Water regulator Ofwat is to be scrapped, government said today, and replaced to overhaul the country’s “broken”.

The new integrated regulator for water, stronger consumer advocacy and nine new regional water authorities to deliver on local priorities are among the final recommendations set out by the Independent Water Commission.

Chaired by Sir Jon Cunliffe, the commission sets out 88 recommendations in its report published today (21 July) to the UK and Welsh governments to transform the sector.

The report covers 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 both now and in the future.

It follows just under nine months of extensive engagement, analysis and research, including the 50,000-plus responses submitted to the commission’s call for evidence.

Sir John Cunliffe 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.”

He said the report had considered “what is best for the long-term future of water”, 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” he added. “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.”

Key recommendations include:

Single integrated water regulators: in England and Wales. In England this would replace Ofwat, the Drinking Water Inspectorate and water-environment related functions from the Environment Agency and Natural England. In Wales, Ofwat’s economic responsibilities would be integrated into Natural Resources Wales.

Eight new regional water system planning authorities in England and one national authority in Wales: responsible for developing water investment plans reflecting local priorities and voices.

Greater consumer protection: improve affordability and customer service and upgrading consumer body CCW into an Ombudsman for Water to give stronger protection to customers and a clearer route to resolving complaints. Transfer responsibility for consumer advocacy to Citizens Advice. Introduction of a national social tariff to provide consistent support for low-income customers who need support to pay their bills.

Stronger environmental regulation: significant improvements to areas such as Operator Self-Monitoring through greater digitalisation, automation, third-party assurance and inspections. It proposes stronger regulation on abstraction, sludge, drinking water standards and water supply.

Tighter oversight of water company ownership and governance:  the commission recommends new powers for the regulator to block changes in water company ownership – for example, where investors are not seen to be prioritising the long-term interests of the company and its customers – as well as potential new ‘public benefit’ clauses in water company licences.

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.

Fundamental reset of economic regulation: a new ‘supervisory’ approach to economic regulation, supporting tailored decisions and earlier interventions in water company oversight. The report also makes recommendations on the Price Review process.

Clear strategic direction:  a new long-term National Water Strategy should be published by both the UK and Welsh governments.

Infrastructure and asset health reforms: step change in how water infrastructure is managed, monitored and delivered – essential for safeguarding the provision of water and wastewater management for future generations.

Environment secretary Steve Reed, who today announced water regulator Ofwat was being abolished, said: “Ofwat has failed to protect customers from water companies’ mismanagement of their hard-earned money.”

He added: The new regulator will stand firmly on the side of customers, investors and the environment and prevent the abuses of the past.  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 as customers paid the price of past failures. 

“For investors, it will end the tangle of ineffective regulation and provide the clarity and direction required for a strong partnership between government, the sector and investors to attract billions of pounds of new funding.  For the environment, it will cut all forms of pollution to clean up our rivers, lakes and seas for good.”  

The report has also been welcomed by industry. Director of Policy at ACE Group, Marie-Claude Hemming, said: “ACE Group has long argued that the UK’s water sector is fundamentally broken, still driven by cycles of boom and bust alongside challenging business models, a lack strategy and pipeline visibility.  

“The publication of the Cunliffe review highlights that it really is now time for change. Trust has been broken and we all have a part to play in its restoration.  This cannot be done in isolation. While we urge the government to implement the recommendations of this independent review as soon as possible, we must all be cognisant of big decisions ahead. 

“Primarily, it is no longer possible to continue with the current approach, whereby the industry is deprived of necessary investment - does not drive economic growth and the longer-term environmental outcomes future generations deserve.  We need honest conversations about cost and the finance models needed to deliver the world class water infrastructure society expects. 

“ACE Group urges government not to shy away from difficult decisions and seize the opportunity to deliver this once in a generation reform to our water sector.”

Sam Gould, director of policy and external affairs at the Institution of Civil Engineers, also welcomed the report.

“The report acknowledges that bills will rise, but services need to improve as a consequence. This is essential for rebuilding public trust in the water industry. The commission's report sets out practical reforms: from a new national strategy and regional planning authorities to a single regulator and a stronger focus on maintaining assets and adapting infrastructure for climate change.

“Addressing these complex issues is going to be a big job, and the ICE is ready to support efforts that turn these recommendations into meaningful change.”

Click here to read the full report