The Independent Water Commission (the Commission) published its final report on 21 July 2025 (the Report), building on the conclusions set out in its June interim report.
The Government has since published its initial response to the Report, confirming that Ofwat will be abolished and its functions will be merged with water functions across the Environment Agency, Natural England and the Drinking Water Inspectorate (the DWI) to form a new single regulator.
In a subsequent response, the Environment Secretary stated that the Government will (i) establish a new statutory water ombudsman with legal powers to protect customers; (ii) end operator self-monitoring and transition to open monitoring (ie roll out real-time monitoring across the wastewater system and make it publicly available online); (iii) commit to including a regional element within the new regulator to ensure greater local involvement in planning; and (iv) work closely with the Welsh Government to devolve economic regulation of water to Wales.
The Report outlines the Commission's findings and recommendations in respect of seven key areas, as set out below.
1. Strategic direction
There is a lack of a clear, long-term strategy for the water sector. Consequently, the UK and Welsh governments must each set a clearer strategic direction, to ensure that the water system contributes to broader government objectives.
The Commission recommends that UK and Welsh governments each introduce a new long-term, cross-sectoral and systems-focused National Water Strategy for England and Wales respectively. A new Ministerial Statement of Water Industry Priorities should also be published every five years to communicate targets and specific guidance.
2. Water systems planning
Water systems planning has become fragmented and overly complex. Comprehensive systems planning frameworks are needed with responsibility for integrated and holistic water system planning.
In England, the Commission recommends implementing regional water systems planners, to account for the differences in local needs (with responsibility for planning, funding, setting water objectives, monitoring and convening). In Wales, the system planner should be a national authority based on the Welsh Government's centralised governance approach to water management. Both types of system planners should be small, independent committees with their own secretariats, who are able to draw on the advice of the regulators whilst not part of them.
In England and Wales, the price control review cycle for setting water bills and company revenues over a five-year period should be maintained but water industry investment planning should be conducted on a '5/10/25 year' basis (with a high level of certainty for the first five years, indicative plans for the following five years, and a high-level indication for the longer-term).
3. Legislative framework
The legislative framework in England and Wales, including the Water Framework Directive (WFD) Regulations and Urban Wastewater Treatment Regulations, requires review and rationalisation to reduce complexity and increase clarity and focus. Rationalisation is outside of the Commission's scope, but the Commission believes that the UK and Welsh governments should carry out a review of the current legislative framework which considers priorities, objectives and statutory targets.
In response to concerns that the current framework does not adequately manage public health risks associated with poor water quality, the Commission has also recommended including a public health outcome in the WFD Regulations. Further legislative changes are required to prevent pollutants and rainwater from entering the water system and to ensure water monitoring programmes are adequately resourced and regularly reviewed.
Regulators currently have varying levels of discretion, and the Commission believes that the review of the framework in England should take forward the concept of 'constrained discretion' whilst strengthening the existing position in Wales in order to achieve better outcomes.
4. Regulator reform
The current regulatory framework in England and Wales for water quality and quantity and the regulation of price and service largely lacks public confidence and is not delivering positive outcomes.
The most significant recommendation is to combine the functions of Ofwat, the DWI and the water functions from the Environment Agency and Natural England.
5. Regulation reform
The new regulator should adopt a more 'supervisory approach' to regulating individual companies and place less reliance on a data-driven econometric approach. Changes should be made to the price control process, with the Commission stating its belief that government and regulator pressure on bills played an important role in what can now be seen as underinvestment in the 2009-2024 period. The regulator should ensure funding is directed appropriately to maintain assets by clearly defining and ring-fencing base capital expenditure (capital maintenance), base operational expenditure and enhancement capital expenditure allowances.
The UK Government should consider providing the Competition and Market Authority (CMA) with responsibility to set a common weighted average cost of capital (WACC) methodology for across UK regulated sectors and change the nature of the CMA's disputes process for water companies from redetermination to a standard appeal procedure, in line with other sectors.
In relation to environmental regulation, the current framework does not sufficiently protect the environment and has resulted in a lack of public trust. The Commission has provided recommendations covering the main areas of concern which include the water industry monitoring regime, oversight of sludge activity, slow enforcement action and insufficient capacity and technological capabilities.
The Commission also notes that there are numerous deficiencies relating to affordability and consumer protections and recommends that the UK Government consult on a national social tariff for England and that the Welsh Government review the existing social tariff scheme in Wales. The UK and Welsh governments should also consider whether to convert the Consumer Council for Water into a new mandatory Water Ombudsman.
6. Company structures, ownership, governance and management
The Commission did not find that ownership model was the most important driver of water company performance. Irrespective of the ownership model, strong and evidence-based regulation is required to ensure positive outcomes for consumers and the environment.
The Commission recommends that the regulator in England and Wales (i) continues to adopt an evidence-based process to consider on a case-by-case basis whether it is appropriate for a water company to transition to an alternative ownership model where they request to do so or following a Special Administration Regime; (ii) have the power to block material changes in control of water companies; (iii) have powers to direct parent companies and ultimate controllers; and (iv) mirror elements of the Articles of Association in licence conditions to strengthen accountability.
In terms of corporate governance and management, leadership should be aligned with public and private interests and held accountable for their actions. Whilst Ofwat is considering certain reforms which the Commission supports, the Commission also considers that the regulator should align its principles with the UK Corporate Governance Code (with rules applying to all water companies) and that the UK and Welsh governments establish a new regime for senior accountability.
The Commission also notes that water companies must be able to attract investment. It considers that the water industry will be best served by long-term, low return-low risk investors and believes that the water industry must present a lower risk profile to attract such investors. Accordingly, a key recommendation is that the UK and Welsh governments include a target relating to the stability of the regulatory model as an objective in their strategic guidance.
7. Infrastructure and asset health
Water industry assets have not been fully mapped and there are no consistent standards for evaluating asset health. The assessment process is particularly challenging given the underground nature of many assets.
Consequently, a key recommendation is to establish statutory resilience standards in England and Wales, which are outcome focused and specified at a system level, to reduce the risk of failures and increase asset resilience. The Commission also recommends having the regulator conduct a sector-wide risk assessment of critical supply chain dependencies and strengthening the regulator's oversight of infrastructure resilience and asset health under its supervisory approach. The Commission makes further recommendations in respect of strengthening infrastructure security, ensuring the timely delivery of infrastructure, and improving monitoring and assurance, supply chain and labour force capacity, and innovation.
Implementation
The Commission expects the UK and Welsh governments to respond to each of its recommendations later this year. The Governments should outline their transition plans for regulators, the water industry and investors in such response and establish an implementation advisory group for England and Wales to ensure collaboration. An independent review of the follow up to the Report should be conducted in two years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
