Water Industry Reform – What Does a New Water Regulator Look Like?

In January 2026, the Department for Environment, Food & Rural Affairs published its White Paper, ‘A New Vision for Water’, outlining a 25-year strategic plan to reform the UK water industry. Described as ‘a once-in-a-generation opportunity to reform a sector vital to public health,’ the plan aims to secure long-term water security, ensure ’clean and plentiful water’ and protected water environments, create a ‘fair deal for customers and investors’, and create a unified system of regulation.

This article focuses on the proposed Integrated Water Regulator (the “New Regulator”), but it is worth mentioning the significant steps already taken towards meeting the other aforementioned goals, including:

• £104 billion of investment committed to the water industry until 2030, directed towards water infrastructure creation and resilience, and efficiency and innovation efforts.
• Enactment of the Water (Special Measures) Act 2025 to increase the threshold of accountability on water service providers and sewage companies, by blocking bonus payouts to senior officials where service delivery and sustainability standards are not met, imposing civil sanctions for pollution and permit related offences, and criminal sanctions for impending environmental investigations.
• A new independent and impartial Water Ombudsman to guarantee protections for water customers and introduce legally binding resolutions for customer complaints.

While financial investment and new legislation signal a commitment to delivering clean and affordable water, the White Paper acknowledges that stronger accountability and more effective enforcement mechanisms are needed to turn its goals into measurable commitments rather than aspirations.

The White Paper acknowledges that ‘[t]he water sector has lacked alignment between water companies, regulators, investors, agriculture, transport, local government, developers and customers’, which has undermined long-term stability and increased investment risk. The White Paper pledges to ‘end this piecemeal approach and provide stronger leadership and direction’, central to which is the  plan to introduce a New Regulator.

Historic position

Historically, the water industry has been regulated by four bodies: (i) Ofwat; (ii) the Environment Agency; (iii) the Drinking Water Inspectorate; and (iv) Natural England. Their overlapping and sometimes conflicting duties have left the extent of their individual authority unclear. The White Paper acknowledges that ‘the public has lost trust in the regulations that govern our water sector’, particularly in the regulators’ ability to hold water companies to account, reflected in the public’s frustration with their perceived ineffectiveness in addressing and preventing sewage pollution. It also recognises the need for water regulators to be proactive, rather than reactive, in addressing water security and safety concerns, and notes that investors have similarly lost confidence in the water industry regulatory framework, questioning whether it offers them a ‘fair bet’.

The Regulator’s powers and responsibilities

The White Paper proposes abolishing Ofwat and consolidating the relevant functions of the existing regulators into a New Regulator, equipped to manage the water sector in an integrated way and  to oversee water companies’ performance, including environmental compliance.

The New Regulator is set to use a supervisory model, providing continuous company-specific oversight based on each company’s unique engineering and technical challenges and asset performance. A dedicated supervisory team within the regulator will make funding decisions relating to each water company. Supervision will follow a ‘risk ladder’ model, scaling intervention according to risk. This replaces the ‘one size fits all’ approach under the previous regime, with ‘an approach that is more proactive, risk-based, company-specific and outcomes-focused’, and a move away from self-monitoring.

Through ‘constrained discretion’, the regulator will be empowered to regulate on outcomes, rather than process, specifically addressing the criticism of the reactive nature of the previous regime and allowing proactive intervention when necessary. This will be supported by a Performance Improvement Regime, designed to stabilise failing companies before Special Administration is required, with consequences for owners and directors directly at fault for underperformance.

The New Regulator will have several means of addressing issues of governance within water companies, including prioritisation of long-term resilience and environmental protection over short-term profit, requiring transparent assessment processes before shifting business models, and potentially subjecting the water sector to mandatory notification under the National Security and Investment Act 2021. The new regulator may also gain greater powers to impose financial penalties for breaches, for example of drinking water regulations, and to undertake inspections without notice and to act against third parties responsible for assets.

Internal structure

The New Regulator will embed engineering expertise at its core, with a Chief Engineer to lead a significant internal engineering team to ensure that technical capability exists throughout the organisation. This team will be tasked with designating funds for capital maintenance, operating expenditure, and enhancement capital expenditure. There are also plans to introduce full asset mapping, prospective asset health metrics, and statutory resilience standards, all with the aim of reforming previously underfunded water related infrastructure.

The White Paper outlines a phased transition to the New Regulator alongside existing operators to ensure continuity of essential services until the New Regulator is capable of operating independently. The government intends to publish a joint Transition Plan with Wales later this year.

Key takeaways

Water companies will need to prepare for the New Regulator’s supervisory model, which will require continuous engagement and stronger technical evidence to facilitate risk assessments. With regulators requiring asset health statistics, water companies must ensure that they can track, store, and evidence asset health. Weak performance will be more rapidly identified, scrutinised, and carry more tangible consequences than before.

Poorly performing water companies will also face the possibility of falling under the Performance Improvement Regime. Although less severe than Special Administration, it can result in punitive consequences for directors and owners. When coupled with the penalties under the Water (Special Measures) Act 2025, those in authority face increased liability for poor performance.

Water companies must recognise the purpose of these changes. Driven by public opinion, stronger regulation and enforcement are coming. The public expects visible improvement, which will require actionable legislation and regulation. Water companies, and those involved in the water sector more generally, should anticipate greater regulation and increased powers of enforcement and prepare accordingly.

The White Paper presents a three-fold approach to reforming the water industry, with water security and environmental protection, financial reform, and a New Regulator aimed at changing public perception of how the water sector is regulated and held to account. Focusing on the New Regulator, a new company specific supervisory model, expanded powers and responsibilities and altered internal structure all point towards a fundamental shift to a regulator with the capacity, authority, and a strategic mandate to rebuild the water industry. Implementation will take time, and further consultations are expected. Stakeholders should look out for the forthcoming Transition Plan, due later this year, on which we will provide a further update.

If you have any questions relating to the information discussed in this article and how it impacts you and your business, please contact Michael Salau.