Tom Melhuish 6 min read

What is Ofwat and why it is being abolished

On 21 July 2025, the UK Government announced that Ofwat, the water regulator, would be abolished and replaced by a single, more powerful regulator. This change represents the most significant overhaul of water regulation in decades.

This guide explains how the Government reached this decision and what it is likely to mean for the water industry.

Over the next few years, as the new regulatory structure is introduced through legislation, Ofwat will continue overseeing the water industry in England and Wales. This guide also sets out its current roles and responsibilities.

Plans to abolish Ofwat

In July 2025, a major Government-initiated review of the water industry issued its final public report: The Independent Water Commission report.

The report recommended combining the powers of Ofwat, the Drinking Water Inspectorate, and the water environment functions of the Environment Agency and Natural Resources Wales into a single regulator.

Following publication, the UK Government announced its intention to adopt the report’s recommendations and abolish Ofwat in its current form.

This section outlines the key findings of the report regarding Ofwat and its regulation of the water industry.

Challenges in the water industry

The Independent Water Commission was created by the Government in 2023 in response to growing public anger and distrust in the water industry over issues such as:

Sewage pollution in rivers – A significant rise in the volume of raw sewage being discharged into rivers and the sea.
Nutrient pollution from agriculture – Run-off of phosphorus and nitrogen from farms contributing to poor water quality and the loss of river habitats.
Profiteering from water companies – Perceived unfairness in dividend payments and management bonuses made by private water companies.

The Commission was tasked with conducting a fundamental review of the regulatory and governance framework for the water sector in England and Wales.

Deficiencies in Ofwat’s regulation

The Independent Water Commission report is highly critical of Ofwat and the wider regulatory framework of the water industry.

The main criticism is that Ofwat has consistently prioritised cost-cutting and short-term efficiency over long-term investment in British water infrastructure.

The report states that Ofwat was incentivised to keep domestic and business water rates low rather than allow water companies to invest in necessary improvements to sewage treatment works or the construction of new infrastructure.

A key indicator of this is the fact that only one new reservoir has been built since privatisation in 1989, despite a rising population and increasing water scarcity.

💡 In response to this criticism, the most recent Ofwat water price review in April 2025 resulted in a significant rise in water price increase for businesses and households to fund new water infrastructure.

Recommended changes to the structure of water regulation

The report suggested that the current regulation of the water industry is too fragmented, with separate regulators leading to contradictory and competing priorities.

It argued that the regulation of the environmental impact of the water industry (by the Environment Agency) should not be considered separately from its economic objectives (by Ofwat).

The report concluded that the entire water industry should be overseen by a single new regulator that integrates the responsibilities of:

Ofwat
The Environment Agency’s water functions
Natural England’s water functions
The Drinking Water Inspectorate

Recommend changes to water regulation

Here is a summary of the proposed reforms to the regulatory approach of the water industry:

Balancing long-term resilience with affordability – Ensuring that all water companies have sufficient funding to maintain the resilience of water infrastructure.
Enforcement and monitoring – Introducing tougher penalties against water companies for polluting activities and expanding independent monitoring of those companies.
Stronger governance – Establishing a new regime for governing individual water companies.

What’s next for Ofwat

In July 2025, Steve Reed, the Secretary of State for Environment, Food and Rural Affairs, announced the Government’s intention to abolish Ofwat and create a single, more powerful regulator, in line with the recommendations of the Independent Water Commission report.

The proposed changes to regulation will be consulted on in autumn 2025 and legislated for in a new Water Reform Bill.

Creating the new legislation will require the following process:

Public consultation
Drafting of the legislation
Passage through the House of Commons and the House of Lords
Implementation

Given the typical pace of Government, Ofwat’s current structure and functions are likely to remain unchanged for the next few years. The remainder of this guide explains Ofwat’s existing roles and responsibilities.

Who is Ofwat?

Ofwat is a non-ministerial Government department that acts as the economic regulator for the water industry. Its role is to improve the experience of water consumers by promoting competition among the private companies operating in the sector.

For a recap of all the individual organisations involved in the water industry, see our comprehensive guide to understanding the British water industry.

Ofwat is responsible for ensuring the legal compliance of all water companies and licensed business water suppliers operating in the English and Welsh water markets.

Ofwat is funded by the water industry through licence fees recovered from water companies.

What does Ofwat stand for?

Ofwat is an acronym for Office of Water Services.

What does Ofwat regulate?

Ofwat regulates the for-profit companies operating within the water industry. In the early 1990s, the Government privatised the sector to promote competition and improve performance.

Privatisation means that many different for-profit companies now operate in the industry. Ofwat regulates these companies to ensure that their incentives align with the best interests of customers and the wider environment.

Ofwat regulates the following companies:

Water and wastewater companies:

Anglian Water
Dŵr Cymru
Hafren Dyfrdwy
Northumbrian Water
Severn Trent Water
South West Water
Southern Water
Thames Water
United Utilities Water
Wessex Water
Yorkshire Water
Affinity Water
Bristol Water
Portsmouth Water
South East Water
South Staffs Water
SES Water

Licensed business water suppliers:

Advanced Demand Side Management Limited
Anglian Water Business (National) Limited
Cambrian Utilities Limited
Castle Water Limited
Clear Business Water Limited
ConservAqua Limited
Everflow Limited
First Business Water
Olympos Water Limited
Pennon Water Services Limited (Source for Business)
Pinnacle Business Water Limited
Scottish Water Business Stream Limited
Smarta Water
Sutton and East Surrey Water Services Limited (SES Business Water)
Veolia Water Retail (UK) Limited
The Water Retail Company Limited
Water Plus Limited
Water 2 Business Limited
Waterscan Limited
Yu Water Limited
Blue Business Water Limited
Commercial Water Solutions Limited
Pure (CGV) Limited

In the deregulated commercial water market, businesses can choose their water supplier. Find the best deals available in the water market using our business water comparison service.

What is the Water Industry Act 1991?

The Water Industry Act 1991 sets out the duties of Ofwat as the economic regulator for the water industry. The Act requires Ofwat to:

Improve the experience of water users by promoting effective competition in the industry.
Ensure that water companies meet their legal obligations.
Ensure that business water suppliers meet their legal obligations.
Ensure that water companies are appropriately financed.
Safeguard the long-term viability of the water network in England and Wales.