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Britain’s privatised water companies are pushing the government to speed up plans to abolish Ofwat, warning that the slow pace of reform means the regulator’s influence over bill increases and infrastructure investment will last for the next 10 years.
A government white paper, released last week, confirmed its plans to create a new super regulator that merges Ofwat, the Environment Agency and the Drinking Water Inspectorate in England and Wales.
But the document has been criticised for a lack of detail on timing or how the body would work.
Ministers say the reforms will help “clean up” the industry, which is accused of paying excessive returns to shareholders and executives, while failing to invest in infrastructure leading to sewage pollution and water outages.
Water UK, which represents the utilities, also criticised the government for being too slow in abolishing a system that it says is “complex, too expensive and too slow.”
“The UK government committed to scrap Ofwat over six months ago, so it is frustrating to see that the same regulator will be making decisions that affect bills and investment until 2035 — a decade on from its announced abolition,” the industry lobby group said.
Water UK called on ministers to set up the new regulator in ‘shadow’ mode to allow it to start making decisions.
The government’s plans mark the biggest legislative change since privatisation 35 years ago and will involve rewriting the Water Industry Act.
But the bill is unlikely to be laid before parliament until the second half of this year or early 2027 and will be subject to amendments amid objections from environmentalists and industry.
As the water companies are monopolies that rely on customer bills to cover their costs, Ofwat sets out every five years how much households can be charged to fund investment, maintenance and investor returns.
Although the next regulatory period runs from 2030 to 2035, water companies start working on their submissions to Ofwat much earlier.
Ofwat said: “The government expects Ofwat, working with DWI, EA and Natural England, to deliver the government’s reform intent in the next price review. In the meantime, our work continues.”
Water UK argues the uncertainty over the new regulator will deter investors and reduce the chance of much-needed equity injections to shore up the industry’s debt-laden balance sheets.
The UK’s 16 privatised water companies are saddled with £82.7bn of net debt, and nine of them are being monitored by Ofwat amid concerns for their financial survival.
The white paper includes plans for a new “performance improvement regime” for struggling companies though there is little information on how it would work.
A new chief engineer would also be appointed to the regulator to monitor infrastructure and there will be a requirement for more frequent health checks and mapping of pipes and other assets.
Charlie Maynard, Liberal Democrat MP, said more detail was needed on how the new super regulator would work. “The government’s plans are vague on what new resources or powers this body will get to succeed where its predecessors failed,” he added.
Ofwat is under attack from all sides.
As well as being criticised by customers for failing to properly hold water companies to account, the industry accuses Ofwat of making water companies “uninvestable” by not allowing them to raise bills to the level needed, imposing punitive fines and an overly complex regulatory system.
The government said it will publish a “transition plan” in coming weeks setting out how the regulators and water companies should operate until the new super regulator gets Royal Assent.
Emma Reynolds, environment secretary, said: “These are once-in-a-generation reforms for our water system — tough oversight, real accountability, and no more excuses.”
Environmentalists and pro-nationalisation campaigners criticised the government’s reforms for not going far enough.
Cat Hobbs, of the We Own It campaign group, accused the government of “outsourcing responsibility”.
“The elephant in the room is that privatisation and regulation have failed since 1989,” she said. “The government’s promise of ‘stability for investors’ comes directly at the expense of households. Every penny of investment into the system has come from our bills.”
