The system for regulating water companies in England and Wales should be overhauled and replaced with one single body in England and another in Wales, a once-in-a-generation review of the sector has advised.

The report, which includes 88 recommendations, suggests a new single integrated regulator to replace existing water watchdogs, mandatory water metering, and a social tariff for vulnerable customers.

The ability to block companies being taken over and the creation of eight new regional water authorities, with another for all of Wales to deliver local priorities, has also been suggested.

Follow latest: ‘This is our Great Stink moment’, water report author says

The review, the largest into the water industry since privatisation in the 1980s, was undertaken by Sir Jon Cunliffe, a career civil servant and former deputy governor of the Bank of England who oversaw the biggest clean-up of Britain’s banking system in the wake of the financial crash.

The government confirmed at a news conference on Monday that Ofwat will be abolished as part of an overhaul of a “broken” water regulation system.

Environmentalist Feargal Sharkey told Sky News, “we were promised champagne, what we got was a glass of sour milk”.

Sir Jon was coaxed out of retirement by Environment Secretary Steve Reed to lead the Independent Water Commission.

Final recommendations of the commission have been published on Monday morning to clean up the sector and improve public confidence, as bills rise 36% over the next five years. Here are its nine key recommendations:

• Single integrated water regulators – a single water regulator in England and a single water regulator in Wales. In England, this would replace Ofwat, the Drinking Water Inspectorate and water-environment related functions from the Environment Agency and Natural England. In Wales, Ofwat’s economic responsibilities would be integrated into Natural Resources Wales.

It’s hoped this will solve the “fragmented and overlapping” regulation, and more stable regulation will improve investor confidence. Communications regulator Ofcom was given as an example of how combining five existing regulators into one worked.

• Eight new regional water system planning authorities in England and one national authority in Wales to be responsible for water investment plans reflecting local priorities and streamlining the planning processes.

The new authorities would be independent, made up of representatives from local councils, public health officials, environmental advocates, agricultural voices and consumers. The aim is they could direct funding and ensure accountability from all sectors impacting water.

• Greater consumer protection – this includes upgrading the consumer body Consumer Council for Water, into an Ombudsman for Water to give stronger protection to customers and a clearer route to resolving complaints. Advocacy duties are to be transferred to Citizens Advice.

• Stronger environmental regulation, including compulsory water meters. Also proposed by Sir Jon are changes to wholesale tariffs for industrial users and greater water reuse and rainwater harvesting schemes. A new long-term, legally binding target for the water environment was suggested.

• Oversight of companies via the ability to block changes in ownership of water businesses when they are not seen to be prioritising the long-term interests of the company and its customers, and the addition of “public benefit” clauses in water company licences.

To boost company financial resilience, as the UK’s biggest provider, Thames Water struggles to remain in private ownership, the commission has recommended minimum financial requirements, like banks are subject to. This could mean utilities hold a certain amount of cash. It’s hoped this will, in turn, make companies more appealing to potential investors.

• The public health element of water has been recognised, and senior public health representation has been recommended for regional water planning authorities, as have new laws to address pollutants like forever chemicals and microplastics.

• Fundamental reset of economic regulation – including changes to ensure companies are investing in and maintaining assets to help attract long-term, low-risk investment. A “supervisory” approach has been recommended to intervene before things like pollution occur, rather than penalising the businesses after the event.

• Clear strategic direction – a long-term, 25-year national water strategy should be published by the UK and Welsh governments, with ministerial priorities given to water firms every five years.

• Infrastructure and asset health reforms – companies should also be required to map and assess their assets and resilience.

Nationalisation of the water industry was not in the Independent Water Commission’s terms of reference and so was not considered.

Sir Jon said the report has “tried to attack the problem from all sides”.

He warned that bills are going to rise by 30% over the next five years.

“There are some inescapable facts here,” he said.

“The cost of producing water and dealing with our wastewater is going up.”

How has the report been received?

In a speech responding to Sir Jon’s report, Mr Reed said he was abolishing Ofwat.

The water industry lobby group Water UK said “fundamental change has been long overdue”.

“These recommendations should establish the foundations to secure our water supplies, support economic growth and end sewage entering our rivers and seas,” a spokesperson said.

“The Independent Water Commission has written a comprehensive, detailed review of the whole sector, with many wide-ranging and ambitious recommendations.

“Crucially, it is now up to government to decide which recommendations it will adopt, and in what way, but the commission’s work marks a significant step forward.”

Ofwat to be swept away on tide of public anger

Paul Kelso

Business and economics correspondent

@pkelso

Sir Jon Cunliffe’s review of the water sector is comprehensive, clear-eyed, and about as radical as allowed by terms of reference that explicitly ruled out renationalisation of England’s private water and sewage companies.

With that key demand of many campaigners off the table, the former Bank of England governor has focused on more effective regulation and securing a better deal for consumers and the investors without whom the industry will sink.

So Ofwat, the embattled current regulator, is to be swept away on the tide of public anger at sewage outflows and shareholder dividends, and the disgruntlement of all its stakeholders.

Having succeeded in its primary aim of keeping consumer bills down, it is now a victim of the consequences: a shortage of investment in infrastructure and a failure to apply similar rigour to shareholder dividends and executive pay.

While campaigners and customers say it has failed to hold companies to account, the companies complain they are too tightly controlled to attract investment.

Ofwat privately points out it can only apply the powers and political direction it is given – but the new government, going with the flow of angry voters, will not hesitate to pull the chain.

Read more here

Campaign group Surfers Against Sewage said the report “utterly fails to prioritise public benefit over private profit”.

“This is not transformational reform, this is putting lipstick on a pig - and you can bet the champagne is flowing in water company boardrooms across the land,” said its chief executive, Giles Bristow.

“Only one path forward remains: a full, systemic transformation that ends the ruthless pursuit of profit and puts the public good at the heart of our water services,” he said.

“We welcome Sir Jon’s calls for a national strategy, enshrining public health objectives in law and regional water planning. But we won’t be taken for fools - abolishing Ofwat and replacing it with a shinier regulator won’t stop sewage dumping or profiteering if the finance and ownership structures stay the same.”

Environmentalist Feargal Sharkey told Sky News, “we were promised champagne, what we got was a glass of sour milk”.

The regulator Ofwat said, it will now work with the government and the other regulators to form the new regulatory body in England, and “to contribute to discussions on the options for Wales set out in the report”.

“In advance of the creation of the new body, we will continue to work hard within our powers to protect customers and the environment and to discharge our responsibilities under the current regulatory framework. We will also work collaboratively with all our stakeholders to ensure a smooth transition.”