The Independent Water Commission has a chance to create meaningful change
Labour set out clear ambitions for infrastructure before the election including on housing and energy. But plans for the water sector were less clear.
Amid a week of bad headlines for the water industry, as ‘terrible Tuesday’ saw utility bills across the country go up, Shivani Chivukula welcomes the Independent Water Commission’s focus on consumer satisfaction and public trust
Labour set out clear ambitions for infrastructure before the election, including on housing and energy. But its plans for the water sector were less clear. A new Independent Water Commission for England and Wales, headed by Sir Jon Cunliffe, was set up in October to plug that gap. 19 Independent Water Commission, Independent commission on the water sector regulatory system: terms of reference, GOV.UK, 23 October 2024, www.gov.uk/government/publications/independent-commission-on-the-water-sector-regulatory-system-terms-of-reference It comes at a time when government urgently needs to restore both public trust in the water sector and the private sector’s appetite to invest in it.
A better functioning water system is essential
The average person in the UK uses 150 litres of water a day, 20 Horton Helena, ‘Why is the UK facing water shortages despite record rainfall’, The Guardian, 1 April 2025, https://www.theguardian.com/environment/2024/apr/01/why-uk-facing-water-shortages-despite-record-rainfall-explainer with demand set to increase as the population expands: the Environment Agency has estimated that by 2050 the UK will need an extra 5 billion litres of water a day. And while it seems incredible that the UK could face water shortages, climate change is putting further pressure on the water system as extreme dry weather, as in the summer of 2022, showed.
As a key part of the country’s infrastructure, a lack of resilient water supplies could also undermine the government’s growth objectives. This includes everything from enabling productive businesses to growing the UK’s city regions and driving adoption of new technology – the data centres needed to power AI can require huge quantities of water for cooling, for instance. 21 Kleinman Z and Wheeler B, ‚Concern UK’s AI ambitions could lead to water shortages’, BBC, 7 February 2025, www.bbc.co.uk/news/articles/ce85wx9jjndo
A range of connected failings have compounded the problem
The UK’s existing water infrastructure is old and deteriorating, which risks more leaks and contamination, 22 Public Accounts Committee, ‘England faces “serious risk of running out of water within 20 years”’, UK Parliament, 10 July 2020, https://committees.parliament.uk/committee/127/public-accounts-committee/news/115817/england-faces-serious-risk-of-running-out-of-water-within-20-yea… with little in the way of renewal: the last new reservoir, Carsington Water, was completed in 1992.
Perhaps surprisingly given the furore over water bills this week, over the last 15 years bills have fallen in real terms while industry expenditure remained largely flat from 1990 (at least until the last price review in 2019). Now, with consensus that a large step change in investment is needed, Ofwat announced in its 2024 price review that water bills would rise substantially to fund the building of nine new reservoirs.
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HM Treasury, ‘Reeves: I am going further and faster to kick start the economy’, press release, 28 January 2025, www.gov.uk/government/news/reeves-i-am-going-further-and-faster-to-kick-start-the-economy
But a record number of water companies have appealed against Ofwat’s price setting, arguing that this still won’t be enough to fund the necessary levels of investment.
This comes at a bad time for the water sector. Environmental issues, such as raw sewage outflows into seas and rivers, are getting worse, and have led to a crisis of confidence in the sector – for both investors and the public. Regulation has failed to ensure the long-term financial resilience of some water companies such as Thames Water. This has led to questions about the ownership model for water companies and the impact on investability in the sector if Thames Water is ultimately taken into special administration.
The Independent Water Commission’s broad and ambitious remit gives it a chance to propose meaningful change
The complexity and contentious nature of these issues mean an independent review is the right model (despite the prime minister's recent skepticism about reviews as a policy making tool). The Independent Water Commission's arm's-length operation will create political space to develop bold ideas in an area where government has clearly identified a problem but not yet solutions. It will also give the review's findings much needed credibility with the water industry, the public and policy makers alike.
The Commission’s call for evidence – published at the end of February – is encouragingly broad and shows a good diagnosis of the issues. 24 Department for Environment Food and Rural Affairs, ‘Independent Water Commission – call for evidence’, 27 February 2025, accessed 3 April 2025, https://consult.defra.gov.uk/independent-water-commission/independent-commission-on-the-water-sector-regulat/ It rightly examines water within its wider strategic context, linking the future planning of the water system to other key sectors and taking a regionally led approach to identifying water needs. It asks important questions about the regulation of water, not least how the various regulators can work together. And it asks whether there are good examples from the UK and internationally on functioning models of private ownership – although it has been criticised for ruling out nationalisation.
The Commission also accepts that water bills will need to continue to rise to fund the required investment, which is a welcome dose of realism. Instead of seeking to suppress bills, the review focuses on consumer satisfaction and public trust, and how to mitigate ‘water poverty’ through better support for vulnerable consumers.
Its final recommendations are due in July, an indication that the government wants to get going. It will need to: this could be its only chance to achieve a coherent vision for the water sector as a whole, while infrastructure projects are notoriously long-running. But this should not deter a government that has promised a ‘decade of renewal’. On water, that renewal should start now.