Digesting the Independent Water Commission’s interim report

17 June 2025

The Independent Water Commission published its interim report in early June, signalling its direction of travel in advance of its final report due later in the summer. Does it signal the reset many in the water sector and stakeholder community wanted?

The simple answer is no, because so many – even within the sector – now judge the Independent Water Commission’s ambition against the degree to which the overall privatised model might be changed. Renationalisation was explicitly off the table in terms of scope. Campaigners have complained that this means the review can’t be independent or address the elephant in the room. Some intimate that this is down to the chair of the commission, Sir Jon Cunliffe, or the Department for Environment, Food and Rural Affairs (Defra), which appointed him.

Renationalisation was explicitly not allowed on the table by government. That’s not Sir Jon’s decision (though he could have refused the job in response to such limitations). And personally, I don’t feel that this is Defra’s malign interference over a proper investigation of the regulatory failings of which it has had departmental oversight, as some have suggested.

Defra is not a ‘big dog’ government department and will have been told in no uncertain terms by the big dogs not to mess with things, given the state of the nation’s finances. The edict from chancellor Rachel Reeves et al is clearly not to spook the investor horses, given the amount of infrastructure needed nationally in coming years.

So fundamentally, the Cunliffe Review is not going to cause big waves.

Waste of time?

Does this mean that it’s a waste of time, that will tinker with the deckchairs on a sinking Titanic of an industry and water environment? Not as such. In A Fresh Water Future, we stated that, “Practitioners did not consider that the entire water management system is broken. However […] it needs a detailed and thorough review and programme of improvement to ensure it is fit for coming decades.”

We also said that a big part of the focus needed to be on delivery. Across water regulation, regulatory, monitoring and enforcement capacity, policy and planning alignment. On making development like housing sustainable from a water point of view, and by more ambitious investment in and regulation of land management activities like agriculture.

This delivery focus aligns with the findings of the Office for Environmental Protection (OEP) on why we’re failing so abysmally on delivering against Water Framework Directive targets. It’s in the deficiency of commitment to actually implementing the regulations and approach.

The Spending Review signalled no prospect of a sudden epiphany on the part of a government who promised much on the campaign trail to deliver for the environment and nature. So far in office it appears to regard environmental protections and investment as an inconvenience to its growth ambitions, despite the efforts of Defra ministers.

So the Cunliffe Review is not going to lead to a fundamental change in ownership model for the water companies. It’s unlikely to lead to a dramatic increase in regulatory capacity. It probably will yield a technocratic refinement of the regulatory landscape to make it more efficient, effective and aligned. Able to unlock a bit more for less. Rebalance things beneficially, a bit.

Those things are bankable in principle while the big ‘P’ politics questions of private versus public, or municipal or other ownership models for water companies are swept under the carpet until general election. They won’t go away (they never have).

If ownership models do ever change, whatever the future holds will need better planning, more aligned policy and regulation, more systems understanding and consideration, more local and regional democratic accountability. Getting those things in place would be a step forward, though clearly not the leap in a different direction many want.

The direction of travel

What’s being suggested then? The Commission is focusing on five main areas: strategic direction and planning; the legislative framework; regulatory reform; company structures, ownership, governance and management; and finally, infrastructure and asset health.

On strategic direction and planning, it calls on the government to set out clearly the priorities for the water system as a whole. This would be welcome, building on previous efforts like the Plan for Water (or perhaps the Environmental Improvement Plan, which isn’t mentioned in the interim report).

But equally welcome would be strategies that are actually taken forward and stuck with, rather than archived because they were produced by a previous government, set out without the means to deliver on them or with fundamental components of policy area not covered (like housing, highways, or farming).

The report says that Defra’s strategic priorities statement giving Ofwat a steer on requirements for the next water company business planning round needs wider applicability. Also that it should extend beyond just Ofwat and should be better structured around real priorities and deliverability timescales.

Water system planning is proposed at the regional level, hung around river basins and with multi-sectoral involvement. This would be welcome, but again the vital aspect would be the commitment to resourcing it so it works and is delivered effectively, such that it starts to unlock bigger outcomes and efficiencies.

On the legislative framework, the commission says that this has become labyrinthine and badly needs rationalisation to remove overlapping and contradictory requirements. It names the Water Framework Directive and urban wastewater treatment regulations. There are plenty who feel that the Water Industry Act needs similar review.

The commission points out that it doesn’t itself have the capacity to undertake that legal and regulatory review. This would be a major piece of work for the government, but a necessary one. This aligns with comments made by OEP head Natalie Prosser at our A Fresh Water Future conference last year that before the government makes any new legislation it should first ensure existing laws are workable and actually being implemented.

The regulatory reform section of the interim report identifies a clear lack of trust in the regulatory system that is intended to protect public interest in a monopoly. On economic regulation, it advocates a shift away from relying so heavily on cross-industry baselining of investment programme costs, informed by econometric modelling to assess how much value for money different companies are offering in their business plans. Instead, it suggests an approach that focuses on a company-by-company supervisory approach by Ofwat, built on senior-level understanding of specific company circumstances. It proposes a significant enhancement on engineering and financial engineering expertise within the regulator to enable the necessary judgment on these things.

There may be scepticism around this approach by those concerned about the historic employee revolving door and risks of a close-and-cosy relationship between company and regulator, rather than a detailed understanding informing more intelligent regulation. Without a quickly evident improvement in performance, this could become a flashpoint. But few would argue with the need for improved engineering (of either kind) within Ofwat.

On environmental regulation, the commission proposes that its catchment-system planning proposals, allied to improved use of digital monitoring and permitting, should unshackle regulators’ capacity on monitoring and enforcement. This should at the same time support a less risk-averse culture within companies to innovate and make better use of nature-based solutions, all the while advancing prioritisation of environmental and public health outcomes.

Again, this has the potential to lead to scepticism; it sounds like a hope that tech will enable environmental regulators to do more with less (or the same) resource – something it has been working towards for some time already. Whilst many postulated that there may be some structural reorganisation of the regulator landscape proposed by the commission, this hasn’t so far materialised.

The commission, of course, has not been permitted to consider options to fundamentally shift away from the privatised model but it notes that it is still looking at company structures, ownership, governance and management as means of more overtly bringing public interests to the fore.

Emphasis is on attracting the ‘right’ investors – think less hedge fund, more pension fund. The commission says that this, above all, is the factor which affects good performance or otherwise (as opposed to being publicly listed or fully private equity-owned). The commission points to reduced levels of investment confidence ratings in the UK water sector and proposes a long-term government strategic plan to address this.

Elsewhere it appears content that moves to rewrite company articles of association to place stronger emphasis on public purpose, and to improve customer engagement with boards, are enough for now. Although it is also investigating rules which could be beneficially applied to management approaches to improve performance.

The final area of focus, infrastructure and asset health, recognises challenges incumbent in having extensive buried assets, some of which haven’t been mapped. Also, Ofwat’s approach to maintenance and renewal, which has been informed by past rates of renewal, rather than the need to proactively improve resilience to future climate change and other pressures.

There is clear recognition that there needs to be a serious shift in pace of these kinds of activities and the commission suggests that close company supervisory role for Ofwat could help prioritise this. With future water company investment rounds likely to be large for a long time to come, having a big enough and appropriately skilled supply chain able to service this level of delivery will be critical.

The probable destination

All in all, this feels like the technocratic direction of travel that the water industry in its current guise would gladly accept and that the campaigner community will find inadequate. CIWEM members will likely sit in various places across this spectrum depending on their background and world view.

If the final report takes this direction to a moderate conclusion without any rabbits out of the hat and government implements its recommendations, will it radically shake up the water sector? Absolutely not.

Will it lead to healthy and resilient rivers, lakes and seas by, say, 2050? Not without government ultimately taking the recommendations and deciding to turn the ambition dial up to 11, in terms of funding and commitment to deliver at a systems-scale.

Will it possibly halt the decline in that health and resilience, put a stop to the kinds of corporate behaviours that have so discredited the sector, and genuinely improve a few things in some important areas? Quite likely.

This review had a limited scope and that will ultimately play out. Its call for evidence demonstrated a strong understanding of the system but its focus is largely water industry regulation. It will no doubt authoritatively observe all the wider pressures on our water system. But, if it’s not even dramatically shaking up the sector it’s focused on, it will have minimal impact on housing, highway runoff, agriculture, chemicals and the other systemic pressures collectively hammering our water environment. We still need a fresh water future.

You can read A Fresh Water Future here.

Alastair Chisholm also contributed to the 'Managing rainwater where it falls: EWSC response to the Independent Water Commission', produced by the Enabling Water Smart Communities (EWSC) project.

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Alastair Chisholm is director of policy at CIWEM