, national officer of the GMB union, said: “The Cuncliffe 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.”
Giles Bristow, chief executive, Surfers Against Sewage said: “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.
He added: “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. “
