Expert analysis of the UK water sector
Excerpts from the latest edition of The UK Water Report.
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Pause for thought
The Water Report Expert Forum speculates on what awaits water from Number 10.
By Karma Loveday
We have had many in-term prime ministerial swaps in recent years and these have little troubled the water sector, as they have tended not to involve much in the way of policy change. But Andy Burnham’s agenda – featuring major devolution ambitions and more public control of essential services – certainly could. We asked The Water Report Expert Forum about its expectations of a Burnham administration.
79% of Expert Forum members thought the installation of the new government increases the likelihood of special administration for Thames Water. Many suggested this would be a powerful – and relatively easy – way of the PM showing he means business. For instance: “Burnham has a need to demonstrate that he will drive change. Taking Thames into SAR would be a clear demonstration of intent;” and “It's the most obvious first step for a PM committed to greater public control of utilities.”
In terms of its long-term fate, The Water Report Expert Forum was pretty convinced that a publicly owned Thames Water is not on the cards. Only 5% thought Thames, even if it is placed into special administration, would be kept in full public ownership. The same proportion thought it would most likely be sold on to another private owner. The vast majority (74%) envisaged a transfer to a model that offers some form of public control but stops short of public ownership. As one put it: “That's the only model at the intersection of what is financeable and politically acceptable.”
Turning to a more upbeat topic, The Water Report Expert Forum had genuine enthusiasm for opportunities for water that might arise from Burnham’s flagship plans to supercharge devolution. There was excitement that the devolution agenda dovetails with Cunliffe’s existing recommendations for regional planning and supervision, and could give them a second wind. In particular there was expectation of increased ambition for regional planning with greater emphasis on the role of local / strategic authorities to bring in more democratic accountability.
One contributor said: “This could be the catalyst for one of the more fundamental changes in our sector. The new Regional Planning Partnerships could be an element of this.”
In stark contrast, the Expert Forum considered the Burnham Government could put further breaks on – or even derail – wider White Paper water reform plans. Most expected, at the very least, further delays as the new secretary of state settles in and stock is taken of events to date.
However, many considered the new government may go much further and rethink: “The central premise of the Independent Water Commission was a planning and regulatory model for a privatised industry. Nationalisation was explicitly outside the terms of reference. If the direction is now towards public ownership, arguably this reform is not fit for purpose. So we could see a complete or more likely partial rethink of the proposals.”
"Nationalisation was explicitly outside the terms of reference. If the direction is now towards public ownership, arguably this reform is not fit for purpose."
Back to basics
Back in its original ‘commission’ structure, WICS has delivered a draft determination for Scottish Water that continues to support price increases, but simultaneously seeks maximum value.
By Karma Loveday
The Water Industry Commission for Scotland (WICS) has published a Draft Determination (DD) for the next regulatory period (2027-33) that, on the face of it, looks like continuity: another price trajectory close to CPI+2%, a major capital programme, and a familiar emphasis on ethical, long‑term regulation.
But for chief executive David Satti, the story behind the numbers is one of change as well as continuity – in the regulator itself, and in terms of overtly demonstrating value for money to society at a time of heightened scrutiny and financial pressure.
A striking feature of the DD is that the allowed revenue path has landed at around CPI+2% again – the same headline as the previous determination. Satti is quick to knock down any suggestion that this was a pre‑ordained answer: “If anything, it’s actually been my biggest concern throughout – that anyone might have thought it was a preordained answer. It really hasn’t been.” The charges may also increase to 2.3% in the final three years of the regulatory period, if specific costs materialise, such as energy increases.
Satti explains the approach that has led to the number: “The first step was: what would this look like if we were looking at Scottish Water through the lens of what is a purely efficient company, given everything we know about where it’s invested and how it operates. We could have had a number that was lower. But that gets into the judgement about what’s best for current customers and what’s best for future customers. Many of these investments… are going to be required. They might be required in years five, six, seven, eight. So the regulatory period almost becomes a moot point – we recognise they’re going to be required at some point in the next decade.”
The binding constraint, he explains, is what Scottish Water can efficiently deliver. “That's the biggest determinant to any sort of upper limit. It's not that there's an anchor been set in the last price review, and therefore that should limit it…It’s more just that Scottish Water is markedly increasing its investment programme, and it’s doing it on top of its biggest ever investment programme in the last period…When you increase the capital maintenance programme by around 20%, and then increase the enhancement and growth programme by around 60% on top of increased investment in England and Wales, how can we collectively make sure we’re not creating an inflationary environment out there, and that Scottish Water is investing that efficiently?”
"The binding constraint is what Scottish Water can efficiently deliver."
Signing the way for regional system planning
While it awaits final policy decisions, the South West has formed an Interim Regional Water Systems Planning Board to help things along. Interim chair Trevor Bishop sets out the vision.
By Karma Loveday
While final terms of reference for the new regional system planning groups championed by Sir Jon Cunliffe are awaited from Defra, stakeholders in the South West plan to forge on and continue making headway. This is one of the regions that has been testing the Cunliffe concept, through the South West Regional Water Planning Pilot – early work to see how different stakeholders can collaborate to form a single system view using a common evidence base; develop a shared regional vision with regional targets; co-invest; and test new planning and delivery models.
The ultimate aim is to address regional water challenges and priorities relating to growth, infrastructure, climate resilience, environmental recovery and public health. In practical terms, this means cohesive planning across the full range of water supply, environmental, growth/development and some other associated critical national infrastructure matters. And it means decision-making focused on outcomes for people and the environment, presenting the choices on tough tradeoffs, along with – ideally – making greater use of nature-based and catchment-based solutions where they offer better value.
In June, the pilot team created an Interim Regional Water Systems Planning Board, populated by representatives from local authorities, agriculture, public health, regulators, water companies, environmental organisations, academics and catchment partnerships. This is chaired by policy, regulation and water planning specialist Trevor Bishop.
Bishop stresses the work is more live experiment than finished model, and that current thinking will evolve as Defra’s terms of reference crystallise. But it is nonetheless very exciting. The partnership –under the new board’s direction – should secure better practical outcomes for the region. But it also has the potential, Bishop says, to embed democratic accountability and to shift the tone of the sector’s relationship with the public. Regional planning partnerships, or whatever they end up being called, could be a decisive new force in water governance – championing place-based choices and providing a strategic regional voice.
"Regional planning partnerships could be a decisive new force in water governance – championing place-based choices and providing a strategic regional voice."
AMP8: End of Y1 report
Full year results profitable but timely delivery of AMP8 targets looks challenging.
By Verity Mitchell
All companies have now published their full year results for the year ending 31 March 2026. Despite recent political uncertainty and a regulatory reform hiatus, AMP8 delivery is underway. The companies have generally reduced their overall levels of debt, begun to address operational failures and invest for improvements. Many have provisionally been awarded additional investment allowances from Ofwat, for the first tranche of price reopeners under PR24. Others are struggling to organise capital delivery in a timely manner.
Among key themes evident from the results are:
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New equity: Most water companies have received new capital from their shareholders to support the AMP8 investment programme. Fresh funds were injected into Affinity, Northumbrian, South East, Southern and United Utilities – the latter accompanied by significant price re-opener plans. Yorkshire’s new shareholder EQT took a 42% stake in the company. It will contribute equity to allow a £600m inter-company loan to be repaid by the end of March 2027, reducing gearing. Anglian has already flagged the likelihood of the need for further equity towards the end of the AMP with a debt/RCV of 69.7% at the March year-end. Others remain more circumspect.
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Regulatory rewards and penalties: Most companies are still in penalty territory, given that their investment programmes to deliver improvements are still ramping up. Companies have successfully prioritised combined sewer outflow reductions. Sewer flooding improvements were delivered by six companies and interruptions to supply by four. Many companies failed to meet their leakage and pollution reduction targets; the standards associated with the Compliance Risk Index (CRI); and per capita consumption reduction (household and business) which remained a widespread challenge given the hot summer weather. Customer service metrics are challenging but positive performances were recorded by Northumbrian, Portsmouth and Wessex.
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AMP8 programme slippage: Delivering the AMP8 investment programme in a timely manner was always going to be challenging. Some companies are already admitting that their investment programmes are slipping towards the latter end of the AMP. This will delay the delivery of the outcomes linked to financial awards.
"Most water companies have received new capital from their shareholders to support the AMP8 investment programme."
The shape of water debt
Baringa analysis finds fewer customers are in water debt, but those who are owe more – and the cost of non-payment is becoming more material.
By Prash Kachhala and Georgie Richings, Baringa Partners
The water sector is used to difficult trade-offs. It must finance long-term investment, improve environmental performance, protect supply resilience and maintain public trust, all while keeping bills affordable. What is becoming clearer is that household debt now sits across all of those trade-offs. It is not a narrow collections problem. It is a going concern risk, placing strategic pressure on financeability, legitimacy, cash recovery and sector’s ability to make the case for future investment.
Baringa’s analysis of publicly available APR benchmarking data for 2025/26 points to a problem that is not quite the one the sector might have expected. Total household debt across the industry has risen again, from £2.80bn in FY25 to £2.93bn in FY26, a 4.4% increase. At the same time, the proportion of customers in debt has fallen from 15.2% to 13.8%, and the number of households in debt has fallen from 4.2m to 3.8m. On the surface, that could look like progress. The harder truth is that the debt book is becoming more concentrated, more expensive and harder to recover.
The average amount owed by a customer in debt has increased from £684 to £764. Debt without an agreed payment plan has edged up to £2.25bn, 77% of the total debt book. Debt that has not received a payment in the past 12 months has risen to £1.77bn. Bad debt has increased sharply, 41%, to £536m (Figure 2). In plain terms, fewer customers may be sitting in the debt book, but those who are in it owe more, a greater share of that debt is structurally difficult to collect, and the cost of non-payment is becoming more material.
"The debt book is becoming more concentrated, more expensive and harder to recover."
The real infrastructure challenge isn't funding. It's capability.
Skills, capacity and coordination will determine whether AMP8 succeeds or fails.
By Natalie Saunders, Indepen
For years, discussions about water sector performance have focused on governance, regulation and incentives. Those discussions are important and necessary. But boards should ask themselves a different question: what is the single largest threat to delivering AMP8 commitments? Increasingly, the evidence points towards workforce capability.
Traditionally, skills have often been treated as a supporting issue within infrastructure planning. Projects are approved first, workforce requirements are considered later. This approach is increasingly risky as demographic pressures, retirement rates, technological change and growing demand for specialist expertise mean workforce capability has become a strategic constraint. Workforce capability should now be viewed as infrastructure in its own right.
Boards should ask themselves:
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Do we understand our future workforce requirements with the same rigour that we understand our capital programme?
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Are we building capability strategically or simply competing for scarce talent in an increasingly constrained labour market?
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Is our people function equipped to influence business performance, productivity, capability and delivery outcomes rather than focusing solely on workforce administration?
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Is the impact upon the organisation’s reputation, and therefore quality of earnings / shareholder value, of the people and culture agenda properly understood and actively managed?
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Does the HR team understand, through robust benchmarking, “what good looks like” for non-monopoly organisations?
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Does the organisation have a fit-for-purpose policy framework, and friction-free processes, that enable the desired strategic, customer, regulatory and behavioural outcomes?
"What is the single largest threat to delivering AMP8 commitments? Increasingly, the evidence points towards workforce capability."
Protection and harm
The Retail Exit Code Review has posed fundamental questions about who needs shielding, from what, and how long.
By Karma Loveday
The Strategic Panel has called on Ofwat to show the reasoning and evidence behind its Retail Exit Code (REC) Review positions.
Responding to the REC consultation, the most senior governance body in the business retail water market welcomed the direction of travel proposed by the regulator in terms of more closely tailoring protections to harms. But it probed for detailed evidence of harm and therefore the need for protection, and wanted to see a more dynamic approach that would evolve as market conditions change.
“Consistent with the Panel's Roadmap to a Flourishing Market, the long-term objective should be a market that delivers strong customer outcomes through effective competition, innovation and investment, with regulatory protections increasingly targeted at those customers who need them most. The Panel therefore encourages Ofwat to set out a clear framework for how protections will adapt over time, balancing customer protection with the broader goal of enabling a flourishing market.”
Among the specific challenges lodged by the Strategic Panel was that Ofwat has not yet demonstrated why the proposed new customer group boundaries represent the most proportionate means of targeting protections, the specific harms that the proposed arrangements are intended to address, and the evidence linking those harms to particular customer segments.
It sought explanation on whether the threshold between Groups 1 and 2 is set at the right level, reminding the regulator of evidence submitted by the Panel in response to the last consultation that showed the switch rates either side of the Group 1/2 boundary are very similar. It also said Ofwat has not explained why 5 megalitres of use per year is the appropriate threshold at which to take customers out of price caps. It sought a consistent evidential framework across both the Group 1/2 and Group 2/3 boundaries, arguing: “If information on engagement, awareness and potential harm is being used to justify reducing one threshold, Ofwat should explain why similar evidence does, or does not, support changes to the other.”
"If information on engagement, awareness and potential harm is being used to justify reducing one threshold, Ofwat should explain why similar evidence does, or does not, support changes to the other."
All pass muster
All retailers who took part passed WICS’ first retail Market Health Check. Mark Cassidys says the experience has raised the bar on customer outcomes.
By Karma Loveday
The Market Health Check (MHC) idea was conceived a few years back, and implementation started in 2023 as the market turned 15. The concept at the time was to ensure that business customers could have confidence in Licensed Providers’ (LPs) service commitments. This would help customers differentiate between different competitive offerings, and in particular to highlight LPs competing on high or value added services, rather than price. This would help maintain customer trust in the market, as well as choice and quality.
Mark Cassidy joined WICS in October 2025 in the newly created role of director of markets. He took responsibility for overseeing the MHC’s delivery and for shaping how it would operate in practice. This work began the same month.
The enabler, he explains, was the agreement and introduction in April 2025 of a new non-household retail Code of Practice (CoP). This was co-created with the market, framing service standards above default offerings. The code itself was voluntary – LPs “weren’t obliged to sign up to it,” Cassidy notes, “although there are significant incentives to do so”. However, once a retailer did sign up, participation in the MHC became mandatory.
The first iteration of the MHC therefore had a very specific purpose: to test whether the sector had genuinely understood and implemented the new standards enshrined in the Code.
The results are interesting. Rather than dividing the LP field been passes and fails, WICS says the MHC has served to raise the bar on service across the board, because all LPs who undertook the check passed.
For end customers, Cassidy believes the key value of the exercise is consistency of protection.
“I think we’ve raised the bar for customer outcomes across the sector,” he shares.
"We’ve raised the bar for customer outcomes across the sector."
CONTENTS
This month's articles
Expert Forum
Pause for thought - The Water Report Expert Forum on what a Burnham premiership could mean for water
4
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Interview
Signing the way for regional system planning - Trevor Bishop on the South West's Interim Regional Water Systems Planning Board
12
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Analysis
Dissecting the drought - a deep dive into the House of Lords' Surviving Drought report
18
Pg
Industry Comment
Less appealing prospects - the implications of regulatory appeals reform
23
Pg
Report
Buy now, pay later - Ofwat's £3.4bn cost change re-opener boost
30
Pg
Industry Comment
The real infrastructure challenge isn't funding, it's capability - plugging the AMP8 skills gap
32
Pg
Report
Compromise and control - Thames Water's latest ownership battle
37
Pg
Interview
All pass muster - WICS' first retail Market Health Check
46
Pg
Interview
Back to basics - David Satti, WICS, on Scottish Water's SR27 Draft Determination
8
Pg
Report
A dearth of water, a flood of insights - lessons from the 2026 drought
16
Pg
News Review
Ofwat staff demand clarity on reform transition plans
22
Pg
Report
AMP8: end of Y1 report - year end results analysis
24
Pg
Report
House of cards - house-building ambitions at risk from water availability
31
Pg
Industry Comment
The shape of water debt - fewer customers in debt, but those who are owe more
34
Pg
Report
Healthy, sufficient and resilient - DWI's 2025 annual report
42
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