Summary of key points from the Water White Paper

(by Karma Loveday)

The UK Government published A new vision for water last week – its response to the work of Sir Jon Cunliffe’s Independent Water Commission.

Most of the Cunliffe recommendations have been adopted, creating a wide reform agenda. The

paper is high level, with lots of detail still to follow – but it provides welcome clarity on the direction

of travel and the ‘what’. A Transition Plan, expected in March (and likely to be subject to update

and change subsequently), will do the heavy lifting on ‘how’.

In that sense, the White Paper (WP) fires the starting gun on change, and the real work for all

stakeholders starts now. There remains a lot of risk in the implementation, but opportunity too.

A few of the Commission’s key recommendations have been passed over. For instance, there will be no Regional Water Authorities (but regional planning and whole system thinking survive) and no

national social tariff.

Below is a factual summary of key points from the paper.

Strategic narrative

• The WP was pitched as the latest instalment in ongoing government efforts to get a grip on the sector, following the £104bn AMP8 investment package and Special Measures Act controls. WP as “once-in-a-generation plan to transform the water system for good."

• However, Defra committed to “working in partnership with the sector to champion successes. We will play a role in ensuring the public understand the complexity of addressing long-standing challenges – that there are inherent trade-offs to be managed in the system, and that fundamental change takes time. This does not mean Government will not call out poor performance or that enforcement action will not be taken by the regulator when required, but we want to build strong partnerships with all parties with a stake in the water system attracting the investment it needs to work better for customers and the environment.”

Strategic direction

• Government aims to demonstrate clear leadership and provide long-term direction, to produce cohesion from a disjointed landscape and secure cross-sector alignment. All reforms are pitched as “complementary and integrated” and as helping to deliver multiple outcomes that are “all moving in the same direction towards a better system for customers, companies, regulators, investors, and the environment”.

• Reformed Strategic Policy Statements (SPS) for the new regulator to be issued every five years, starting early in the current cycle to inform PR29. The current five-year SPS guidance will be expanded to also cover objectives that are ten and 25 years out. Clear ministerial guidance to be given on trade-offs.

• Legislative framework to be reset, including elements of the Urban Wastewater Treatment Regulations and updates to the Water Framework Directive Regulations. “By seeking specific and limited powers to update and amend the legislative framework, and through careful rationalisation of legislation where needed, we will help deliver the Government’s overall ambition to ensure it is focused on delivering better outcomes.” The reset will include “new ambitious targets for the water environment”.

• Collaboration with DESNZ to ensure water contributes to emissions/net zero commitments.

• Ongoing role for ministerial oversight and interventions in delivery, in the vein of the Water Delivery Taskforce.

• In Wales, the Welsh Government will set out its position on water reform in a Green Paper. Both governments cognisant of the need for reforms to be “complementary and responsive to cross border issues”. Work is ongoing, including to align regulatory functions with the Welsh border; potentially to devolve additional legislative competence; and to design transitional arrangements collaboratively.

Regional planning

• Twenty plans and processes will be consolidated into two core planning frameworks: one for water supply and one for the water environment.

• The Cunliffe-recommended Regional Water Authorities do not make the cut, but the WP commits to creating a dedicated regional water planning function. This will plug the ‘missing middle’ between national and local priorities and support the creation of a regional plan for each framework.

• Structural details are to be decided, but Defra said it was “considering opportunities to rationalise and better align existing planning functions and resource, such as River Basin Management Planning, regional water resource groups, catchment partnerships, and Regional Flood and Coastal Committees. We are committed to reducing duplication, making better use of existing expertise, simplifying engagement for stakeholders… and ensuring a more coherent system. This is critical to unlocking better joined-up water planning while avoiding the system getting bogged-down in more layers of bureaucracy and process."

• A cross-sector Regional Water Planning Steering Group will be set up to scope and co-design the framework and test approaches ahead of wider implementation in 2027.

• Funding for catchment partnerships to be doubled and will support catchment-level input into regional planning.

Integrated regulator

• As previously announced, Ofwat, the Drinking Water Inspectorate and relevant functions of the Environment Agency and Natural England will be amalgamated into a single integrated regulator for England. Details for Wales to follow, but likely to be a similar arrangement involving Natural Resources Wales.

• Key objectives for the new regulator: protect public health and the environment; ensure water company bills are fair and affordable for customers; strengthen the water sector’s financial resilience and ability to attract the long-term investment required to meet its ambitions, ensuring that the sector supports economic growth; and provide robust oversight of water companies to maintain and enhance the long-term health and resilience of their infrastructure.

• Leadership appointments (particularly of a chair-designate) to be made “at the earliest opportunity”. Appointees will not have legal powers until the handover, but will work on corporate strategy, culture and ways of working for the new body, and work with existing regulators to secure a smooth transition.

• Existing regulators to retain their full legal powers and responsibilities until the new water regulator is set up, and to work together more closely until handover.

Regulatory approach

• Supervisory approach to regulation to be adopted. Continuous engagement with each company by a dedicated expert regulatory team will “transform the way water companies are regulated, shifting to an approach that is more proactive, risk-based, company-specific and outcomes-focused – while also improving grip and oversight.” Benchmarking and modelling to continue but tempered by the contextual judgement of the supervisors.

• Supervision will operate on a ‘risk ladder’, backed by a clear framework, where regulatory scrutiny is proportionate to risk level, avoiding disproportionate regulatory burdens.

• There will be guardrails in place around the supervisory regime, including published standards of supervision and a supervision manual. Appeals will be possible.

• Constrained discretion to be adopted, whereby regulators have greater flexibility to support improved outcomes (such as wider use of nature-based solutions), within constraints set out in legislation and underpinned by these principles of good regulatory practice: transparency, consistency, accountability and proportionality. Decision-making principles for the regulator to use in determining paths to desired outcomes are being developed.

Drinking water

• New powers for the regulator to act more quickly against companies who are not complying with drinking water regulations, including the ability to impose financial penalties rather than take them to court.

• Regulator to be enabled to take enforcement action against any third party operating a water treatment or supply asset, or acting on behalf of a water company in another relevant capacity.

• Statutory obligations to be placed on third parties that are contracted to build and operate assets on behalf of water companies, to secure compliance with national security and emergency directions.

• New powers to make legislation on ‘sufficiency’ and consider new legislation for the regulator to take stronger action against water companies who fail to ensure a sufficient supply.

• New regulator to convene a drinking water quality advisory group, including scientific and public health experts, to recommend updates to the drinking water regulations.

• Government to work with the sector to improve Regulation 31 testing capacity.

• Defra to work with the Department of Health and Social Care to “to ensure public health is considered more broadly in our new water frameworks and regulations and to consider evidence gaps. This will be supported by a chief medical officer-led Public Health Water Taskforce”.

Resilience, asset health and maintenance

• Develop a fuller picture of asset health and improve asset mapping.

• Develop forward-looking asset health metrics.

• Develop statutory resilience standards. "These will be a key tool in ensuring the water industry is resilient to unexpected events or vulnerabilities and address regional fragmentation of resilience by bringing all companies up to an established standard.”

• Ensure the new regulator properly funds firms to fix asset problems. Changes to the price control process to include:

  • Abolishing the Quality and Ambition Assessment to ensure companies are not incentivised to bid for less investment than they need.

  • Assessing how the depreciation of assets is calculated to ensure the value of assets over time is accurately reflected in allowances and new investments are efficiently recouped.

  • Ending totex – separate allowances for capital maintenance, opex and enhancement capex at future price reviews.

  • Existing regulators to “deliver the Government’s reform intent in the next price review”.

• Restore the role of chief engineer at the regulator, to ensure it has the technical capability to assess the sector’s asset needs. “The chief engineer will oversee a fundamental shift in the culture of the regulator and enable engineering-based supervision, supporting the regulator’s ability to understand the true costs of projects as part of its cost challenge process.”

• Provide the new regulator with additional powers to investigate and enforce the Security and Emergency Measures Direction, including no-notice powers of entry for inspections.

Performance regime

• Performance Commitments to be rationalised and simplified, to reduce volatility in returns.

• Incentives to focus on customer priority issues: public health, the environment, and long-term resilience.

• Targets to be set in relation to a company’s current performance, using the expertise of supervisors in tandem with sector-wide benchmarking. “This will ensure that improvement is recognised, including for companies that start from a position of poorer performance. Where poor performance has been subject to enforcement through other means, it is not in customer interests for companies to also be penalised a second time through the incentive framework for the same offence.”

• New Performance Improvement Regime (PIR) for poorly performing water companies, “designed to prevent companies from falling into a cycle of decline.” There will be both punitive (“genuine consequences where owners and management have contributed to under-performance”) and supportive (“tools to break this cycle and establish a path to improvement”) elements.

• Companies (potentially all, potentially just those in the PIR) will need to have contingency Special Administration Regime (SAR) plans, setting out how they would ensure that any special administrator would be able to maintain delivery of critical services and facilitate restructuring or sale if SAR is triggered.

Investment and ownership

• The regime will seek to attract long-term, responsible investors and deter those who want to make a fast buck. Balance of risk and return to be reset so the sector is again a fair bet. As well as through wider reforms, this will include through:

  • New measures to improve financial resilience, specially to prevent the accumulation of “unmanageable levels of debt”.

  • A duty for the regulator to improve the creditworthiness of the industry, supporting better credit ratings and lower cost finance.

  • Retention of the five-year cycle, but set in the longer term (ten/25-year) planning approach to increase investment certainty and smooth the boom/bust delivery cycle.

• Plan to work across government to ensure regulated sectors are “treated appropriately and consistently by their regulators – including in how they set the cost of capital”.

• Explore whether green bonds could support greater investment in the water sector.

• Regulator to develop a transparent process to assess whether a water company’s requested move to a new model (e.g not-for-profit) should go ahead.

Price appeals

• Redeterminations by the Competition and Markets Authority to be replaced with a more focused appeals process.

Leadership

• Drawing on lessons from financial services, Defra will consider a new regime for senior accountability, "carefully designed to embed stronger ownership and accountability in a fair way which still allows water companies to appoint capable leadership”. This is in recognition that: “A key part of improving culture is getting the right people into do the job and we want the sector to be attractive to high-quality senior leaders, acting in the public interest, who can lead change from the top.”

Competitive markets

• Amendments to the Specified Infrastructure Projects Regulations Water Industry (English Undertakers) Regulations 2013 – lower thresholds and an expansion to all types of water infrastructure. Also: “Greater early-stage oversight and assurance will be implemented, including where necessary, direct government involvement to strengthen incentives and reduce costs through improved competition and contracting.”

• A new Supplier of Last Resort regime to be created for the business retail market (no mention of the Cunliffe-recommended Post Implementation Review).

• Reduced burden on New Appointments and Variations (NAVs) regarding water resources and drainage planning. Development of a strategy to improve regulator-led monitoring of the NAV market.

Customers

• Future cost rises will be smooth so customers can budget for them, ending sudden cost shocks like the recent “huge price hikes”.

• No national social tariff. Instead, companies were charged to deliver their PR19 commitment to end water poverty by 2030; increase the consistency of the support available; and raise awareness of it.

• Stronger customer advocacy, and access for customers to legally-binding resolutions to complaints via a “new, independent, impartial, strong, and accredited Water Ombudsman”. There will be a bespoke model for water, “applying best practices from other sectors.” There was no clarity on CCW’s role in performing these functions, although an indication that it may retain its advocacy role, rather than cede it to Citizens Advice as Cunliffe suggested. “We will also provide a stronger voice for customers, building on the Consumer Council for Water’s advocacy role.”

• Strengthen C-MeX.

Water environment

• Shift the focus towards ‘pre-pipe’ solutions, such as rainwater management, sustainable drainage systems, and tackling sewer misuse, to address the root causes of pollution. Legislation, funding streams, and regulatory mechanisms promised to enable this.

• Action to address problems caused by private sewerage and road run off.

• Nothing new on chalk streams.

• Open monitoring using digitisation and automation to replace operator self-monitoring. Checks from intelligence-led inspections and third-party assurance. Near real-time data to be made public.

• Improve other current aspects of monitoring to better assess the condition of the whole water environment.

• Create a single set of stronger, clearer national standards on agricultural pollution. Consider extending environmental permitting to cattle farming, as the heaviest agricultural polluter.

• Consult on reforming how sewage sludge use in agriculture is regulated and whether this should be included in the Environmental Permitting Regime.

Water efficiency

• A Smart Meter Delivery Board to oversee the smart meter rollout.

• Falling block tariffs to end in April 2026.

• Explore incentives for businesses and homes to adopt water efficiency.

• Reaffirm commitment to roll out a Mandatory Water Efficiency Label.

• Look at ways of helping drive reuse and rainwater management uptake for large non-household developments and large water users, and assemble a a non-household customer journey group to understand how the Government can support businesses, commercial and public sector buildings to adopt reuse.

• Move abstraction and impoundment regulation into the Environmental Permitting Regulations.

Supply chain

• Undertake a joint assessment by regulators and systems planners to map out the sector’s infrastructure delivery needs in relation to current and future supply chain capability.

• Assess critical supply chains, with a specific focus on chemicals.

• Encourage collaboration between water companies to share best practice and lessons learned to address supply chain gaps.

• Expand the use of standardised designs and practices for key infrastructure, assets, components, and technology.

Innovation

• Allow sufficient regulatory discretion to facilitate innovation, including through approaches like regulatory sandboxes.

• Work with regulators to ensure the funding mechanisms in place are fully supporting economic growth and delivering technological advances.

• Water companies and industry bodies should consolidate expertise and build partnerships from across the sector and academia to address emerging issues.

Planning and development

• Defra is working with MHCLG to implement a new plan-making system, to ensure better join-up between water and development planning processes. Features to include:

  • Prescribe water and sewerage companies in ‘Requirement to Assist’ regulations so they will be obliged to assist with plan-making, where a plan-making authority reasonably requests it.

  • List water and sewerage companies as consultation bodies for the new plan-making system, so they will be made aware of key plan-making consultations where the plan-making authority considers they have an interest.

  • Consider water companies as statutory consultees in planning applications.

  • Ensure the right to connect for water supply and to the sewerage system supports and enables the Government’s housing delivery objectives.

• The Government is developing a spatial approach to infrastructure planning in England to improve coordination across infrastructure sectors, to support delivery of housing, growth, and environmental improvement. NISTA is supporting this, including by developing a national infrastructure spatial tool. “This will strengthen the local evidence base for place-based investment decisions on water and wastewater in coordination with other sectors.”

• Review Permitted Development Rights for water companies in England and consider additional planning flexibilities for small-scale projects to help speed up delivery.

• Update the National Policy Statements for water resources and wastewater.

• Support RAPID to extend its remit to wastewater and other strategic projects.

• Continue to use the Water Delivery Taskforce to drive economic growth and support planning.

Transition Plan

• Emphasis throughout on an open and collaborative approach to reform, working with all relevant stakeholders to deliver the changes summarised above.

• A Transition Plan to be published “this year” (rumoured to be March) jointly by the UK and Welsh Governments but working with others. “This will set out a roadmap to guide the sector from today’s system to the future model – providing certainty during a period of major change by setting out what needs to happen and when, and who is responsible.”

• To be accompanied by an interim SPS for Ofwat and ministerial direction for the EA.

• Transition Plan to be updated after publication as certainty increases, including its timelines.

• Transition Plan to be guided by the following principles: delivering a clear and straightforward roadmap; providing clarity on roles and responsibilities; securing buy-in from regulators and the water industry; setting out practical guidance on how to create capacity within the current system to focus on reforms, including where certain workstreams could be paused and what needs to continue to ensure legal requirements are met; and providing robust governance processes, including measurable ways of tracking progress.

• Transition Plan to cover:

  • Strategic direction framework, including plans to reform the SPS.

  • Water industry business planning processes, including guidance on the preparation of plans for PR29.

  • Regional and national planning, including how the new regional planning framework will be implemented, how this will interact with water business planning and how cross-border governance will work.

  • Arrangements for old and new regulators, and plans for interaction with them on the delivery of business-as-usual schemes and the reform agenda.

  • Economic reforms and the next price review.

  • Legislative reform in England, particularly how and when primary and secondary legislative changes will be brought forward, subsequent impacts and environmental obligations for water companies for PR29.

  • Streamlining and change management, establishing the priorities for transition, and guidance on where processes can be streamlined to free up capacity across the system to protect delivery of PR24 alongside the reform agenda.

  • Engagement and feedback, how input from stakeholders will shape the ongoing transition process.

  • The timings of reforms.