Water bills will rise 30 per cent over the next five years, an independent report warned today as the Government confirmed the regulator will be abolished.
Environment Secretary Steve Reed said Ofwat will be scrapped as part of an overhaul of a ‘broken’ regulatory system that has failed customers and the environment.
He made the announcement this morning in response to an independent review by Sir Jon Cunliffe commissioned by the Government to answer public fury over pollution in rivers, lakes and seas, soaring bills, shareholder pay outs and bosses’ bonuses.
Mr Reed said in a speech at London‘s Kingfisher Wharf that a move to create a single ‘powerful’ regulator taking in the functions of four existing bodies with overlapping functions would curb pollution and ‘prevent the abuses of the past for customers’.
He also said it would ensure ‘British families are never again hit by the shocking bill hikes we saw last year’, and committed to cut water companies’ sewage pollution in half within five years.
It comes after the largest review of the sector since privatisation advised the system for regulating water companies should be overhauled and replaced with one body for England and one body for Wales.
The long-awaited final report from the Independent Water Commission, led by former Bank of England deputy governor Sir Jon, outlined 88 recommendations to the UK and Welsh governments to turn around the ailing industry.
Sir Jon said today that bills would rise by 30 per cent over the next five years due to a failure to invest in the sector amid a growing population and climate change.
Environment Secretary Steve Reed speaks to the media at Kingfisher Wharf in London this morning following the publication of the Independent Water Commission report
He told BBC Breakfast: ‘Bills are going to rise by 30 per cent over the next five years. There are some inescapable facts here. The cost of producing water and dealing with our wastewater is going up.
‘Climate change, higher environmental standards, demographic pressure, the population is going up. Just that need to renew ageing infrastructure.
‘The problem comes when you suddenly go from not investing for a long period, to massive investment, in order to catch up. That’s really what’s driven those huge bill increases that we’ve seen.
‘We need to help the most vulnerable, we also need to smooth that over a long period so that people can cope with the higher costs of water. And the regulators have a really important job in squeezing efficiency, incentivising the companies to be more efficient.’
Later this morning, Mr Reed announced that the Labour Government will scrap Ofwat 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. In the biggest overhaul of water regulation in a generation, we will bring water functions from four different regulators into one.’
Mr Reed 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.’
Mr Reed also declared ‘today marks the start of a water revolution’ as he unveiled plans for a new body to end the ‘tangle of ineffective regulation’ and deliver for customers, investors and the environment.
‘For the environment, it will cut all forms of pollution to clean up our rivers, lakes and seas for good,’ he said.
Ofwat will remain in place during the transition, but Mr Reed said it would be given a clear mandate to provide strong leadership in the interim.
‘This is our chance to make sure our children and their children can create the same wonderful memories we remember from our own childhoods,’ he added.
‘Splashing about in the waves on the beach, rowing along a river, without having to worry about toxic sewage pollution. Today marks the start of a water revolution.’
Mr Reed also said the water industry is ‘broken’ and has been allowed to fail under a ‘regulatory system that let them get away with it’.
He added: ‘Our rivers, lakes and seas are polluted with record levels of sewage.’
Mr Reed blamed soaring water bills for straining household finances and warned that poor infrastructure is holding back economic growth.
He thanked Sir Jon and his team for their ‘outstanding’ report and said he would give a fuller response in the Commons this afternoon.
‘Water companies have been allowed to profit at the expense of the British people,’ he said.
Sir Jon’s report, published this morning, recommended far-reaching changes to the way the water system is regulated as it called the current landscape ‘fragmented and overlapping’.
For England, proposals included abolishing Ofwat, which oversees how much water companies in England and Wales can charge for services, and the Drinking Water Inspectorate (DWI), which ensures that public water supplies are safe.
The report 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, a ‘joined-up’ and ‘powerful’ single integrated water regulator should be established, according to the recommendations.
In Wales, Ofwat’s economic responsibilities would be integrated into Natural Resources Wales, the review said.
The current system has faced intense criticism for overseeing water companies 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 governance.
The regional authorities – eight in England and one national authority in Wales – would see current planning responsibilities devolved and resources from regulators transferred to ensure investments reflect local priorities and voices.
In a speech at the London Water and Steam Museum today, Sir Jon opened by comparing the current water crisis to the ‘great stink’ of 1888.
He said: ‘I have more than once thought of the Great Stink when leading the Independent Water Commission on water over the last nine months.’
‘While today we enjoy safe water and clean sanitation to a level would have been unimaginable 165 years ago, there are many parallels,’ he said, such as a system under huge pressure from economic and population growth.
‘If we are to achieve the water sector we need, we need to look at all the factors that contribute to our Great Stink moment.
‘And the water industry, of course is at the heart of this, and the industry as a whole has not met public expectations or maintained public rust.
‘In recent years, some companies have manifestly acted in their private interest but against the public interest and that must be prevented in future.’
On the economic regulation of water companies, Sir Jon said there needs to be a ‘fundamental rebalancing’, saying the regulatory culture has become ‘too adversarial’.
He said: ‘There needs to be a fundamental rebalancing of this approach to economic regulation and oversight of water companies, a rebalancing towards a closer judgment-based survervisory engagement with individual water companies.
Protesters during a Surfers Against Sewage ‘Paddle-Out Protest’ in Brighton in May last year
‘This will require a fundamental shift in capability and also a shift in regulatory culture that has become too adversarial on both sides.’
Sir Jon also said privatising companies boosted investment and efficiency in the sector but performance has now plateaued.
He said: ‘The Commission recognises 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 performance of the industry as a whole and of its ability to attract investment.’
Asked about whether the report endorsed the regulatory forbearance for embattled Thames Water that its creditors have called for, Sir Jon said: ‘I don’t think so.
‘What the report says is that there will be circumstances in which that is in the public interest but it also says that there are circumstances where what is required is disproportionate and is not in the broader public interest to give that forbearance.
‘And there will be circumstances in which, no matter what forbearance you think might be possible, actually you don’t think the company is recoverable and you need to go straight to the administration regime.’
Environment Secretary Steve Reed gives a speech at Kingfisher Wharf in London this morning
He later added: ‘But there are times when, in order to pursue capital, you actually make the problem you’re trying to fix worse. I can’t say what the right answer is for Thames.’
Sir Jon also suggested a new water regulator would take two years to set up after looking at the timeframe for setting up Ofcom, the communications regulator, in the early 2000s.
Questioned after his speech on how the process could take and whether it needs new leadership, he said: ‘I don’t know how long. We didn’t go through an implementation plan.
‘We did look at the issues, facilities that would get broken, the people that would have to move. We engaged with the regulators and asked them to explain what the cost would be. People have different views. We took a judgment in the end of what was needed.
‘We looked at Ofcom, which took two years. Some of it depends on how fast legislation is introduced, because you could do things before legislation but actually we need the legislation to come in. And it was two years to bring the regulation together. I’m under no illusion that there is a whole trail of culture and systems that have to happen after. But the Ofcom one was two years… to get the major change in and the new institution functioning.
‘Leadership, this sort of thing needs very high level leadership but it requires also 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.’
The Thames Water Deephams Sewage Treatment Works in London, pictured in March
He later added: ‘These are some of the issues that Government will have to tackle going forward.’
Earlier, Sir Jon told Times Radio that regulators have failed to work together to make the sector deliver and blamed the Government for not giving clear direction.
‘It’s the failure of Government to balance out all the different pressures on water,’ he said, adding that firms ‘need to perform better’ and ‘be funded to invest’.
The Government backed the commission’s findings, with water minister Emma Hardy saying consumers have been ‘failed time and time again’.
Also speaking on Times Radio, she said ‘root-and-branch reform’ is needed to fix the crisis and told listeners the Government is considering a piece of primary legislation to deliver many of the proposed changes.
Ms Hardy also described trust in the water industry as at ‘the lowest ever level’ and criticised executives for handing out pay rises and bonuses.
‘Everyone knows the system is broken,’ she said. ‘And they give themselves huge pay rises.’
However, the minister also ruled out supporting Government intervention to cap pay in the private sector.
Ex-Bank of England deputy governor Sir Jon Cunliffe led the Independent Water Commission
Ms Hardy said: ‘I don’t think as Government we should say what private companies should pay. But I will say – read the room. Look how angry and furious people are.’
Other key recommendations in the review include:
- Expanding the role of the voluntary Consumer Council for Water (CCW) into an ombudsman to give stronger protection to customers and a clearer route to resolving complaints.
- Significant improvements to environmental regulation, including the process where companies collect and analyse wastewater discharges they make into waterways, by introducing more digitalisation, automation, third-party assurance and inspections.
- Tightening oversight of water company ownership and governance through measures such as new regulatory powers to block changes to water company ownership and ‘minimum capital’ requirements so that companies are less reliant on debt.
- Introducing legislative reforms to better manage public health risks in water, recognising the many people who swim, surf and enjoy other water-based activities.
- Fundamentally resetting economic regulation, including a new ‘supervisory’ approach that supports tailored decisions and earlier interventions in water company oversight.
Elsewhere, the report shared proposals on implementation, including which reforms can be delivered in the short term and which require new primary legislation.
Lib Dem leader Sir Ed Davey, pictured by the Hogsmill River in London in March 2024, called for the creation of a Clean Water Authority that could ‘hold these water companies to account’
Both the Conservatives and the Liberal Democrats have said 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.
Environmental campaigners and consumer groups have offered sharply contrasting responses to the landmark report.
Mike Keil, chief executive of the Consumer Council for Water (CCW), said public trust in water companies had been ‘drained’ by poor environmental performance and wider service failures.
Mr Keil added: ‘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.’
Mr Keil said affordability must be a key focus of reform, with households already struggling following this year’s sharp rise in water bills.
‘More people are turning to CCW to complain about not being able to afford their bill,’ he said.
‘Over two in five 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.’
He welcomed recommendations to make the existing voluntary ombudsman scheme mandatory, saying: ‘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.’
But River Action chief executive James Wallace accused the commission of falling short, saying it had ‘blinked’ when faced with a chance to break with the past.
‘This was a once-in-a-generation opportunity to reset a broken and corrupted system,’ he said.
‘Instead, we’ve been handed vague policy nudges that leave the current failed privatised water company model intact.’
Mr Wallace said nothing less than ‘a credible plan to rescue Britain’s rivers, lakes and seas’ was needed, including a clear path to bring ‘failing companies like Thames Water into public control’.
He called on the Government to put Thames Water into special administration as a ‘powerful statement of intent’, warning: ‘Our water is our life-blood and not for sale.’
Water UK, the trade body for the water companies, welcomed the commission’s findings, calling reform ‘long overdue’.
A spokesperson said: ‘Everyone agrees the system has not been working.
‘These recommendations should establish the foundations to secure our water supplies, support economic growth and end sewage entering our rivers and seas.’
Richard Benwell, a member of the Independent Water Commission’s expert advisory group and chief executive of Wildlife and Countryside Link, said a ‘culture of rule-breaking and non-compliance’ was harming rivers and wetlands, and called for a more powerful and independent environmental regulator.
He welcomed the proposal for new Regional Water Authorities but warned reforms would fall short without proper funding and a clear steer from Government.
‘Reforming regulators without fixing resourcing and remit would be painting over cracks,’ he said.
Ali Morse, water policy manager at The Wildlife Trusts, said the report offered ‘strong recommendations’ for more integrated, regionally driven planning, but warned time was running out to act.
‘The commission has set the framework – now the Government must act with purpose,’ she said.
Gary Carter, national officer at the GMB union, said the report confirmed what the union had argued for years – that water privatisation had been a ‘disastrous failure’.
He accused company bosses of profiting while the water infrastructure ‘crumbles through lack of investment’ and sewage pollutes rivers.
‘It’s a disgrace – and one Ofwat has overseen,’ he said. ‘Now is the time to fundamentally reform the water sector and renationalise this vital resource.’
