Source · Select Committees · Public Accounts Committee
42nd Report - Water sector regulation
Public Accounts Committee
HC 824
Published 18 July 2025
Recommendations
5
Accepted
Ofwat to review powers to improve water sector financial resilience and clarify insolvency costs
Recommendation
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 …
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Government Response Summary
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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7
Accepted
Publish regulatory roadmaps for new water sector powers and future strategic changes by Autumn 2025.
Recommendation
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 …
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Government Response Summary
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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Conclusions (6)
2
Conclusion
Accepted
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, it would take companies 700 years to replace the entire …
Government Response Summary
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.
4
Conclusion
Accepted
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 performance on storm overflows. Previous mismanagement has presented a risk …
Government Response Summary
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.
6
Conclusion
Accepted
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 are gaps in key areas such as oversight of the …
Government Response Summary
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.
1
Conclusion
Accepted
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 water sector.1 We also took evidence from the Chief Executive …
Government Response Summary
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.
20
Conclusion
Accepted
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 that it is looking at ways of channelling money into …
Government Response Summary
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.
29
Conclusion
Accepted
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 to take action when storm overflows are used on days …
Government Response Summary
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.