Interim water industry reform recommendations include both welcomed and conflicting themes

The independent water commission – ‘Cunliffe commission’ – is chaired by Sir Jon Cunliffe. Its independent report (108 pages/6.6 MB) identifies five key areas in urgent need of reform, ranging from regulatory reform to infrastructure resilience.

Gordon McCreath, planning law expert at Pinsent Masons, said: “The interim report, like the review generally, covers a lot of ground. There is a lot to welcome but also some potentially conflicting themes. The report sensibly promotes a move to long-term investment planning – across the ‘water system’, involving all relevant sectors, not just the water industry – and integrating costs and affordability assessment at all stages, by all regulators. It also recommends a much-needed simplification of the legislation applying across the sector and specifically recognises the sometimes-perverse outcomes that simply applying the existing rules can produce.”

“At the same time, though, it proposes new layers of regional planning and a ‘strong and influential role’ for local authorities. A more holistic approach to the sector will inevitably need some new administrative structures, but any reform will need to be careful to avoid removing old layers of regulation and administration, only to replace them with new ones,” said McCreath.

The commission’s proposals call for a more integrated and strategic approach to water management. The report criticises the current fragmented system, where responsibilities are split across multiple regulators and agencies, leading to inefficiencies, inconsistent approaches and slow decision-making.

The report also calls for a review of company ownership and governance models, suggesting that some water companies may need to be regulated to prioritise public interest over shareholder returns. This includes proposals for stronger board-level accountability, greater transparency, and potential changes to dividend policies.

The report also touches on the urgent need to accelerate delivery of strategic resource options (SROs) – large-scale water resources and supply projects such as reservoirs, water transfer schemes, desalination plants and water reuse facilities. These projects are essential to addressing long-term supply challenges, particularly in the face of climate change and regional water stress.

Robbie Owen, infrastructure planning and government affairs expert at Pinsent Masons, said: “The interim report helpfully builds on the recommendations of the recent Corry review of environmental regulation and will really help with the programme of SROs currently in the pre-planning phase. The SROs present huge challenges not just to the consenting system but in their timely and cost-effective delivery, so real changes are undoubtedly required not just to the structure, detail and culture of our system of environmental regulation but also within Defra itself, which can often appear out of step with the government’s infrastructure strategy and reforms. As the government reviews the national policy statement for water resources infrastructure, it needs to consider the report’s recommendations carefully.”

In addition, the report urges the government to provide clearer policy signals and funding mechanisms to de-risk investment, including in the SROs. This includes exploring public-private partnerships and green financing models to support delivery.

Another area of particular interest to those working in the major projects world is the endorsement of the concept of “constrained discretion” for regulators, taken from Dan Corry’s review of Defra’s regulatory operations. This would give regulators the ability to flex requirements within certain limits to support delivery of projects like the SROs that, for example, achieve environmental, economic and other government policy objectives.

McCreath said: “The report rightly notes that central government needs to lead on the complex trade-offs required, by issuing guidance on how they should be weighed up.  It also notes that the government could provide a national coordination function and a route of escalation where it cannot be agreed what the outcome of the weighing up should be. Combine that with the Corry review’s recommendations of a lead environmental regulator on major projects and you have a potential dial shifter for major projects, where developers, regulators and stakeholders can work together to deliver the major benefits that the project is designed to achieve, rather than get stuck reconciling the complex web of conflicting subsidiary rules, standards and officer opinions.”

Beyond the ‘big kit’ projects, the commission stresses the need for sustained investment in the wider water infrastructure network and its continuing maintenance. The report notes that the input of many regulators in the current system often results in proposals for new capital works more naturally than the required maintenance of existing assets. This includes ageing pipes, treatment works, and storm overflow systems, to improve reliability, reduce leakage, and protect the environment.

The report warns that decades of underinvestment have left parts of the network vulnerable to failure, with asset health indicators showing a worrying decline. It calls for the upcoming 10-year national infrastructure plan to make appropriate provision for water, backed by long-term funding commitments and performance-based regulation to incentivise proactive maintenance.

The commission also supports the use of smart technologies and data-driven asset management to improve efficiency and resilience. It recommends that regulators require companies to publish detailed asset health metrics and investment plans as part of their business plan submissions.

Cunliffe’s final report is expected later in the summer and will inform government decisions on legislative regulatory reform, expected to follow swiftly after that.