Water (Special Measures) Bill 2024-2025

The Water (Special Measures) Bill was introduced in the House of Lords on 4 September 2024, and was amended at committee stage and report stage. It was introduced in the House of Commons on 27 November 2024 and was amended at committee stage. Both report stage and third reading are scheduled for 28 January 2025.

The government has published a policy statement explaining the bill in more detail, as well as explanatory notes (PDF) and a delegated powers memorandum (PDF). It published an impact assessment on 25 October 2024 (PDF).

Why has the bill been introduced?

The bill is intended to address poor performance from water companies. This covers poor financial management, water pollution, and outcomes for customers. In the second reading of the bill in the Lords, Baroness Hayman said that the government was introducing the bill “to drive rapid and meaningful improvements in the performance and culture of the water industry” in response to a lack of public trust in the water industry and widespread concerns about underinvestment in infrastructure, pollution levels and ongoing sewage spills.

In its assessment of water company performance for 2023–2024, Ofwat (the economic regulator for the water sector in England and Wales) did not identify any water companies as falling within its ‘leading’ category; most were average, and three were ‘lagging behind’ (Anglian Water, Dŵr Cymru and Southern Water). In its monitoring report of financial resilience for 2023–2024, 10 of the 17 companies assessed were below the ‘standard’ rating, with three in the most serious ‘action required’ category (Thames Water, South East Water and Southern Water). Over the past two years, water companies reportedly paid out £2.5 billion in dividends.

The government has repeatedly said that it has no plans to renationalise the water sector. Environment Secretary, Steve Reed, has said that he has ruled out nationalisation as “it would not resolve the problems we face” and that this “would cost towards £100 billion of public money”.

What would the bill do?

The long title is “a bill to make provision about the regulation, governance and special administration of water companies.” These provisions will enable the government and regulators to block the payment of bonuses for water company executives, bring criminal charges against those who break the law, enable automatic and “severe” fines, and ensure the monitoring of every sewage outlet. It applies to England and Wales.

The Water (Special Measures) Bill is set out by government as the first step towards broader change across the water sector. It forms part of the Labour government’s commitment to “put failing water companies under tough special measures”, which was also included in the party’s 2024 election manifesto.

The supporting policy statement for the bill notes that the bill “is not the full extent of the government’s ambition, with wider transformative change across the whole water sector to follow”. On 23 October 2024, the government launched its Independent Commission for water, which will report back to government in 2025 with recommendations on how to tackle “inherited systemic issues in the water sector”, forming the basis for further legislation.

The bill has four key aims:

• block bonuses for water company executives “who pollute our waterways”
• bring criminal charges against “persistent law breakers”
• impose automatic and “severe” fines for wrongdoing
• enable independent monitoring of every sewer overflow outlet

Blocking bonuses for water company executives

The bill would create a new framework for holding companies and chief executives accountable for water company governance and remuneration. These provisions would enable the regulator Ofwat to set rules for water companies, subject to certain requirements included in the legislation (including a consultation).

Bringing criminal charges

The bill would introduce three provisions where an investigation by Ofwat or the Environment Agency had been obstructed by a water company. It would enable the courts to include imprisonment as a sanction, enable hearings in the Crown Court, and enable executives and directors to be prosecuted where an offence had been committed with their consent, connivance or due to their neglect.

Imposing fines

The bill would enable fixed monetary penalties to be imposed for specific offences, including pollution, failure to comply with information and reporting requests, and offences relating to water resources. These provisions would also enable the government to specify the list of these offences and the monetary value of penalties in secondary legislation.

The bill would also lower the “standard of proof” required for minor to moderate water company offences to the “civil standard”.

The bill also includes provisions to enable the Environment Agency and Natural Resources Wales to recover costs from water companies following enforcement actions.

Monitoring of sewer overflows

The bill would require water companies to publish information on the frequency and duration of all emergency storm overflows within an hour of a discharge taking place.

Wider work to strengthen regulation

In addition to the four main provisions, the bill would also introduce a new statutory requirement for water companies in England to publish annual ‘pollution incident reduction plans.’

The bill would allow the Secretary of State to modify water company licences to recover a shortfall in government costs if a water company were to enter special administration, with equivalent powers for Welsh Ministers.

Progress of the bill

The bill was introduced in the Lords on 4 September 2024 and its second reading took place on 9 October 2024.

Committee stage in the Lords was held over three sittings (on 28 October 2024, 30 October 2024 and 4 November 2024). At committee stage, five government amendments were made and there were no divisions on any amendments.

Report stage was held on 20 November 2024. At report stage, 34 government amendments were made, all of which were agreed to. Four amendments from other parties were voted on, two of which were agreed and two of which were disagreed.

Third reading took place on 26 November 2024, and the bill was passed and sent to the Commons. It was introduced in the Commons on 27 November 2024 and its second reading took place on 16 December 2024.

Committee stage in the Commons was held over three sittings (on 9, 14 and 16 January 2025). At committee stage, three government amendments were made and there were fifteen other divisions on amendments.

Report stage and third reading are scheduled for 28 January 2025.

Stakeholder reactions

The bill has been broadly welcomed by Members of the House of Lords, environmental and customer groups, although all these stakeholders have raised criticisms of some of the provisions.

Members of the House of Lords scrutinised the bill line by line, and raised concerns around the broad nature of some of the measures included, as well as criticising the current state of the water sector. The two notable opposition party amendments that were agreed at report stage in the Lords were to introduce reporting requirements around ‘financial engineering’ of water company finances and to require any rules on performance-related pay to be subject to affirmative procedure.

Environmental groups, including the Wildlife and Countryside Link consortia, have supported the bill’s aims and have encouraged Members of the House of Lords to introduce more stringent requirements, particularly in relation to pollution reporting and mitigation. The Consumer Council for Water has said that it looks forward to giving people and communities “a more powerful platform to hold water companies to account”.

Water companies have been less supportive of the bill. Some companies have said that the measures proposed around executive pay would create a challenge to investment and talent retention within the sector. However, the trade body Water UK welcomed the launch of the government’s Independent Commission alongside the bill and acknowledged that “the current system is not working and needs major reform”.