The Independent Water Commission (IWC) reported its findings on 21 July, the culmination of an eight-month investigation, billed as the largest review of the water sector in England and Wales since privatisation.1
It has had the unhappy task of figuring out how to restore trust in a system that by all accounts is considered broken. Historical precedents were obviously in short supply and the commission’s chair Sir Jon Cunliffe said it was “our own Great Stink”,2 referencing the 1858 crisis – when much of the flow of the Thames was deemed to be raw sewage3 – which led to the creation of the sewer system in the first place.
As this latest moment of reckoning has approached, many have floated the idea of abandoning the private-sector model in its entirety. The £100 billion estimated cost of renationalisation is the other side of that coin, and The Times editorial praised the review’s combination of recognizing “the extent of the sector’s failure” but without “denying commercial realities as many in the Labour Party would have liked him to do”.4
As with the Great Stink, Cunliffe was insistent that change wouldn’t happen overnight. Bazalgette’s great project required a 15-year commitment to begin to see results. Cunliffe’s principal recommendation was on the statute books within hours of his report’s publication. This is the decision to abolish OFWAT and bring the functions of four different water regulators into one.5
The existing regulatory system “is fragmented and overlapping”, said DEFRA, “and fully joined-up regulation is essential for the system to meet the demands of the future and ensure that private water companies act in the public as well as the private interest”.6
Such a super regulator will depend on the hiring of sufficiently skilled individuals with experience of working in the sector, and the review said this would mean offering “suitable remuneration, outside of public sector pay controls… and provide effective career paths so that expertise can be retained”.7
Commenting in The Times, Feargal Sharkey complained that the plan to replace OFWAT was not addressing “the underlying foundational cracks”, and he seemed unconvinced that much about OFWAT would change beyond “the brass plaque by the front door”.8
The real issue at the heart of the current crisis, he said, was “venture capitalism and corporate greed, and the exploitation of monopolies supplying drinking water to milllions of people”. And none of this, he believed, was addressed by the review.
A positive prescription? Systems thinking to be adopted
Thoroughness was one point on which commentators might have struggled to find fault, and the review’s 484-page itemisation of problems was accompanied by “some excellent and wide-ranging recommendations”, in the view of Mark Lloyd, chief executive of the Rivers Trust.
“I believe that the recommendations in this comprehensive report, if implemented by government, would lead to a dramatic improvement in the water environment and far more cost-effective delivery,” he said.9
He praised, for example, the report’s calls for “an increasing in funding for Catchment Partnerships, and the creation of new regional planning bodies as part of a systems approach to managing water with clearer strategic direction from government.”
The introduction of these new regional planning bodies was one of five of the review’s 88 recommendations that the government opted to immediately adopt, in the address made by Environment Secretary Steve Reed to parliament on 21 July.
Key to the approach will be the adoption of “systems planning”, which has been used in a number of other sectors, and the report includes case studies on National Energy Systems Operator (NESO), and Regional Flood and Coastal Committees (RFCCs). Systems planners, said the report, “will more effectively integrate planning across the whole water system”, and this will be done at a regional level in England (via eight new planning authorities) while Wales will have a single national planning authority.
These will be independent, said DEFRA, and will include representation from local councils, public health, environment, agriculture and consumers, among others.
By means of these new planning authorities, the government aims to address the crucial need to speed up the construction of critical infrastructure, and commentators observed that no new water reservoirs have been created in England and Wales in over 30 years, for example.10
The Rivers Trust also praised the review’s demands “that a clear path for delivery of plans is created to avoid plans being written but not delivering change.”
Recommendations of the review that were immediately adopted included “significant reforms to Operator Self-Monitoring, with greater use of digitalisation, automation and third-party assurance”.
Steve Reed provided specific detail in his address: “Water companies are already required to publish data on some sewage spills within one hour. We will roll out real-time monitoring across the wastewater system. All this data will be made publicly available online.”
Upping the innovation ante
Innovation might hold the key to addressing many of the problems faced by the water sector but R&D levels seem to be languishing, and a culture of risk aversion prevails, in the review’s findings. It contrasted the £33 million R&D spend of the water collection, treatment, and supply industry in 2023 with the £1.2 billion spent by the telecommunications industry.
Insufficient funding is one aspect of the innovation shortfall, said the review, which also seemed to show how other sectors had it better (or easier). For example, the OFWAT Innovation Fund, at £400 million, contributed approximately 0.38% of total industry spending on innovation over the 2024 Price Review period.11 In contrast, the energy sector receives a much higher proportion of its innovation funding from the ringfenced Network Innovation Allowance, the £450 million Strategic Innovation Fund, and contibutions from the £1 billion Net Zero innovation fund.
Insufficient funding was one of four main issues it saw as “leading to a lack of innovation in the water industry”, with the others being risk aversion, lack of collaboration across the industry, and short-termism (or “Lack of visibility in long-term delivery requirements”).
On the matter of risk aversion, the fact of the sector’s being run in a monopoly fashion obviously meant “a lack of incentives to innovate”, and the review said “new mechanisms” were needed to facilitate innovation within water company and regulator culture.
Many aspects of the regulatory and legislative landscape have created barriers to innovation, and some of the Call for Evidence responses have supported the notion of regulatory sandboxes, to “allow water companies to test new concepts and innovative approaches, potentially in real world conditions, without being subject to the full regulatory burden.” On this, Sir Jon Cunliffe had seemed to criticise the regulatory system’s reliance on strict rules, calling instead for “constrained discretion” — in other words, a flexible framework that allows experimentation while maintaining oversight. This will be key to unlocking innovation in respect of things like nature-based solutions and automated monitoring systems.
The review noted the slow adoption of new technologies and solutions, including nature-based solutions, which it had been observed often get stuck in “pilot purgatory”, as a July 2025 report by CIWEM has observed.12
Risk aversion is also a natural by-product of the extraordinary public and political scrutiny the industry is now under, said the report, which is making it more difficult for firms to justify risk-taking or experimental work.
Indeed the suggestion that firms might be permitted “regulatory forbearance” as part of an effort to help some of them get onto a surer footing (and which would include a tightening of ownership and governance as a requirement) amounted to allowing water companies to “dodge fines”, in the analysis provided by The Guardian.13
Notes
[1] “Written Statement: Independent Commission and Review of the Water Sector”, 24 October 2024. Link: https://www.gov.wales/written-statement-independent-commission-and-review-water-sector?utm_source=chatgpt.com
[2] “Ofwat abolished in revolution for the water industry”, The Times, 22 July 2025.
[3] The Science of Sewage: What Happens When We Flush?, by Julian Doberski. Pimpernel Press Ltd. Sept 2024.
[4] “Water pressure”, The Times, 22 July 2025
[5] In England this will replace Ofwat, the Drinking Water Inspectorate and water-environment related functions from the Environment Agency and Natural England. In Wales, Ofwat’s economic responsibilities will be integrated into Natural Resources Wales, according to DEFRA.
[6] “Roadmap to rebuild trust in water sector unveiled in major new report”, press release from DEFRA, 21 July 2025.
[7] Indepedent Water Commission, Final Report, 21 July 2025, p197. See link: https://assets.publishing.service.gov.uk/media/687dfcc4312ee8a5f0806be6/Independent_Water_Commission_-_Final_Report_-_21_July.pdf
[8] “Corporate greed is at the heart of this”, The Times, 22 July 2025.
[9] “Independent Water Commission Report Could Lead to Dramatic Improvements for Environment and Public”, press release, The Rivers Trust, 21 July 2025.
[10] “Ofwat abolished in revolution for the water industry”, The Times, 22 July 2025.
[11] Indepedent Water Commission, Final Report, 21 July 2025, p420.
[12] “Nature-based solutions can work for the water sector – but it takes a step-change inthinking”, CIWEM. Link here.
[13] “Water review in England and Wales: seven key takeaways”, The Guardian, 22 July 2025.
