Securing a sustainable future and restoring trust in the water sector

On 27 February, Sir John Cunliffe, Chair of the Independent Water Commission, launched a call for evidence for the Independent Water Commission in England and Wales. This call for evidence seeks stakeholder input on key issues like water pollution, regulatory gaps, and the resilience of water industry infrastructure, and closes on 23 April 2025.

The goal of the call for evidence is to explore what changes can be made to ensure cleaner water, a stable, well-funded water sector, and to restore public trust, while creating a sustainable, long-term approach to managing water resources and improving sector performance.

Looking back

Reflecting on the past, it is easy to forget how dire the industry was in the 1980s. After decades of under investment, Britain earned the unfortunate title of ‘the dirty man of Europe’ due to polluted rivers, substandard bathing waters, and poor-quality drinking water. However, this began to change with Margaret Thatcher’s pivotal 1988 environmental speech, followed by the privatisation of water companies in England and Wales in 1989. 

As part of that privatisation, the government absorbed historic debts, anticipating that private ownership would boost investment and meet stringent EU environmental standards. New regulatory bodies like Ofwat, the Drinking Water Inspectorate (DWI), and the Environment Agency were also introduced to oversee the industry.

Since then, privatisation has seen capital investment ranging from £224bn to £236bn and this has delivered significant improvements, such as world-class drinking water quality, enhanced environmental monitoring, and reduced leakages. This is because capital investment is funded through borrowing which is gradually paid back by customers through their bills and so customers ultimately benefit. However, investors require a prudent risk-based model with sensible returns for them in order to encourage them to invest their capital. 

Taking on the challenges of today

Even more investment is required to deal with today’s challenges of population growth, aging infrastructure, and climate change. Despite past successes, political and public trust in water companies has declined, fuelled by record fines for pollution, storm discharges, and mounting debts. Dividends often match profits, raising concerns about corporate priorities.

Historically, regulators have taken a light-touch approach, with water companies self-reporting on metrics. Critics argue that Ofwat, tasked with minimising bill increases, has become ineffective and conflicted, with former executives frequently joining water companies. Strengthening regulatory frameworks with stricter accountability and outcome delivery incentives (ODIs) could drive meaningful improvements and help restore trust.

As monopolies, water companies have minimal competition. Current schemes, like new appointments and variations (NAVs) used for housing developments or the liberalisation of the business retail market, introduce some competitive elements. Expanding this to household retail could allow water companies to focus on core infrastructure, while driving better service through market forces.