The IWC's findings confirm what many stakeholders have long suspected about the current water framework in England and Wales. It's fragmented, reactive, and no longer fit for purpose. These findings are echoed across responses from the public, industry, and government, as summarised in the IWC’s consultation analysis (see below). For instance, among those who prioritised an ‘improved water environment’, only 12% felt this was being delivered to some extent, while a striking 88% believed it was delivered very little or not at all. Similar results were seen across other key priorities identified by respondents.
To what extent do you believe the overall water framework already delivers the outcome you chose as your highest priority?
Note: Percentages are rounded, so totals may not add up to exactly 100%.
The IWC is therefore calling for a cross-sectoral strategy, centred on long-term priorities for systemic reform. If implemented, its 88 recommendations could reset the sector’s trajectory.
Key changes to the water framework in England and Wales are already visible. The Government has backed a new integrated regulator for England, combining Ofwat, the Drinking Water Inspectorate (DWI), and the water functions of the Environment Agency and Natural England. New economic regulatory functions would also be embedded within Natural Resources Wales. These reforms reflect the commission’s view that stronger, more accountable oversight is needed to rebuild public confidence and deliver better outcomes.
Investor sentiment remains cautious. The withdrawal of private capital and ongoing credit concerns illustrate a crisis of confidence. The commission’s final recommendations go further than before, proposing a new supervisory model of regulation, and a financial supervision regime. Together, these aim to de-risk investment and signal a return to stable, long-term planning.
The sector faces a 70% uplift in capital expenditure over the next five years, and nearly £300 billion of investment over the next 25. The commission recognises that the five-year price review cycle continues to encourage short-termism, and has recommended that while it should be retained for setting water bills and company revenues, investment planning should be conducted on a 5/10/25- year basis.
It also urges the Government to publish a new national water strategy – long-term, cross-sectoral, and systems-based – to better guide regulation and investment. Crucially, it should include clearer cost-benefit analysis and milestones to track progress. The aim isn't just more money, but smarter, more targeted investment.
Water companies are increasingly identifying asset health and system resilience as the defining challenges of the coming decades. The commission’s final recommendations reinforce this, calling for a new statutory duty on the Government to set long-term strategic direction for the water system, underpinned by legally binding resilience standards and the development of forward-looking asset-health metrics. Recognising the diversity of regional challenges, the report emphasises that national planning must be complemented by locally-tailored delivery.
The final report strengthens the commission’s earlier call for a shift from a remote, rules-based regulator to one that actively supervises performance and capability. This approach draws from financial regulation, where firm-level scrutiny, governance assessment, and early engagement are key to managing systemic risk.
The report recognises that the current 'one size fits all' approach to benchmarking and price reviews is necessary for some sort of objective comparison, but does fail to consider the very different challenges (for example, geography, hydrology, demography, and history) that each water company faces.
The commission proposes embedding a new supervisory function into the regulatory model, giving regulators the tools and remit to identify issues early, intervene proactively, and tailor oversight to firm-specific risks. This would sit alongside benchmarking and incentives, rather than replace them.
The commission also recommends greater use of delivery assurance tools and ‘regulatory sandboxes’ to support innovation. These sandboxes would allow water companies to test new concepts and innovative approaches, potentially in real-world conditions, without being subject to the full regulatory burden. National statutory resilience standards are also proposed to guide long-term investment in asset health and infrastructure.
This new model would also underpin financial oversight. Companies in cash lock-up or near downgrade would be monitored through this lens, with more structured recovery regimes to protect customers and the system. Investors have welcomed these proposals as a step towards predictability and improved risk-adjusted returns.
The report reiterates the case for aligning investment and outcomes with natural systems through catchment-based planning. It recommends the establishment of nine new regional water authorities in England take the lead on systems planning across the water cycle. These authorities would integrate water supply, drainage, wastewater, and environmental considerations, and bring together local government, land-use planners, public health bodies, environmental groups, and consumer representatives to ensure regional priorities are reflected in decision making. In Wales, the commission proposes the creation of a national systems planner, tasked with integrating cross-sector planning and guiding investment in line with a new national water strategy for it.
With support from the economic regulator, systems planners would be responsible for requiring, supporting, and scrutinising a more robust approach to option development and cost-benefit analysis across water-industry planning.
They would jointly undertake a comprehensive assessment of infrastructure delivery needs, benchmarked against the capacity of the supply chain to deliver.
Systems planners would enforce consistency in scenarios, assumptions, and metrics across the new planning framework to support coherent and comparable decision making
While investor confidence is a key pillar of a functioning sector, public legitimacy rests just as firmly on how customers are treated – particularly those who are vulnerable or underserved.
To strengthen consumer protection in the water sector, the commission has recommended converting the Consumer Council for Water (CCW) into a mandatory Water Ombudsman, providing customers with access to legally binding complaint resolutions. This would ensure impartiality and build trust in a sector where customers can't switch providers. To maintain strong consumer advocacy, the commission proposes transferring CCW’s advocacy functions to Citizens Advice, leveraging its cross-sector expertise and public trust. This model replicates that of the energy sector and would be a productive reform for customers, provided it's properly implemented.
Ownership remains one of the most visible and contentious features of the water sector. The Commission’s view is that ownership model alone isn't the defining factor in company performance. Instead, what matters most is the business model of the underlying investors: their time horizon, approach to risk, return expectations, and willingness to reinvest capital.
While it's difficult to mandate changes to water companies' capital structures, the final report outlines recommendations that would give the regulator further powers to limit the control of owners through new primary legislation. These include:
A formal turnaround regime should also be established for the regulator in England and Wales to support improvements in poorly performing companies.
The IWC's report is the most ambitious blueprint for water sector reform in a generation. The next phase is implementation. Many of the proposals require new legislation, coordination between departments, and cultural change across the sector, but there are actions that stakeholders can take now.
This isn't just a regulatory reset – it's a once-in-a-generation opportunity to rebuild trust, unlock capital, and deliver the water system the public expects and deserves.
For more insight and guidance, get in touch with Oliver Snow or Stela Bagasheva.
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