Economic regulation of the water industry

In England and Wales, the water industry was privatised in 1989 and water supply is delivered by private water companies. In Scotland and Northern Ireland, publicly owned water companies are responsible for the water supply.

This briefing focuses on economic regulation in England and Wales, although there are references to Scotland and Northern Ireland throughout and in sections 3 and 4.

Reasons for regulation

Most water and sewerage companies are regional monopolies, with dedicated infrastructure in each company’s area. This means that household customers cannot switch their supplier and that competition is limited. To compensate for the lack of competition, the industry is subject to economic regulation to ensure that it delivers value for consumers and the environment.

All parts of the UK are subject to regulation, but in areas where private companies provide water and sewerage services regulation is the main means of government oversight. In England and Wales, Ofwat (the Water Services Regulation Authority) is currently the economic regulator. National government departments are responsible for setting policy and legislative direction for water industry regulation.

Current price review process

In England and Wales, the prices that water companies charge customers in bills are set by Ofwat following a five-yearly process called the price review. During the price review, Ofwat sets wholesale price limits for each water company alongside performance targets, such as for leakage reduction, reducing pollution incidents and lowering personal water consumption. When setting company prices, Ofwat must balance the interests of customers for lower prices with the need to make sure the water company can finance its operations and meet environmental responsibilities.

In Scotland and Northern Ireland, the prices that the water companies charge customers are also set centrally through the Strategic Review of Charges and the Northern Ireland Price Review.

Price review 2024 (PR24)

The most recent price review concluded in late 2024 (PR24) and set prices for 1 April 2025 to 31 March 2030. Ofwat stated that overall, PR24 would result in an average annual customer bill rise of £19 and £88 billion worth of investment by industry over the five-year period. Ofwat described the price review as its “biggest ever investment package” to “protect our rivers and sea, build new reservoirs, reduce leaks and raise the bar on customer performance.”

Following Ofwat’s determinations, PR24 has been criticised by Water UK (the industry body for water companies) for not allowing the rise in customer bills many water companies had requested. It said that this would mean less investment in water infrastructure. The Consumer Council for Water (a public body representing water customers) welcomed the price review as a good outcome for customers, although criticised bill rises across the sector.

Water company performance

Water company performance has come under increasing scrutiny in the last few years from across the political spectrum. The profits, dividend payments, and debt burden of some companies, alongside continued use of storm overflows to discharge sewage, have raised criticisms that the sector is not adequately serving customers or protecting the environment.

In PR24, Ofwat raised targets for investment and environmental performance. These included higher expectations around financial reporting, dividend payments and benefit-sharing with customers.

Average water bills have risen since privatisation (when inflation is accounted for) and have remained relatively stable since 2010, at around £39 per month per household in England. Water bills in all parts of the UK rose between 4.7% and 8.8% for the billing year 2024/25. Water bills vary between different companies and parts of the UK because the costs of infrastructure and services are different in different regions.

Regulatory reform

Following the General Election in July 2024, the Labour Government announced initial steps to “clean up the water industry". These steps included immediate measures, such as ringfencing investment in infrastructure, and longer term measures, such as legislation and a wider independent review of water sector regulation.

The Water (Special Measures) Bill 2024-25, now the Water (Special Measures) Act 2025, was introduced to Parliament in September 2024. It was introduced to strengthen regulation, to enable Ofwat to ban the payment of bonuses if environmental standards are not met, and to increase accountability for water company executives. For more information, see the Library briefing paper on the bill.

In October 2024, the UK and Welsh Governments launched a joint Independent Commission into the water sector and its regulation. It was chaired by the former governor of the Bank of England, Jon Cunliffe, and was “expected to form the largest review of the industry since privatisation”.

In July 2025, the final report of the Independent Commission was published. It made 88 recommendations and concluded that a ‘fundamental reset” was needed of the water sector. It recommended that Ofwat be abolished, a new single regulator be created for England, and regulation be devolved and integrated with the environmental regulator in Wales.

In tandem with publication of the Independent Commission’s report, the then Environment Secretary Steve Reed made a statement in the House of Commons addressing the report and confirming the government’s plans to create a new single regulator for the water sector in England, as well as wider regulatory reforms.

In January 2026, the government published its water white paper, A new vision for water, which presented its plan to “overhaul the water system”. This paper set out powers for the new single regulator, as well as wider policy reforms. Environment Secretary Emma Reynolds made a statement in the House of Commons announcing the white paper, and confirming that it would be followed by a 2026 Transition Plan and legislation for a Water Reform Bill.