Rebuilding trust in water: Interim recommendations from the Independent Water Commission

Published: 18 June 2025

The Independent Water Commission (IWC) was established by the UK and Welsh governments in October 2024, aiming to provide recommendations for a 'fundamental reset' of the water sector. This includes restoring public confidence, ensuring action to attract investment, and establishing a framework to meet the needs of the future.

The IWC published its interim report on 3 June 2025. Recommendations have been made in five key areas:

Clearer and consistent long-term direction
Revisit the legislative framework that underpins the sector
Strengthen and rebalance the regulatory model
Make water companies more attractive to stable long-term investors
Make water infrastructure a strategic imperative

In collating the report, over 150 meetings were held with multiple stakeholders; the call for evidence elicited over 50,000 responses. The consensus is that the system is not working well and change is needed.

A number of important issues will be addressed in the final report, which the Independent Water Commission aims to publish in the summer.

The main implications are:

Wider engagement in planning and strategy
A rationalisation of legislation
Longer-term thinking to enable better planning and restoration of investor confidence
A supervisory focus from Ofwat, combining strategic oversight with a deep understanding of company-specific contexts and supporting turnaround of poor performers
Clear requirements on asset data collection and a focus on resilience
A more effective, strategic, flexible and modern environmental regulator

Strategic direction and planning

At present, there is a complex patchwork of system planning and management arrangements in England and Wales that does not effectively bring together all the demands on regional water systems, challenges that need to be met, and actors that have an impact on water.

Water companies, environmental non-governmental organisations (eNGOs), and consumer groups have all commented that they find the current planning processes too complex, opaque, unmanageable, and, in places, overwhelming to engage with.

The Independent Water Commission is considering how the UK and Welsh governments can offer greater clarity over their vision for the water system, such as new government-led, long-term national water strategies in England and in Wales. The strategies should have a long-term horizon to facilitate infrastructure delivery, allowing sectors and their supply chains to plan ahead.

For England, there appears to be a strong case that system planning functions should be carried out by stronger regional water system planning arrangements, involving all the sectors that have an impact on the quality and quantity of water in a regional water system (including local authorities).

In Wales, the argument is stronger for planning to be conducted at a national level, but there needs to be greater involvement of local (including catchment-based) organisations and other sectors.

Systems planning needs to set out in detail what is to be done and funded in the immediate price review period and give a well-grounded picture of the future, including some degree of assurance on the funding that is likely to be needed.

Deferred to final report

Recommendations on how better and stronger regional planning arrangements might be achieved.
Further views on related improvements to water industry business planning, including increasing flexibility within the five-year cycle, strengthening the approach to economic assessments and optioneering, and streamlining the plans produced by industry.

The legislative framework

The current legislative framework for water has developed piecemeal over a long period of time. It is complex, has the potential for duplication and lack of clarity around outcomes, and doesn’t support innovation.

There is a strong case for review and rationalisation of the legislative framework for water to reduce the administrative burden. Public health targets could be considered as part of this, given the increased recreational use of water.

In Wales, water legislation needs to be better aligned with the Welsh government's long-term sustainability goals.

Application of the concept of ‘constrained discretion’ could enable more innovation, improved overall environmental solutions, economic growth, and better local solutions. Clear guidelines for its application would need to be in place.

Deferred to final report

Review legislation such as the Water Environment (Water Framework Directive) (England and Wales) Regulations 2017 and the Urban Wastewater Treatment (England and Wales) Regulations 1994.
Consideration of 'producer responsibility'.
Application of 'constrained discretion'.

Regulatory reform

Trust in the regulatory framework has been eroded, with 93% of respondents rating performance as poor/very poor. This is most evident in environmental performance and the financial challenges facing some water companies.

The price review process takes a disproportionate amount of time, with concerns over a one-size-fits-all approach and over-reliance on econometric modelling. In addition, it is making returns more volatile and the sector unattractive to low-return, low-risk long-term investors.

Restoration of confidence requires company performance improvements and regulatory regime reset. Ofwat needs to develop a more ‘supervisory’ approach to regulation (similar to Ofgem) alongside the existing econometric tools. This would require a deep understanding of the company and could provide support and focus for poor performers to avoid the ‘doom loop’.

Environmental regulation is compromised by budget cuts, capacity and culture. There are concerns about lack of flexibility, focus on micro-issues, lack of innovation, risk aversion, gaps in oversight, and the cost and timeliness of criminal prosecutions. Environmental regulators need stable funding to be able to attract the right skilled resources and make greater use of technology to improve monitoring and data collection. The Water (Special Measures) Act 2025 should help to address public concerns that enforcement approaches are too slow. It is recommended that this is also adopted in Wales.

Customer trust and satisfaction has fallen to 53%. C-MeX has not driven improvements. Affordability issued have increased. There is potential duplication between the roles of CCW and Ofwat.

The Drinking Water Inspectorate is perceived as highly effective. However, concerns have been raised about its authority and independence to deal with future issues such as climate change, population growth, and cyber threats.

Deferred to final report

Further review of how the ‘supervisory approach’ could work.
Consideration of the case and options for reform of operator self-monitoring.
Further options to speed up enforcement action.
Review whether the Drinking Water Inspectorate needs further tools to improve its regulatory effectiveness.
Restructuring of the regulatory model.

Company structures, ownership, governance and management

The Independent Water Commission is not exploring public ownership models or the use of public funds to transfer assets to other ownership models. It is evaluating the benefits and risks of other forms of ownership models, such as the Welsh Water not for-profit model, or Community Interest Companies in cases where transfer can be achieved without the use of public funds and without detriment to users and to the public interest.

It is also exploring regulatory mechanisms to narrow the variability of returns to investors. For example, reducing the amount of returns that are put ‘at risk’ through economic regulation.

The IWC is also reviewing whether the senior manager responsibility holds lessons for the water industry.

Deferred to final report

Consideration of senior manager responsibility mechanisms.
Ownership models, interventions to support the attractiveness of the sector to long-term investors, options to strengthen corporate governance principles, improving financial supervision to support companies’ resilience.
Issues around competition, including the frameworks for new appointments and variations, the business retail market (BRM), direct procurement for customers, and the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013.

Infrastructure and asset health

There are no consistent standards against which companies can assess their asset health, as well as a lack of asset condition data broadly, no mandatory requirements to understand asset health, and health being mapped through failure metrics and not for all assets.

There is a strong case for a single comprehensive infrastructure resilience framework across all water companies in England and Wales, which includes the establishment of resilience standards, a requirement for water companies to gather and report data on their assets, and a more supervisory role for the regulator.

New requirements may become necessary for companies to gather, assess, and report asset condition to the regulator.

The Independent Water Commission recognises the importance of both setting out a long-term view of water industry investment needs to guide the supply chain, and factoring supply chain capacity into the planning of water industry capital investment.