What’s new?

On 21 July 2025, the recommendations of the Independent Water Commissioner were published, marking a significant turning point for the governance of the water sector in both Wales and England. The headline: Ofwat is to be abolished. Powers previously scattered across multiple regulators will be consolidated into new bodies, with Natural Resources Wales (NRW) potentially absorbing many of the economic regulatory responsibilities in Wales.

The Cunliffe Report sets out a bold vision: separate, unified regulators for Wales and England; eight regional water planning authorities in England; and a single, national authority for Wales.

‘Chwarae teg’, this report is very cogniscent of the issue of devolution. In fact, there is a whole section on implications for Wales that I have replicated at the bottom of this blog post.

But what has this got to do with governance?

The water industry and governance

Why does this matter?

Because governance in the water sector—especially in England—has long been a source of controversy. As highlighted in this LSE blog, corporate excess, poor environmental outcomes, and unchecked boardroom bonuses have become the norm in England’s privatised system. Companies like Thames Water have faced staggering fines for pollution while continuing to reward shareholders and executives handsomely. In a monopolised market where customers can’t switch suppliers, this leads to a dangerous dynamic: even in failure, companies hold powerful leverage over government.

England remains the only country in the world where the water industry is fully privatised. With water being an essential resource and public monopoly, the question arises—should profit even play a role? Without the profit motive, governance becomes more transparent and accountable. And indeed, the rationale for private monopolies in such a fundamental service becomes increasingly hard to defend.

Wales: a different model, same challenges

From a Welsh perspective, it might be tempting to feel insulated from these issues. The main water provider in Wales, Dŵr Cymru, operates under a not-for-profit model. Unlike in England, there are no shareholders siphoning off dividends. In principle, this structure should allow more of the money collected from customers to be reinvested in infrastructure, customer service, and environmental protection.

Yet reality is more complex.

The pay for top executives in Dŵr Cymru has caused concern at a time of significant failures in environmental performance, rising bills, and the ‘cost of living crisis’ for many citizens.

While environmental outcomes in Wales may appear better, this is possibly because assessment standards differ from those in England. Pollution incidents in the Dŵr Cymru system are reportedly at a decade-high, according to recent data from NRW. Moreover, Afonydd Cymru points out potential gaps in regulatory stringency that may be hiding the true extent of Wales’ challenges.

It’s clear that governance—even under a not-for-profit model—requires more than good intentions. Would public ownership, as in Scotland, improve outcomes, or are things more complex due to Wales’ rurality and comparatively large amount of farmed land?

Governance as the keystone for Wales

The governance of water in Wales is at a pivotal moment.

While the not-for-profit model offers a principled foundation, it is not sufficient on its own to guarantee environmental quality, consumer protection, or resilience in the face of climate change. The abolition of Ofwat creates an opportunity—and a responsibility—for Wales to design a regulatory system that is aligned with its devolved values and long-term vision.

Key governance challenges for Wales include:

• Establishing a truly independent economic regulator with the power and capacity to reflect Welsh priorities.
• Aligning environmental regulation with stronger enforcement, improved monitoring, and data transparency.
• Avoiding fragmentation by ensuring integrated planning across agriculture, health, infrastructure, and climate.
• Building resilience into water systems and governance structures, with the support of robust metrics and public accountability.
• Ensuring public trust and consumer voice through meaningful participation, independent oversight, and protections for vulnerable users.

In short, governance is not just about managing water—it’s about stewarding a national resource for the benefit of current and future generations. Wales has the legislative tools and the public ethos to lead the way. The question now is whether the political will and regulatory structure will rise to meet the moment.

Appendix: Cunliffe review – executive summary for Wales

1. In reviewing the water industry across England and Wales, the Commission has acknowledged the distinct and unique nature of the water system in Wales. Water holds deep cultural significance in Wales, and it remains a sensitive issue, particularly due to historical events such as the creation of the Tryweryn reservoir.
2. Since devolution, Wales has gained increasing authority over water and environmental policy. These areas are now fully devolved.
3. One of the key differences in approach is the way public bodies in Wales, including the Welsh Government and NRW, are required by law, through the Well-being of Future Generations (Wales) Act 2015 and the Environment (Wales) Act 2016, to work together to ensure the sustainable management of natural resources for current and future generations. This has driven certain differences compared to England, a notable example is the Price Review Forum, convened by the Welsh Government to bring together regulators, water companies, and stakeholders during the water industry price review process in a collaborative way. 
4. The pressures facing Welsh water systems are also different. Wales has a significantly higher proportion of land used for agriculture, 90% compared to 67% in England. Agricultural and transport runoff are major contributors to river pollution in Wales, with 62% of phosphorous loading across Special Areas of Conservation (SAC) rivers in Wales attributed to agriculture, with 28% attributed to storm overflows.
5. The recommendation for a new National Water Strategy for Wales will establish a stronger national direction for the Welsh water system, with a clear framework of priorities and interim targets to drive delivery. For the two Welsh water companies, Dŵr Cymru and Hafren Dyfrdwy, this will be bolstered through a new Ministerial Statement for Water Industry Priorities.
6. A new independent national systems planner will enable a more integrated approach to planning across the range of sectors interacting with water in Wales, including the agricultural sector. It will also have responsibility for directing important sources of funding in line with priorities set out in the National Water Strategy for Wales. As noted in Chapter 8, the Welsh and UK governments will need to ensure effective cooperation agreements to manage cross-border water bodies such as the Wye.
7. A review of legislation, including the WFD Regulations and UWWTR should ensure legislation is updated to better align with the Well-being of Future Generations (Wales) Act 2015 and other Welsh priorities. The introduction of public health in a new water framework, supported by evidence from a new public health taskforce led by the Welsh Chief Medical Officer, is a significant change aimed at ensuring recreational water use in Wales is better considered.
8. This Chapter also recommends that the concept of constrained discretion is taken forward across Wales. This is not a new concept, however there is cultural and legislative change needed to encourage its effective deployment, within constraints, in Wales. In NRW there are already alternative options for testing innovative solutions through experimental powers, but these are not widely used due to risk of challenge or a perception that traditional approaches will provide quicker and more reliable solutions.
9. The Commission has heard ongoing concerns about Ofwat’s ability to balance the needs of England with the needs of Wales. The Commission recommends the Welsh Government should establish a new economic regulator for Wales, which could be integrated into NRW. Alternatively, it could sit as a stand-alone body.
10. This would be a significant development, which would ensure that economic regulation of Welsh water companies better reflects the priorities and context of Wales. It is likely to take some time to establish any new arrangements, given the need for primary legislation. Transitional arrangements, which interface with the new English regulator will ensure stability in the intervening period.
11. The Commission recommends the Drinking Water Inspectorate (DWI) continues to operate across Wales and England, reporting to the Welsh Ministers and Defra Secretary of State. The DWI commands significant public respect and maintaining a Wales and England basis would support ongoing confidence in drinking water. These functions are clear, scientific and evidence based.
12. The economic regulator for Wales would perform a supervisory function to better oversee the performance and improvement of Welsh water companies.
13. With respect to environmental regulation, the Commission proposes that NRW requires stronger environmental oversight in the following areas:
    1. reforming monitoring practices, including operator self-monitoring; 
    2. improving regulatory oversight of sludge using the environmental
    3. permitting regulations;
    4. expanded enforcement powers; and
    5. improved capacity and capability to support improvements.
14. The Commission concludes the system for drinking water regulation is delivering high-quality outcomes, but a review of drinking water standards would ensure continued provision of high-quality drinking water, considering emerging risks. The Commission also consider the DWI should have powers to cover all third-party operators.
15. With respect to water resources, around 95% of Wales’ water supply comes from surface water, with only 5% from groundwater. Wales must therefore capture and store much of its water supply. However, the UK Climate Change Risk Assessment warns that rising temperatures will likely increase consumer demand and evaporation from reservoirs. This highlights the need for Wales to invest in resilient water infrastructure and long-term planning. Furthermore, the Commission notes that:
    1. current measures to identify and repair leaks should continue to be a primary focus for water companies 
    2. regulation of water abstraction activity should also be strengthened
    3. household consumption and demand needs to be reduced, and the Commission recommends introducing compulsory smart metering in a greater range of circumstances 
    4. Measures to reduce non-household consumption should be introduced, including removing regulator barriers to water re-use.
16. With respect to Welsh consumers, the Commission believes they are still not adequately protected. The Commission’s recommendations for an enhanced customer experience metric will enable the regulator to better hold companies to account to deliver high standards of customer service. The Commission also recommends the Welsh Government reviews social tariff schemes in Wales and considers reforms to ensure these are adequate to support those facing water poverty. Consumer protections will be further strengthened through the creation of a mandatory ombudsman for water for England and Wales.
17. Wales is primarily served by Dŵr Cymru Welsh Water, a not-for-dividend company owned by Glas Cymru. The remainder of customers are served by Hafren Dyfrdwy, a small private water company which is part of the larger, England-based Severn Trent Group. As a result, the public debate in Wales does not focus on for-profit water company models of ownership. However, the Commission believes all water companies need to be managed according to higher standards of corporate governance. A new regime for senior water company individual accountability should be established by the Welsh government.
18. The Commission recognises the Welsh Government’s concerns around fragmentation from competition initiatives. While the Commission is recommending reform to support the BRM and NAV market in England, the Welsh Government may wish not to pursue these reforms.
19. The UK and Welsh governments will need to work collaboratively to ensure infrastructure decisions include Welsh priorities. 
20. Statutory resilience standards, covering system, infrastructure and supply chains, should be developed and adopted for the water industry in Wales. Resilience standards should ensure all companies make forward-looking, long-term assessments of their systems and assets and of their ability to recover from disruption to their network.The Welsh Government should strengthen the requirements on companies to map and assess the health of their assets, and the regulator should ensure metrics for asset health are sufficiently forward looking.
21. The National Infrastructure Commission for Wales (NICW) is currently reviewing water infrastructure needs for Wales and the Commission recognises that decisions on infrastructure and asset health should be taken forward by the Welsh Government with consideration to NICW’s findings.

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This blog post is the personal opinion of David Clubb. Locally based, open source AI was used to help draft this post.

Photo by Rachel Vine, courtesy of Pexels