UK’s failing water sector needs ‘root and branch reform’
A failing water sector in which water companies increasingly look like financial institutions rather than businesses servicing monopolised critical infrastructure is in need of root and branch reform.
This was the key finding of a new report by Parliament’s Environment, Food and Rural Affairs Committee. The report follows the Committee’s evidence sessions with the leadership of ten of England and Wales’ major water and sewerage companies in 2025.
The report urges the Water Commission to consider a variety of models of corporate ownership, which could offer a better culture of responsible leadership.
MPs want the Commission to determine how regulators can better vet or veto potential owners of water companies to prevent bad actors from running critical national infrastructure.
The report also notes that bonuses totalling millions of pounds have been repeatedly paid to senior executives over many years, despite poor performance, which seriously diminishes trust and may fail to incentivise improvement.
MPs want the commission to consider reforms to ensure that the right people are put into senior positions, as they call for greater oversight from Ofwat before appointments are made and bonuses are paid, as well as clearer statutory expectations on the criteria for bonuses.
The report states that privatisation has almost certainly weakened the accountability of the water industry to the public, noting that water data is often not public in practice.
To remedy this, MPs want water companies to be legally obliged to publish performance, environmental and financial data on a regular basis.
“The water sector has a serious culture problem. Water companies are the keepers of a vital national infrastructure. They exist to provide an essential service to the public and to protect the environment. But these primary functions seem to have been forgotten,” said the Chair, Alistair Carmichael.
Amidst growing public outrage at the poor performance of water companies, some companies have been paying out high dividends to shareholders and excessive bonuses to their senior executives, he said.
“Water companies’ complex and sometimes impenetrable financial structures, with their myriad subsidiaries, holding companies and parent organisations, seem to suggest that their purpose is less to provide a good service to their customers and more to allow them to juggle their finances and their increasingly unsustainable levels of debt.”
Meanwhile, an ineffective regulatory system has failed to protect customers, the environment and the financial stability of the sector. It has failed to ensure that companies invest in essential infrastructure and it has not encouraged long-term thinking, he said.
“This has got to stop now. Trust and accountability in the water sector are very low. It is not acceptable that it has fallen to commendable citizen scientists to expose issues with local water resources. Environmental protection and the delivery of reliable and safe water must be the first priorities of water companies and regulators.
“We want the country’s water sector to be fit for purpose. Now and in the long term. The Water Commission has the opportunity to draw up the root and branch reforms necessary to ensure that the issues plaguing the sector are resolved. It must not shy away from bold proposals.”
