Ofwat

What is Ofwat? 

Ofwat is the economic regulator for the water and sewage sectors in England and Wales. It works in the interests of water consumers by making sure that water companies carry out their duties and are properly run, that the water system is resilient and sustainable, and that the market is competitive. Ofwat covers England and Wales: in Scotland and Northern Ireland, the Water Industry Commission for Scotland and the Utility Regulator respectively fulfil the same role. Ofwat agrees water bills for five-year periods which aim to balance cost to consumers with spending on maintenance and investment in water infrastructure. For instance, household water bills are forecast to increase by £33 per year in 2026/27 following 2024’s price review. ³⁴ Ofwat, “Ofwat responds to water sector average bill figures”, Ofwat, 29 January 2026, www.ofwat.gov.uk/ofwat-responds-to-water-sector-average-bill-figures/

How has the water and sewage market developed?  

To promote investment and efficiency, in 1989 the Thatcher government turned the 10 publicly owned regional authorities previously responsible for water and sewage into private companies regulated by Ofwat. There are now 11 major water and sewage companies, and six more water-only companies. ³⁵ Ofwat, ‘Licenses and licensees’, Ofwat, no date, accessed 27 February 2026, www.ofwat.gov.uk/regulated-companies/ofwat-industry-overview/licences/  These companies operate the public water and sewage networks and are known as water and sewage undertakers.

To date, these companies retain their regional monopolies for household provision, as it is difficult to introduce proper competition into a market built around massive infrastructure systems – such as pipes and reservoirs – that make it difficult for new companies to enter the market. This creates the risk of water companies exploiting their monopoly position to charge consumers high prices, underinvest in their services, and make unfair profits as consumers have no alternative. Ofwat works to mitigate this risk.

However, since 2017, almost all non-household customers (businesses, public bodies and charities) have been able to choose between more than 40 water supply or sewage companies. ³⁶ Ofwat, ‘Licenses and licensees’, Ofwat, no date, accessed 27 February 2026, www.ofwat.gov.uk/regulated-companies/ofwat-industry-overview/licences/  In June 2016, Ofwat published a report finding that a “net positive outcome” is likely if competition is also introduced to households, but there are currently no concrete plans to do so. ³⁷ Ofwat, ‘Costs and benefits of introducing competition to residential customers in England – summary of findings’, 19 September 2016, www.ofwat.gov.uk/wp-content/uploads/2016/09/RRR-final-summary-19-Sept.pdf, p. 4.

How is Ofwat structured? 

Ofwat, like other economic regulators such as Ofgem, is a statutory non-ministerial government department. This means it is independent of central government control in its decisions, is not directly led by a minister and can only be reconfigured by legislation passed by parliament. However, it does take overall policy direction from the Department for Environment, Food and Rural Affairs (Defra) in England and the Welsh government in Wales. 

Ofwat is led by a board that consists of the chief executive, the chair and usually up to six non-executive directors and three executive directors. Non- executive appointments to the board are made by the environment secretary in consultation with the Welsh government. 

What does Ofwat do? 

Most of Ofwat’s mission and duties were laid out in the Water Industry Act 1991, but they have steadily evolved with new legislation, most recently the Water Act 2014 which established competition in the non-household market.  

Alongside its primary duties to protect consumer interests by promoting competition, ensure water companies are financially sustainable and well-run and to secure resilient water supply in the long run, Ofwat also has some secondary aims such as contributing to a sustainable water system, promoting efficiency in water supply and sewage systems and avoiding undue price discrimination. ^undefined Ofwat, ‘Our duties’, Ofwat Website (no date), retrieved 2 February 2023  Since 2024, Ofwat has also been required to consider the importance of economic growth in its activities, taking proportionate regulatory action only when necessary. Ofwat has a range of powers at its disposal to achieve its objectives, which include investigating potential breaches of the rules, imposing penalties, and setting price limits. 

Ofwat also pushes the water sector to improve environmentally. ^undefined Ofwat, ‘Our duties’, Ofwat Website (no date), retrieved 2 February 2023  It works alongside the Drinking Water Inspectorate (the regulator of drinking water quality in England and Wales) and the Environment Agency and Natural Resources Wales (which handle some environmental issues in England and Wales respectively). 

How does Ofwat set prices and license companies? 

Ofwat carries out a price review every five years in the context of agreeing each company’s five-year business plan. ^undefined Ofwat, ‘Our duties’, Ofwat Website (no date), retrieved 2 February 2023  Water companies must submit their business plans and negotiate these with Ofwat, which then sets a cap on the maximum amount each water company can charge their customers. If companies fulfil their duties – which includes maintaining an agreed level of investment and environmental protection – for less than the prices they are allowed to charge, they can make a profit. Approval of a business plan is a powerful tool as it allows Ofwat not only to control pricing but also to influence levels of investment and progress towards sustainability goals. If they disagree with Ofwat’s decision, water companies can appeal to the Competition and Markets Authority.  

Ofwat also holds licensing and investigation powers. All water companies must hold a licence to do business in England and Wales. The exact licence conditions depend on whether they are an undertaker or licensee, and on individual circumstances, but common conditions relate to transparency, customer support and financial stability. Failure to comply can lead to the licence being revoked.  

Ofwat routinely investigates water companies and can impose fines of up to 10% of turnover for breaches of their obligations.   For example, in May 2025 Ofwat fined Thames Water £122.7m for breaching rules relating to its wastewater management and dividend payments. ³⁸ Ofwat, “Ofwat fines Thames Water nearly £123m following two investigations into the company”, Ofwat, 28 May 2025, www.ofwat.gov.uk/ofwat-fines-thames-water-nearly-123m-following-two-investigations-into-the-company/

What is the future of Ofwat?  

In October 2024, the government established the Independent Water Commission (IWC), chaired by Sir John Cunliffe, to “clean up our waterways and rebuild our broken water infrastructure.” ³⁹ Department for Environment, Food and Rural Affairs, Welsh Government, Hardy E and Reed S, “Governments launch largest review of sector since privatisation”, GOV.UK, 22 October 2024, www.gov.uk/government/news/governments-launch-largest-review-of-sector-since-privatisation  In its final report, published in July 2025, the IWC concluded that a “fundamental reform” of the water sector was required. ⁴⁰ Independent Water Commission, Final Report, GOV.UK, 21 July 2025, https://assets.publishing.service.gov.uk/media/687dfcc4312ee8a5f0806be6/Independent_Water_Commission_-_Final_Report_-_21_July.pdf, p. 6.

A key recommendation was that Ofwat be abolished and a new combined regulator for the water sector be established in England, combining the functions of Ofwat, the Drinking Water Inspectorate and the water functions of the Environment Agency and Natural England. The new regulator would ensure more joined-up regulation, reduce duplication and close gaps in regulatory oversight. ⁴¹ Independent Water Commission, Final Report, GOV.UK, 21 July 2025, https://assets.publishing.service.gov.uk/media/687dfcc4312ee8a5f0806be6/Independent_Water_Commission_-_Final_Report_-_21_July.pdf, p. 165

The government adopted this proposal in July 2025. ⁴² Department for Environment, Food and Rural Affairs and Reed S, “Ofwat to be abolished in biggest overhaul of water since privatisation”, GOV.UK, 21 July 2025, www.gov.uk/government/news/ofwat-to-be-abolished-in-biggest-overhaul-of-water-since-privatisation  Its water white paper in January 2026 outlined next steps including a Transition Plan, to be published in 2026, and a Water Reform Bill. ⁴³ Department for Environment, Food and Rural Affairs, A new vision for water: white paper, GOV.UK, 20 January 2026, www.gov.uk/government/publications/a-new-vision-for-water-white-paper#full-publication-update-history  Ofwat will continue its statutory duties as the economic regulator of the water industry until the new body is set up, with an interim leadership structure in place for the transition period. ⁴⁴ Ofwat, ‘Changing Ofwat’, Ofwat, 15 October 2025, www.ofwat.gov.uk/changing-ofwat/