Water sector regulation

Public Accounts Committee Closed Inquiry
Opened: 26 Mar 2025 Closed: 22 Sep 2025 Parliament page
England and Wales’ supply of clean drinking water is managed by sixteen privately-owned companies. These companies are expecting to spend at least £272bn over the next 25 years to meet significant supply and environmental challenges faced by the sector. The Department for Environment, Food & Rural Affairs (Defra) oversees water … Read more
2 Recommendations
28 Conclusions
1 Report
1 Oral session
4 Letters
1 Event
Activity timeline 8 events
27 Apr
2026
Correspondence
2 Feb
2026
Correspondence
1 Dec
2025
Correspondence
15 Oct
2025
Report published
18 Jul
2025
Report published
16 Jun
2025
Correspondence
9 Jun
2025
Oral evidence
9 Jun
2025
Formal meeting (oral evidence session) · The Grimond Room, Portcullis House
Oral evidence sessions 1 session
9 Jun 2025
View on parliament.uk
Dame Tamara Finkelstein DBE · Department for Environment, Food and Rural Affairs David Black · Ofwat David Henderson · Water UK David Hill · Department for Environment, Food and Rural Affairs Dr Mike Keil · Consumer Council for Water John Earwaker · First Economics Philip Duffy · Environment Agency
Title HC No. Published Items Response
42nd Report - Water sector regulation HC 824 18 Jul 2025 30 Responded
Recommendations & Conclusions
30 results
2 Conclusion Accepted
42nd Report - Water sector regulat…
Develop common survey standards and collate data to assess water infrastructure health for business plans
Over many years, the Environment Agency and Ofwat have failed to ensure water companies maintain vital infrastructure. Ofwat and the Environment Agency (EA) have not done enough to ensure companies actively manage their infrastructure. At the current rate of replacement, … Read more
Government Response
The government agreed, committing to publishing a White Paper this autumn, Ofwat developing a new asset condition assessment methodology by 2027, and the Environment Agency increasing staff. Both regulators are also developing a Delivery and Monitoring Framework for water industry investment, to be ready in the first half of 2026.
HM Treasury
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3 Conclusion Deferred
42nd Report - Water sector regulat…
Publish monthly list of housing and commercial developments delayed or blocked by Environment Agency
Defra and the Environment Agency have been far too slow in planning for the future and this now hinders economic growth. Recommendations this Committee made to Defra five years ago around accelerating the pace of investment have not been acted … Read more
Government Response
The government agreed with the recommendation, stating that the Environment Agency (EA) already monitors and enforces compliance with discharge permits. However, it did not commit to the specific requests for the EA to write to the Committee or publish a monthly list of delayed developments, instead referring to water company investment and Ofwat's proposed mid-AMP growth reopener.
HM Treasury
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4 Conclusion Accepted
42nd Report - Water sector regulat…
Ensure money raised from water company fines permanently goes to improving the system
The Environment Agency is failing to ensure that wastewater companies meet their environmental targets, resulting in excessive use of combined sewer overflows and environmental pollution. The EA and Ofwat are taking enforcement action against every wastewater company for their poor … Read more
Government Response
The government states Ofwat has tripled enforcement capacity and uses regulatory tools to hold companies to account. The Environment Agency has exceeded inspection targets and transformed its regulatory approach. The Chief Executives of both regulators have written to the Committee as requested.
HM Treasury
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5 Recommendation Accepted
42nd Report - Water sector regulat…
Ofwat to review powers to improve water sector financial resilience and clarify insolvency costs
Financial fragility of a few large companies in the sector is leading investors to lose confidence in regulation as well as the sector. We need to return to a water sector that is low risk and low return. Currently, company … Read more
Government Response
The government states Ofwat continuously monitors financial resilience and has secured £1.9 billion in new equity for six companies. A new single water regulator will be established, and the government will respond to the Independent Water Commission's recommendations in a White Paper this autumn, with Ofwat committed to working on financial resilience over the next six months.
HM Treasury
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6 Conclusion Accepted
42nd Report - Water sector regulat…
Mandate Defra to clarify and fill gaps in water sector regulator responsibilities and trade-off considerations.
No-one is taking responsibility for ensuring that the regulatory system works, as is evident by its failings. Defra has overall responsibility for the regulatory framework. However, it is not planning an improvement of the system it describes as “piecemeal”. There … Read more
Government Response
The government plans to abolish Ofwat and merge its functions into a single new regulator, subject to consultation this autumn. It will publish a Strategic Policy Statement and ministerial direction this autumn to clarify expectations and respond to the Independent Water Commission's recommendations via a White Paper and a new Water Reform Bill.
HM Treasury
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7 Recommendation Accepted
42nd Report - Water sector regulat…
Publish regulatory roadmaps for new water sector powers and future strategic changes by Autumn 2025.
Defra seems to be passively waiting for the Water Commission to report before making changes to the system. Defra has acknowledged the need for a complete reset of strategic planning and has committed to accepting the recommendations for the Water … Read more
Government Response
The government will publish a White Paper for consultation and a new Water Reform Bill this autumn 2025, along with a transition plan. It will also clarify expectations through a Strategic Policy Statement and ministerial direction later in 2025, addressing the roadmap for future changes.
HM Treasury
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1 Conclusion Accepted
42nd Report - Water sector regulat…
Committee examined evidence from key regulators and stakeholders on the water sector.
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Environment, Food and Rural Affairs (Defra), the Environment Agency (the EA) and the Water Services Regulation Authority (Ofwat) on regulating the … Read more
Government Response
The government states there will be a quadrupling of investment in the water sector. Ofwat has established Price Control Deliverables to ensure companies deliver improvements and will track progress and publish a review next year. Ofwat will also engage with companies over the next six months to improve communication with customers about bill increases and infrastructure improvements.
HM Treasury
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8 Conclusion Acknowledged
42nd Report - Water sector regulat…
Water company customer trust at lowest level due to environmental and service failures.
Customer trust is at its lowest level since monitoring began in 2011.14 The Consumer Council for Water told us that, according to its survey, environmental performance was the biggest driver of dissatisfaction amongst customers.15 Committee members also drew attention to … Read more
Government Response
The government recognises that customer trust in water companies is low and that environmental performance is a key driver of customer dissatisfaction, and is taking action to hold water companies to account for their environmental performance and to ensure that they are transparent with customers about their performance.
HM Treasury
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9 Conclusion Acknowledged
42nd Report - Water sector regulat…
Unsatisfactory explanation of water bills undermines customer understanding and trust.
Customer bills cover operating costs; returns for financing used to pay for capital enhancements; and a contribution towards capital repayments.19 The Consumer Council for Water told us that to rebuild trust people need to understand what they are getting for … Read more
Government Response
The government agrees that customers need to understand what they are getting for their money, and states Ofwat is working with water companies to improve the clarity and transparency of bills.
HM Treasury
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10 Conclusion Acknowledged
42nd Report - Water sector regulat…
Water mains replacement rates are unsustainable, threatening environmental health and infrastructure.
Water companies have a large and extensive network of assets that they are responsible for maintaining, including reservoirs, treatment works, pumping stations, and water supply and sewer pipes. Ofwat published a targeted review of asset health in 2017, followed up … Read more
Government Response
The government supports the work of Ofwat to ensure water companies have robust plans for asset maintenance and replacement, and notes that Ofwat published a targeted review of asset health in 2017, followed up by work on asset management maturity in 2021, and in December 2023, it published a Roadmap for enhancing asset health understanding in the water sector.
HM Treasury
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11 Conclusion Acknowledged
42nd Report - Water sector regulat…
Ofwat's asset health measurement relies on retrospective data, impeding proactive maintenance.
Ofwat told us that it is challenging to understand asset health for a sector where so many of the assets are below ground and can only be measured indirectly.24 Ofwat illustrated this problem when it told us about the challenge … Read more
Government Response
The government notes Ofwat's powers to require companies to develop and implement long-term asset management plans and take enforcement action against companies that fail to maintain their assets properly, and that Ofwat has recently consulted on proposals to strengthen its powers to require companies to invest in asset maintenance and improvement.
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12 Conclusion Acknowledged
42nd Report - Water sector regulat…
Wastewater asset inspection responsibilities are unclear, lacking a dedicated inspectorate function.
The UK has one of the highest standards of drinking water quality in the world, and the Drinking Water Inspectorate (DWI) does inspect water supply assets.28 But the responsibility for wastewater is much less clear. The EA’s responsibility is to … Read more
Government Response
The government recognises the importance of robust regulation to ensure water companies are meeting their obligations to protect the environment and provide high-quality drinking water and is committed to ensuring that regulators have the powers and resources they need to hold water companies to account.
HM Treasury
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13 Conclusion Acknowledged
42nd Report - Water sector regulat…
Growing water supply-demand gap threatens future security, requiring accelerated infrastructure development.
In 2020, the previous Public Accounts Committee recommended that Defra provide an update on how it planned to accelerate the pace of infrastructure improvement, to address the gap between future water supply and demand in England, which was estimated to … Read more
Government Response
Defra, the EA, and Ofwat are working together through RAPID to accelerate the development of new water resources infrastructure and the government has also set ambitious targets to reduce leakage and demand, and is working with water companies to help them meet these targets.
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14 Conclusion Acknowledged
42nd Report - Water sector regulat…
Lack of water infrastructure delays critical housing and development projects across regions.
Defra told us that the importance of water to big investment and development opportunities was clear.36 But Water UK told us a lack of water in Cambridge had delayed the building of a new cancer hospital.37 The EA told us … Read more
Government Response
Defra, the EA, and Ofwat are working together to ensure that water resources are taken into account in planning decisions and a minister-led taskforce has been set up for high-profile infrastructure projects.
HM Treasury
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15 Conclusion Acknowledged
42nd Report - Water sector regulat…
Defra and EA lack data on housing projects stalled by water system constraints
Defra and the EA could not tell us how many proposed new homes are not being built because of water system constraints.40 Defra told us that it has set up a minister-led taskforce for high-profile infrastructure projects, working to ensure … Read more
Government Response
Defra, the EA, and Ofwat are working together to ensure that water resources are taken into account in planning decisions and a minister-led taskforce has been set up for high-profile infrastructure projects.
HM Treasury
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16 Conclusion Acknowledged
42nd Report - Water sector regulat…
Significant short-term action needed for water companies to meet environmental targets
Significant action needs to be taken in the short term to meet environmental targets. In 2023 Defra published the Environmental Improvement Plan and set targets for the sector to reduce leakage and demand, and address sewer discharges and phosphorus in … Read more
Government Response
The government agrees that significant action is needed to meet environmental targets and highlights existing plans and the EA's role in monitoring and enforcement, without committing to new actions.
HM Treasury
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17 Conclusion Acknowledged
42nd Report - Water sector regulat…
Water companies' environmental performance remains poor with increasing pollution and regulatory failures
We asked the witnesses about water companies’ current environmental performance. Ofwat and the EA are taking enforcement action against every wastewater company for their management of combined sewer overflows. Water quality pollution incidents have increased.47 WildFish highlighted failures in regulation … Read more
Government Response
The government recognises the concerns about water companies’ current environmental performance and is committed to holding water companies to account for their environmental performance, and is working to ensure that they are meeting their obligations to protect the environment.
HM Treasury
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18 Conclusion Acknowledged
42nd Report - Water sector regulat…
Environment Agency faces 'justice gap' in prosecuting widespread water company breaches
The EA told us it is increasing the number of inspections it does, and its teams are building up expertise in how wastewater treatment plants work.52 Of the 4,600 inspections the EA undertook last year, it told us found breaches … Read more
Government Response
The government supports the EA’s work to increase the number of inspections it does and build up expertise in how wastewater treatment plants work and is also working to address the “justice gap” where the EA cannot prosecute all the offences it finds and is committed to ensuring that the EA has the resources it needs to hold water companies to account for their environmental performance.
HM Treasury
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19 Conclusion Acknowledged
42nd Report - Water sector regulat…
Regulators lack power to impose enforcement undertakings on water companies
Both the EA and Ofwat told us they would like to encourage companies into ‘enforcement undertakings’, whereby companies are obliged to take action to fix an issue, or return money to bill-payers. The EA told us that at present, only … Read more
Government Response
The government encourages the EA and Ofwat to use enforcement undertakings where appropriate and is working to ensure they have the necessary powers.
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20 Conclusion Accepted
42nd Report - Water sector regulat…
Most water company fines go to Treasury, delaying restoration fund disbursement
Over the period 2019 to 2024 water companies paid over £430 million in penalties as a result of enforcement action from the EA and Ofwat. Of the fines imposed by the EA, 84% went to HM Treasury.56 Defra told us … Read more
Government Response
The government recognizes the importance of using penalties paid by water companies to benefit the environment and cites the Water Restoration Fund as an example.
HM Treasury
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21 Conclusion Acknowledged
42nd Report - Water sector regulat…
Financial resilience of the water sector has weakened significantly across many companies
The financial resilience of the water sector has weakened. While Water UK pointed out to us that some companies are resilient, Ofwat has signalled its concerns about the financial resilience of 10 of the 16 major companies.60 In 2023–24, 10 … Read more
Government Response
The government is concerned about the financial resilience of the water sector, notes Ofwat's powers to prevent dividend payments, and is committed to working with Ofwat to ensure water companies are financially resilient.
HM Treasury
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22 Conclusion Acknowledged
42nd Report - Water sector regulat…
Grant Ofwat legal powers over water companies' wider corporate structures
Companies have taken large dividends in the past – in 2005 and 2018 a company paid a dividend of more than 100% of the equity in the company, and in 9 other cases in the last 34 years companies have … Read more
Government Response
The government acknowledges water companies should not be paying excessive dividends at the expense of investment, and notes Ofwat's powers to prevent dividend payments if financial resilience is insufficient and monitoring of water companies' dividend policies.
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23 Conclusion Acknowledged
42nd Report - Water sector regulat…
Water companies face challenges raising new equity despite increased investor returns
First Economics told us that financial resilience depends on having confidence that financial markets will supply water companies with new debt and equity.73 Ofwat estimates companies will need around £12 billion in new equity over the next five years to … Read more
Government Response
The government recognises that financial resilience depends on confidence in financial markets, is committed to creating a stable regulatory environment, and is working with Ofwat to ensure water companies are financially resilient.
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24 Conclusion Acknowledged
42nd Report - Water sector regulat…
Costs of special administration for insolvent water companies may fall to billpayers
We sought to understand would happen if a water company became insolvent. Defra told us that that the special administration regime will ensure that services are protected.78 Defra also acknowledged that there would be costs involved in setting up such … Read more
Government Response
The government confirms that the special administration regime will protect services if a water company becomes insolvent and it has the power to recover costs through customer bills if necessary, committed to protecting customers in such an event.
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25 Conclusion Acknowledged
42nd Report - Water sector regulat…
Water regulation in England is fragmented, lacking comprehensive net zero assessment and robust wastewater security.
Defra has overall responsibility for setting the policy and regulatory framework for water in England.82 Defra told us there is “too piecemeal a picture” of regulation currently, with overlaps and gaps in responsibilities.83 71 Qq 34, 110 72 C&AG’s Report, … Read more
Government Response
The government acknowledges the need for a joined-up approach to water management and is considering the Water Reform Committee's recommendations, with next steps to be set out in due course.
HM Treasury
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26 Conclusion Acknowledged
42nd Report - Water sector regulat…
Lack of formal mechanism to balance environmental improvements with water sector affordability and investment.
We asked whose responsibility it is to balance environmental need with affordability. Ofwat told us that there is no formal basis for making trade-offs between affordability and making improvements, nor was there in previous price reviews.87 Defra acknowledged that there … Read more
Government Response
The government states that Ofwat has a statutory duty to ensure that water companies can finance their functions while protecting customers, and that Defra sets the overall policy framework and environmental objectives.
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27 Conclusion Acknowledged
42nd Report - Water sector regulat…
Independent commission currently reviewing the water sector's regulatory system, indicating need for fundamental reform.
An independent Commission, headed by Sir Jon Cunliffe, is currently reviewing the water sector regulatory system.91 Defra told us that recognised that the sector needed a “fundamental reset”. Defra told us that the Commission was asked to cover areas including … Read more
Government Response
The government agrees the water sector needs a fundamental reset and is considering the Water Reform Committee's recommendations, with next steps to be set out in due course.
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28 Conclusion Acknowledged
42nd Report - Water sector regulat…
Defra accepts interim report calling for water sector reset, creating uncertainty impacting credit-worthiness.
Defra told us that the Commission’s interim report says that the sector needs a reset in its strategic planning, legislative framework, regulatory framework, water company structures, governance, assets and resilience.94 Defra told us that it fully accepted the contents of … Read more
Government Response
The government agrees the sector needs a reset and is considering the Water Reform Committee's recommendations, with next steps to be set out in due course.
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29 Conclusion Accepted
42nd Report - Water sector regulat…
Urgent water sector issues persist despite new Act; key powers and accountability measures face delays.
Defra acknowledged that some issues were too pressing to wait until it implemented the Commission’s recommendations. Defra told us that it took some of the actions needed in the Water (Special Measures) Act. However, EA told us that its power … Read more
Government Response
The government agrees that some issues are too pressing to wait, and cites the Water Act 2024 and Ofwat's consultation on the fit and proper person test as actions already taken.
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30 Conclusion Acknowledged
42nd Report - Water sector regulat…
Water regulators are increasing inspection capacity and enhancing operational cooperation and information sharing.
The regulators told us about operational changes they were making now. The EA told us it has increased its capacity to carry out inspections, and expects to do 10,000 a year from next year, including returning to areas where issues … Read more
Government Response
The government welcomes the operational changes that the regulators are making to improve their oversight of the water sector and notes that the EA has increased its capacity to carry out inspections of water company sites and assets, and Ofwat is working with the EA to improve data sharing and intelligence gathering.
HM Treasury
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Government Response AI assessment · 30 of 2 classified
Accepted 8
Acknowledged 21
Deferred 1
Total 2 recs + 28 conclusions
Correspondence 4 letters
27 Apr 2026 To committee Letter from the Department for the Environment, Food and Rural Affairs and OFWAT relating to Committee follow-up to the 22 January 2026 evidence session, 20 April 2026
Parliament page
2 Feb 2026 To committee Letter from the Permanent Secretary at the Department for Environment, Food and Rural Affairs relating to Water Sector Regulation, 29 January 2026
Parliament page
1 Dec 2025 To committee Letter from the Chair to the Permanent Secretary at the Department for the Environment, Food and Rural Affairs relating to a follow up to the Committee’s Forty-second Report on Water sector regulation, 01 December 2025
Parliament page
16 Jun 2025 From committee Letter to the Chair of the Independent Water Commission relating to the regulation of the water sector, 10 June 2025
Parliament page