I thought it might be helpful to offer a water industry perspective on the committee’s inquiry into environmental regulation. I am writing with a summary of our views and would be more than happy to provide further detail on any aspect of these (or examples of how individual issues have led to specific examples of problems) should the Committee find that useful.     

This letter draws on Water UK’s evidence to last year’s Independent Water Commission led by Sir Jon Cunliffe. This set out our core diagnosis: the water industry is governed by a regulatory system which has become too complex, too expensive and too slow. This has not served customers, the environment or the industry well.

In the UK government’s water White Paper ‘A New Vision for Water’, responding to Sir Jon’s final report,  published in January 2026, it says that “for too long changes to the water system have been piecemeal or disjointed, pulling regulators and companies in different directions – not delivering better outcomes, but adding to regulatory complexity and burden”.[1] We agree with the UK Government’s conclusion.

This letter also draws on, and aligns with, earlier work by Dan Corry, in his independent review of Defra’s wider regulatory landscape. He found that the regulatory system needs to “become a system focused on delivering positive outcomes for nature and the environment and to be an aid not an impediment to sustainable growth.”[2]

The creation of the Independent Water Commission and the UK government’s White Paper reflects a recognition by government, the public and the water companies that the current system of regulation is not working as it should. Improving performance and rebuilding the public’s trust in the water sector will require a fundamental reset to the system. Turning specifically to environmental regulation, as an industry we have three principal interests:

1. The role of environmental regulation in directing expenditure and holding companies to account for their performance. Between 2025 and 2030, the water companies of England and Wales will invest £24 billion in achieving environmental outcomes.[3] Our view is that some of this expenditure could be better targeted to improve value for money if Defra enabled regulators to:

• make fewer ‘one size fits all’ national rules and targets. One example can be found in the target to reduce the amount of water taken from the environment (an approach involving something known as ‘environmental destination’). This does not always reflect local environmental needs, so directing billpayer-funded investment to projects that may be unnecessary.
• use more flexibility over the nature of improvements companies are directed to deliver. For example, certain targets and rules are designed in a way that precludes the consideration of wetlands and reed beds as projects, even if they could lower costs on bills and improve environmental outcomes by delivering new habitats.

2. The role of environmental regulation in enabling – or too often, in our view, constraining – the construction of infrastructure needed to provide improvements for customers or the environment, such as new water treatment works. We plan to spend £66 billion[4] on capital works between 2025 and 2030 so have a strong interest in the relationship between environmental regulation and development.
3. The specific role of environmental regulation in forecasts of future water needs, and the assumptions made by regulators about the availability of water for new housing and business. There are two aspects to this:
1. we have long contended that there are important errors in the Environment Agency’s approach to regulating water availability (for example, using incorrect population forecasts and makes assumptions about policy changes taking place that are no longer possible in the time available). These forecasts inform planning for water demand across the country. Such errors have led to a situation in which there is:
• insufficient water for housing and growth in parts of the country,
• more water being taken in times of drought than is safe for species, and
• public water supplies being exposed to higher than necessary risk.
2. the Environment Agency has an unsophisticated approach to requiring abstraction reductions (which are applied generically across the country) regardless of environmental need. Its approach is almost certain to underestimate the need to reduce abstraction in some places and, more commonly, in other places exposes billpayers to the need to fund unnecessary abstraction-reducing projects.

Across all of these interests, we see three common problems:

1. Environmental regulation is too complex, as Dan Corry found in his review.[5] Ofwat’s most recent ‘price review’, which determines (among other things) how much companies can invest in environment improvements, required the submission of 53,000 pages of data at the cost of £250 million. Since “final” decisions by Ofwat in December 2024 (which supposedly set environmental obligations and projects until 2030), the Environment Agency and Defra have issued several consultations about further changes to environmental rules, some of which sharply increase cost without a cost/benefit analysis and will impact bills in excess of costs originally shared with Parliament. In addition, different regulators have historically taken contradictory and changeable interpretations of legislation which have the effect of unpredictably changing standards, again increasing infrastructure costs. 

2. Regulation is risk averse, as the National Audit Office has observed. The National Audit Office found that, “An overly risk-averse culture in Defra and the regulators has restricted some efforts to innovate and embrace new approaches.”[6] Such risk aversion encourages them to focus narrowly on literal interpretations and compliance with limited reference to ‘real world’ outcomes. Importantly, such risk aversion results in a narrow, highly prescriptive and counterproductive drafting of legislation (of which there are several notable examples) and regulatory intransigence. Instead, regulators could also show more flexibility – including by accepting a degree of risk - where that could significantly improve environmental outcomes.
3. The combination of complexity and risk aversion has led to poor regulatory rules. For example, dense and overlapping environmental rules, all subject to interpretation, can play a counterproductive role in the planning system by stopping development from taking place even where it would improve environmental outcomes (for example by blocking a scheme that would otherwise reduce the abstraction of water from a low-flowing river). In our view regulators prioritise avoiding even low-viability legal challenges, leading to a system that is:

• Too cautious: regulators require excessive evidence or excessive mitigations to address theoretical environmental risks from development.
• Too uncertain: for water companies, as for other developers of critical national infrastructure, the standards they have to meet are uncertain, which can lead to expensive late-stage design changes. This problem can be exacerbated by local planning authorities who impose their own local requirements on infrastructure designed to meet regional or national needs.
• Too slow: all of the above can take a very long-time to address, as can relatively simple issues such as the issuing of permits – of which far too many are needed for very low risk activity. Additionally, other aspects of the system, such as the granting of planning consents by local authorities, also leads to delays, again partly because of the legal risk in the system.

4. There are insufficient resources and skill gaps in Defra and its regulators, as the National Audit Office has found.[7] As a result, the National Audit Office has said that, “Defra and the regulators face significant risks to delivering the volume of change needed to realise the opportunity for ambitious reform of environmental regulation.”[8] At the launch of the Independent Water Commission’s comprehensive report on the water industry, Sir Jon Cunliffe affirmed the National Audit Office’s assessment when he concluded that:

“it is clear that the Environment Agency has not had the resources, the people, skills, technology to hold the water industry and other sectors that impact the water environment to account.”[9]In our view, this gap exacerbates the earlier issues described above by reducing the ability for regulators to give certain issues proper and thorough consideration. It has also led to backlogs in decision-making (such as on issuing permits) and may be contributing to a disconnect and occasional tension between advice and guidance issued by national versus local teams.

We believe there to be two changes needed to overcome the challenges described above:

1. We agree with Sir Jon Cunliffe that the creation of a single new water regulator would help to overcome these problems. However, it must happen as soon as possible. The new regulator will bring a new culture, which, if coupled with clearer strategic guidance from Defra on environmental outcomes and the manner in which they must be delivered, will deal with much of the problem. The creation of a single new water regulator should be coupled with a comprehensive and new ‘Strategic Policy Statement’ and ‘Ministerial Direction’ from government to Ofwat and the Environment Agency as soon as possible, as these are the only powerful tools government has to effect change on the regulator. In the absence of these things the current regulators will continue to underestimate water needs and take decisions which contradict each other and the stated ambitions of the current UK Government.

2. Narrowly prescriptive interpretation of rules and targets in legislation (such as requiring concrete tanks instead of wetlands, even where the latter is thought to be better for the environment and cheaper for the bill payer) need to be replaced. Such prescription applies to the targets set under the Environment Act, the Urban Waste Water Treatment Regulations and the Water Environment (Water Framework Directive) (England and Wales) Regulations. There must be no diminution of environmental ambition, but far more flexibility afforded to regulators to allow them to do the right thing.

January 2026