Source · National Audit Office

Regulating for investment and outcomes in the water sector

Published: 25 Apr 2025 Recommendations: 9 Type: Value for Money NAO confirmed: 4 Department: Department for Environment, Food & Rural Affairs

This report examines water regulators effectiveness in ensuring the nation’s future water supply and attracting necessary investments.

Dept: Department for Environment, Food & Rural AffairsUnknown (355) Topics: Business and industryEnergy and environmentPollution and environmental qualityRegulation nao.org.uk →

Recommendations

9 items

5 accepted 1 implemented 4 in progress 4 awaiting response

Rec	Recommendation	Addressee	Acceptance	Implementation
1	For future plans, Defra needs to understand the costs and deliverability of targets and the impact on customers' bills. Ref Page 12, 25a · Implemented Awaiting opportunity	Department for Environment, Food and Rural Affairs	Accepted	In progress ✓ NAO
2	Defra should consult on options to ensure delivery of a coherent national system plan for water, including balancing trade-offs between different duties. Ref Page 12, 25b · Implemented Awaiting opportunity	Department for Environment, Food and Rural Affairs	Accepted	In progress ✓ NAO
3	Defra should address gaps in responsibilities, particularly around the wastewater network, and ensure regulators work together to achieve the same outcomes for the environment and customers. Ref Page 12, 25c · Implemented Awaiting opportunity	Department for Environment, Food and Rural Affairs	Accepted	In progress ✓ NAO
4	EA must understand whether actions in water company plans are being delivered and having the intended impact and delivering statutory environmental targets. Ref Page 12, 25d · Implemented Q4 2025-26	Environment Agency	Accepted	Implemented
5	EA, Ofwat and DWI should align deadlines and limit inconsistencies in planning timelines and assumptions. Ref Page 12, 25e · Implemented Awaiting opportunity	Department for Environment, Food and Rural Affairs; Environment Agency; Ofwat	Accepted	In progress ✓ NAO
6	Given the limited progress in developing a common understanding of asset health, Ofwat should continue to work with the sector, EA and DWI, reach a conclusion, and deliver its Roadmap for enhancing asset health understanding in the water sector on time. Ref Page 25, 25f	Ofwat	Pending	—
7	Before the development of PR29 methodology, Ofwat should consider whether it can act to simplify the price review methodology. This should include evaluating the impact of outcome incentives on company performance, the impact of cost benchmarking on company behaviours and financial resilience, and the impact of price control deliverables on performance. Ref Page 12, 25g	Ofwat	Pending	—
8	Before the development of PR29 methodology, Ofwat should seek to understand whether successful Innovation Fund projects are being taken up across the sector and the impact. Ref Page 12, 25h	Ofwat	Pending	—
9	Ofwat should develop a view on how to identify and plan for investment needs over the long term and work with Defra and the other regulators to improve transparency and predictability in light of the recent sector downgrades. Ref Page 12, 25i	Ofwat	Pending	—