Independent review
Completed
Cunliffe Water Commission
Independent commission examining the governance, regulation and performance of the water sector in England and Wales, making wide-ranging recommendations on regulation, investment, sewage and accountability.
Government Response
The Environment Secretary (Steve Reed) made the Government's initial response to the Cunliffe Independent Water Commission on 21 July 2025 (gov.uk speech; written statement HCWS865). The Government endorsed the report's direction and accepted the headline recommendation to abolish Ofwat, committing to establish a single integrated water regulator for England consolidating Ofwat, the Drinking Water Inspectorate and the water functions of the Environment Agency and Natural England, subject to consultation. It also committed to immediate measures including a new statutory water ombudsman, with reform to be legislated through a Water (Reform) Bill.
Recommendations
Recommendation 1
Recommendation 1: The UK and Welsh government should each bring forward a new, long-term, cross-sectoral, and systems-focused National Water Strategy for England and Wales respectively.
Recommendation 2
Recommendation 2: The UK and Welsh governments should revise the legal framework for the Strategic Policy Statement and replace this with a new Ministerial Statement of Water Industry Priorities (MSWIP), directing all water industry regulatory and systems planner functions.
Recommendation 3
Recommendation 3: A comprehensive systems planning framework should be introduced for England and Wales, with responsibility for integrated and holistic water system planning. In England, the systems planners should be regional – or 'regional water authorities'. In Wales, the systems planner should be a national authority.
Recommendation 4
Recommendation 4: The 5-year Price Review cycle should be retained for setting water bills and company revenues over a 5-year period but water industry investment planning should be conducted on a 5/10/25 year basis with the greater certainty and granularity for the first 5 years, more indicative plans for the following 5 years and higher level indication for the longer term.
Recommendation 5
Recommendation 5: Water industry planning should be rationalised down from 9 plans into 2 core planning frameworks – 'Water Environment' and 'Water Supply.' This applies to England and Wales.
Recommendation 6
Recommendation 6: The national coordinator of the systems planner in England, and the national systems planner in Wales, should take on responsibility for ensuring consistency in scenarios, assumptions, and metrics for water industry planning across the new planning framework.
Recommendation 7
Recommendation 7: The systems planner, with the support of the economic regulator, should require, support, and scrutinise a strengthened approach to option development and cost-benefit analysis across water industry planning frameworks. This applies to England and Wales.
Recommendation 8
Recommendation 8: The UK and Welsh governments should review the current water legislative framework and amend it accordingly.
Recommendation 9
Recommendation 9: The UK and Welsh governments should update and reform the UWWTR 1994 to deliver better outcomes and a more sustainable approach to drainage and wastewater management. This should involve reporting on whether an Extended Producer Responsibility scheme is needed for the water sector to fund necessary improvements.
Recommendation 10
Recommendation 10: Government should consider legislative changes to drive a more coherent approach to 'pre-pipe' solutions to stop pollutants and rainwater entering the system.
Recommendation 11
Recommendation 11: The UK and Welsh governments should consult on reforms to the WFD Regulations, including broadening the scope to include public health outcomes.
Recommendation 12
Recommendation 12: To facilitate a robust assessment of how public health can be effectively incorporated into a new water framework, the UK and Welsh governments should establish taskforces led by the Chief Medical Officers of England and Wales to review the incorporation of public health better into the legislative framework for water.
Recommendation 13
Recommendation 13: Future water monitoring programs should be reviewed and adequately resourced, to accurately reflect the state of the environment.
Recommendation 14
Recommendation 14: In England, the review of the legislative framework should take forward the concept of 'constrained discretion' for the regulator. This should also apply to the water systems planners, should they sit in an independent body (see Chapter 2).
Recommendation 15
Recommendation 15: In Wales, a strengthened constrained discretion framework should build on the discretion already enabled by the sustainable development principle within the Well-being of Future Generations Act.
Recommendation 16
Recommendation 16: The UK Government should establish a new integrated regulator in England. This should combine the functions of Ofwat, DWI, and water functions from the EA and NE.
Recommendation 17
Recommendation 17: The Welsh Government should establish a new economic regulatory function in Wales that can align directly with the Welsh Government's strategic direction and guidance. The Commission's view is that the better course, subject to consultation, would be to embed this into NRW alongside the wider regulatory functions for water in Wales, though a small freestanding body, as in Scotland, might also be considered.
Recommendation 18
Recommendation 18: The regulator should adopt a more 'supervisory approach' to regulating individual companies. This applies to England and Wales.
Recommendation 19
Recommendation 19: The regulator should ensure funding directed appropriately to maintain assets by clearly defining and ring-fencing base capital expenditure (capital maintenance), base operational expenditure and enhancement capital expenditure allowances. This applies to England and Wales.
Recommendation 20
Recommendation 20: Following the establishment of a new methodology for assessing asset condition and expected life, the regulator should consider the merits of linking RCV run-off more closely to the economic depreciation of assets. This applies to England and Wales.
Recommendation 21
Recommendation 21: The regulator should withdraw the QAA. This applies to England and Wales
Recommendation 22
Recommendation 22: The regulator should review the performance incentives framework, to rationalise the overall number of PCs and make their corresponding ODI rewards, penalties and returns at risk, clear. This applies to England and Wales.
Recommendation 23
Recommendation 23: UK Government should consider providing the CMA with responsibility to set a common WACC methodology for all UK regulated sectors. This applies to England and Wales.
Recommendation 24
Recommendation 24: Defra should change the nature of the CMA dispute process for water companies from redeterminations to a standard appeal procedure, in line with other sectors. This applies to England and Wales.
Recommendation 25
Recommendation 25: The regulator in England and in Wales should significantly reform the system of Operator Self-Monitoring. It should develop a strengthened approach to monitoring, using greater digitisation, automation, public transparency, third party assurance and intelligence-led inspections.
Recommendation 26
Recommendation 26: The UK Government should review the approach to Continuous Water Quality Monitoring. This review should evaluate the effectiveness and value for money of these monitors, with a view to enhancing cost-efficiency through the adoption of technological advancements.
Recommendation 27
Recommendation 27: The UK and Welsh governments should tighten regulatory oversight of sludge activity by moving the treatment, storage and use of sludge into the Environmental Permitting Regulations.
Recommendation 28
Recommendation 28: The UK and Welsh governments should implement the civil sanctions provisions in the Water (Special Measures) Act 2025 that will expand the regulator's toolkit to enable swifter enforcement.
Recommendation 29
Recommendation 29: The EA should accelerate their efforts to bring resolutions to long-running enforcement cases in consideration of the public interest of delivering justice for any historic offences.
Recommendation 30
Recommendation 30: The regulator should significantly accelerate the implementation of digital programmes to support intelligence-led and transparent enforcement and compliance activities.
Recommendation 31
Recommendation 31: The UK and Welsh governments should take steps to ensure full cost recovery from the industry to ensure that the regulatory service is self-sufficient and in line with the polluter pays principle.
Recommendation 32
Recommendation 32: The UK and Welsh governments should ensure that their regulators are equipped with sufficient powers, operational flexibility, and the ability to recruit and retain high-quality technical staff. This should include establishing the new regulator outside of public sector pay controls.
Recommendation 33
Recommendation 33: The UK and Welsh governments should ensure an effective process is in place for regularly reviewing and updating drinking water standards.
Recommendation 34
Recommendation 34: The UK and Welsh governments should introduce powers to strengthen the regulator's toolkit in relation to drinking water, including an extension of its powers to cover all third-party operators, and powers to directly impose financial penalties.
Recommendation 35
Recommendation 35: The regulator, water industry and UK and Welsh governments should secure and expand Regulation 31 testing services for drinking water products.
Recommendation 36
Recommendation 36: The Commission recommends the UK and Welsh governments improve regulatory oversight of water industry abstraction activity by bringing it under the Environmental Permitting Regime.
Recommendation 37
Recommendation 37: The UK and Welsh government should accelerate efforts to reduce household water consumption by introducing compulsory smart metering for a wider range of circumstances.
Recommendation 38
Recommendation 38: Tariff structures should be changed to incentivise water efficiency. This could involve removing falling block tariffs for non-household consumption.
Recommendation 39
Recommendation 39: Standards should be issued for the roll-out of smart meters in the non-household market in England and Wales.
Recommendation 40
Recommendation 40: The UK and Welsh Government should work with their regulators to develop a new policy and regulatory framework to drive the adoption of water re-use infrastructure in household and non-household markets.
Recommendation 41
Recommendation 41 (England and Wales): The regulator should strengthen the C-Mex incentive to better reflect customer experience and move to a supervisory approach to monitoring the customer-focused licence condition.
Recommendation 42
Recommendation 42 (England): The UK government should consult on the introduction of a national social tariffs with consistent eligibility criteria and levels of support.
Recommendation 43
Recommendation 43 (Wales): The Welsh government should review existing social tariff schemes provided by the two companies in Wales and consider reforms to ensure they are providing equitable outcomes.
Recommendation 44
Recommendation 44 (England and Wales): The UK and Welsh Government should consider whether to convert the Consumer Council for Water into a new mandatory Water Ombudsman.
Recommendation 45
Recommendation 45: The government should consider transferring the advocacy functions of CCW to Citizens Advice, providing a stronger voice for customers, that the water regulator is required to respond to.
Recommendation 46
Recommendation 46: The water regulator in England and Wales should continue to adopt an evidence-based process to consider, on a case-by-case basis, whether it would be appropriate for a water company to transition to an alternative ownership model where they request to do so or following a SAR.
Recommendation 47
Recommendation 47: The regulator in England and Wales should have the power to block material changes in control of water companies.
Recommendation 48
Recommendation 48: The regulator in England and Wales should be provided with powers to direct parent companies and ultimate controllers.
Recommendation 49
Recommendation 49: The regulator in England and Wales should mirror elements of the Articles of Association in licence conditions to strengthen accountability.
Recommendation 50
Recommendation 50: The regulator in England and Wales should continue current plans to strengthen governance standards and bring its principles in line with the UK Corporate Governance Code. Rules should apply to all water companies, listed and unlisted, and create a level playing field in governance and transparency across all companies.
Recommendation 51
Recommendation 51: A new regime for senior accountability should be established by the UK and Welsh Government. The proposed regime should be subject to public consultation before implementation.
Recommendation 52
Recommendation 52: The UK and Welsh Government should include a target relating to the stability of the regulatory model as an objective in its strategic guidance.
Recommendation 53
Recommendation 53: The UK Government should use the opportunity of this review and its decisions on the implementation of the Commission's recommendations to reset its approach to strategic communications regarding the water industry.
Recommendation 54
Recommendation 54: The regulators in England and Wales should conclude long-running investigations and enforcement cases as soon as possible as part of a reset of the sector.
Recommendation 55
Recommendation 55: The regulators in England and Wales should consider how best to promote the use of environmental bonds.
Recommendation 56
Recommendation 56: A financial supervision framework should be embedded as part of a broader supervisory model. Within this framework, the regulator in England and Wales should publish a range of risk factors that inform their judgement of a company's financial risk profile.
Recommendation 57
Recommendation 57: The regulator in England and Wales should have the power to set minimum capital levels for water companies.
Recommendation 58
Recommendation 58: A formal turnaround regime should be established for the regulator in England and Wales to support turnaround of poorly performing companies. This should enable both an enhanced power of direction as well as regulatory forbearance.
Recommendation 59
Recommendation 59: The regulator in England and Wales should develop and consult on a framework for ensuring companies are prepared for SAR.
Recommendation 60
Recommendation 60: The UK Government should conduct a full post-implementation review of the BRM. The Welsh Government may also wish to consider a post-implementation review of the BRM, although the Commission recognises policy towards the BRM is different in Wales than England.
Recommendation 61
Recommendation 61: The government and regulator in England and Wales should explore short-term measures to improve the functioning of the BRM.
Recommendation 62
Recommendation 62: The framework for regulating NAV applications in England should be made more proportionate to support housing growth. The Commission recognises that given different views on the benefits of NAVs, the Welsh Government may decide not to pursue these reforms.
Recommendation 63
Recommendation 63: The Commission sees a strong case for dropping the requirement for NAVs to produce WRMPs and DWMPs given the view of the EA and for changes to the requirements upon them in relation to drinking water testing.
Recommendation 64
Recommendation 64: The Commission believes the UK government should monitor NAV market size and risk of fragmentation.
Recommendation 65
Recommendation 65: The regulator in England should continue the essential steps that Ofwat is taking to address issues with DPC and SIPR. A full evaluation of both schemes should be undertaken in 5 years when a broader evidence base has been accumulated. The Commission recognises that given different views on the benefits of DPC and SIPR, the Welsh Government may decide not to pursue these reforms.
Recommendation 66
Recommendation 66: Statutory resilience standards, covering system, infrastructure and supply chains, should be developed and adopted for the water industry in England and Wales. Resilience standards should ensure all companies make forward-looking, long-term assessments of their systems and assets and of their ability to recover from disruption to their network.
Recommendation 67
Recommendation 67: The UK and Welsh Governments should strengthen the requirements on companies to map and assess the health of their assets, and the regulator should ensure metrics for asset health are sufficiently forward-looking.
Recommendation 68
Recommendation 68: The regulator's oversight of infrastructure resilience and asset health should be strengthened, under its supervisory approach. This should include the appointment of a Chief Engineer on the board of the regulator in England and Wales respectively.
Recommendation 69
Recommendation 69: The regulator should conduct a sector-wide risk assessment of critical supply chain dependencies in England and Wales. The assessment should make reference to the water industry national supply chain requirements dashboard (see Recommendation 80).
Recommendation 70
Recommendation 70: The UK and Welsh Government should strengthen legislation relating to security arrangements for the water industry to ensure it keeps pace with a changing industry.
Recommendation 71
Recommendation 71: The regulator should be provided with stronger powers for the enforcement of existing security regulations in England and Wales.
Recommendation 72
Recommendation 72: The role of water companies in the planning process in England should be strengthened to ensure they have sufficient sight and influence over upcoming developments. The 'right to connect' should be reviewed. In line with recommendations in Chapter 2, the independent systems planners should also have a role in the planning process.
Recommendation 73
Recommendation 73: Planning processes in England should be updated to support the timely delivery of water industry infrastructure.
Recommendation 74
Recommendation 74: Permitted development rights (PDRs) for water companies in England and Wales should be updated to reduce the scale of delivery requiring full planning permission.
Recommendation 75
Recommendation 75: RAPID, in England and Wales, should be expanded and strengthened to support strategic infrastructure delivery.
Recommendation 76
Recommendation 76: NISTA should consider how the water industry in England and Wales could move towards standardised practices and further recommend how this could be advanced.
Recommendation 77
Recommendation 77: The delivery assurance frameworks (Delivery Plans and Delivery Monitoring Framework) that cover infrastructure capital spending across England and Wales should be reviewed during AMP8 and rationalised.
Recommendation 78
Recommendation 78: A review of the current PCD framework in England and Wales should be completed before the end of AMP8, to inform a more robust and flexible framework, broadly set at programme level spending.
Recommendation 79
Recommendation 79: Under the supervisory approach, the regulator in England and Wales should provide assurance on how companies are delivering infrastructure spend.
Recommendation 80
Recommendation 80: The regulator and systems planners, in England and Wales, should jointly undertake a water industry infrastructure delivery needs assessment against an assessment of supply chain capacity.
Recommendation 81
Recommendation 81: Water companies, through Water UK, should share best practice on supplier contracts and procurement strategies to help improve water company relationships with the supply chain in England and Wales.
Recommendation 82
Recommendation 82: The regulator, under its supervisory approach, should gain further assurance from companies in England and Wales on workforce and supply chains to ensure companies can sufficiently deliver.
Recommendation 83
Recommendation 83: The UK and Welsh Governments should introduce structured regulatory sandboxes to support innovation uptake.
Recommendation 84
Recommendation 84: The regulator in England and Wales should consider whether innovation funding mechanisms for the water industry are sufficient and effective.
Recommendation 85
Recommendation 85: Water companies should work with Water UK to disseminate innovation learnings across the water industry in England and Wales.
Recommendation 86
Recommendation 86: The UK and Welsh governments should respectively outline transition plans for water regulators, water industry and investors as part of their response to this report.
Recommendation 87
Recommendation 87: To ensure effective collaborative during implementation, the UK and Welsh governments should establish an implementation advisory group for England and Wales.
Recommendation 88
Recommendation 88: An independent review of the follow up to the Commission's report should be carried out in 2 years' time.
No recommendations with this response.