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.

Ownership models have shifted since privatisation. Only three companies remain publicly listed, with others privately owned or run as not-for-profit entities. Regardless of ownership, accountability to customers, not just shareholders, is crucial. Customer representation on boards could assist in enhancing transparency and trust.

Technological advancements offer transformative potential. Tools like digital twinning and AI predictive analytics can proactively address leaks and spills, while smart meters could boost efficiency, although consumer resistance, often due to cost concerns, remains a hurdle. Additionally, government and water company-backed educational campaigns could encourage the adoption of smart meters and foster sustainable water use.

Victorian era infrastructure struggles to meet modern demands and whilst initiatives like the Thames Tideway Tunnel and £7.9bn funding for nine new reservoirs are promising, more is needed to upgrade pipelines, sewage systems, and flood defences. Encouraging competition and innovation through updated procurement rules, such as the Procurement Act 2023, could help overcome specialist contractor shortages.

Cross-sector partnerships are also vital, for example, collaborating with agriculture on nitrate management and advocating for sustainable drainage in housing developments. Expanding initiatives like Ofwat’s £150m Innovation Fund could further accelerate progress.

It is important to explore successful models both within the UK and internationally to identify practices that drive meaningful improvements. Sectors such as energy and telecommunications in the UK offer valuable lessons on innovation, competition, and regulatory frameworks. Internationally, countries like Denmark and Singapore have demonstrated exceptional water management systems, focusing on sustainable practices, technology integration, and public–private partnerships. Drawing on these examples can help implement strategies that foster efficiency, innovation, and environmental stewardship in the UK water sector.

Ensuring water companies play a more active role in planning decisions is critical for sustainable development. For example, water companies can advocate for features like sustainable drainage systems (SuDS) to be integrated into housing and infrastructure projects. These systems mitigate surface water flooding and reduce pressure on drainage networks. Granting water companies greater influence over planning policies ensures that developments align with long-term resource management goals, reducing the financial and environmental burden on the sector, while also improving resilience.

A holistic vision is needed to secure the UK’s water future. Financial investment must align with regulatory, technological, planning and collaborative efforts. By uniting regulators, government, businesses, and consumers, the sector can achieve a sustainable future and regain public confidence.