By Adam Whittaker

The U.K. government plans to establish a new water regulator with more powers to replace Ofwat after an independent review into the sector.

The government said Monday that the proposal marked the biggest overhaul of the water sector in England and Wales since it was privatized. Ofwat's functions will be merged with those of four other government bodies that regulate the industry, it said.

The announcement follows a report that contained 88 recommendations from an independent commission chaired by the former deputy governor of the Bank of England, Jon Cunliffe.

"Ofwat has failed customers, allowing water companies to mismanage billions of pounds of customer money while water companies paid out huge dividends and bonuses," the government said.

In response, Ofwat said it would work with the government and the other regulators to form the new regulatory body and that the Cunliffe report marked an opportunity to reset the sector.

The state of the country's water networks has entered the political debate. The government's proposal comes at a time the prospect of nationalization looms over Thames Water after U.S. private-equity company KKR pulled out from an equity raise designed to help the utility company deal with its debt pile.

The U.K.'s environment secretary, Steve Reed, said the water industry is broken and that a new strategy will establish a new relationship between the government, the industry and investors in order to attract new investment. It will consult on its proposals in the fall before a new Water Reform Bill is put before Parliament.

The report recommends the regulator to have the power to block material changes in the control of water companies when there are concerns around the financial soundness, reputation, or managerial competence of the new owners.

It also includes a recommendation that the economic model governing water companies is reset, with the regulator adopting a more "supervisory approach" to regulating individual companies. The regulator should also set stricter financial requirements relating to ring-fencing capital for investments and operational expenditures.

Write to Adam Whittaker at adam.whittaker@wsj.com

(END) Dow Jones Newswires

July 21, 2025 10:16 ET (14:16 GMT)

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