Conscious uncoupling
Respective governments on either side of the border have set out their plans to reform water regulation in Wales and England. But can the opposing visions work or is a drawn-out, messy transition inevitable?
By Greg Pitcher, features writer
Conscious uncoupling
Respective governments on either side of the border have set out their plans to reform water regulation in Wales and England. But can the opposing visions work or is a drawn-out, messy transition inevitable?
By Greg Pitcher, features writer
Government responses to landmark water-sector reform blueprints are, it seems, akin to London buses. After the Independent Water Commission published its eagerly anticipated vision last summer, the industry waited almost six months for UK ministers to provide their reaction – then just 14 days later along came the verdict from Wales.
Those rapidly digesting Westminster's 49-page white paper and Cardiff's 87-page Green Paper in the weeks since have found a number of divergences in the way the two countries intend to move forward. The most noticeable difference is the decision to create a standalone economic regulator west of the border, outside of both enviro-watchdog Natural Resources Wales (NRW) and the incoming water oversight superbody in England.
"The Commission’s recommendation to embed economic regulation within NRW was considered in detail," the Green Paper states, leaving the reader in little doubt as to the end result of that consideration. "The Welsh Government has concluded that a free-standing body offers greater clarity, independence and strategic coherence, particularly in the context of wider regulatory reform and the need to ensure transparency and public confidence."
Meanwhile, UK ministers have been clear that they intend to move in the opposite direction and merge parts of several bodies together to create a single oversight body for water. "We will create a powerful new regulator by abolishing Ofwat and bringing together the relevant water system functions from the existing regulators (Ofwat, the Drinking Water Inspectorate, the Environment Agency and Natural England) into one new body," says the White Paper.
"This will replace the current fragmented system with one regulator capable of integrated management of the water system. It will be able to deliver better services for customers, joined-up regulation and a cleaner environment for nature and the public."
“We will create a powerful new regulator by abolishing Ofwat and bringing together the relevant water system functions from the existing regulators into one new body.”
Defra
Tricky transition
Key figures warn that one major outcome from these opposing visions is a messy two-stage transition that could see Welsh water companies deal with three different bodies over the next decade.
While Ofwat continues to handle spending negotiations with Welsh Water and Hafren Dyfrdwy for now, the new English super regulator is expected to be in place well before the Welsh standalone watchdog takes over. The UK Government promises a transition plan this year and has pledged to appoint leaders to the new body "at the earliest opportunity". Meanwhile, the Green Paper says the new Welsh economic regulator won't be operational until the "mid-2030s onwards".
The Welsh Government acknowledges this leaves the likelihood of "two transition periods to navigate".
Industry figures highlight the tension this could bring. "The timeline has raised some eyebrows among Welsh stakeholders," said one policy source. "Waiting 10 years for the change the Welsh Government wants. To what extent is it acceptable to have an English regulator overseeing Welsh companies for the next decade?”
Another industry figure raises the same point. "If there is an urgency for change then how can that pace be accelerated?" they ask, while acknowledging the difficulties in doing so, particularly if creation of a new regulator in Wales requires fresh devolution powers from Westminster. "Until you see UK legislation you don't know exactly what will be in it, so you can't decide exactly what is going to happen in Wales. There are also elections to the Senedd in May and likely a change of government and big changes in policy prioritisation. So there are a lot of unknowns."
They add that for an interim period at least, the English super regulator could have to take Senedd-made policy into consideration despite answering to Whitehall. Otherwise water companies in Wales could be stuck between acting in line with the demands of the country’s own politicians and avoiding penalties for missing targets set by a watchdog answering to another parliament with different priorities, they point out.
The white paper pledges that the UK Government will publish a joint transition plan with Wales this year to create a "roadmap" for transforming the water industry’s regulatory framework. "The plan will be supported by interim strategic policy statements from the UK and Welsh Governments for Ofwat and ministerial direction to the Environment Agency from the UK Government ensuring regulators have the direction and clarity they need during the transition," it adds.
Nonetheless, Mike Keil, chief executive of the Consumer Council for Water, moots a scenario whereby water companies in Wales could have to deal with different bodies in each of three price review processes – Ofwat for PR24, a new super-regulator in PR29 and the Welsh standalone economic watchdog in PR34.
"The big danger is spending so much time and energy working out how to [manage this transition] you take time and energy away from delivery of improvements people are desperate to see," he says. "It all needs to be worked out and worked out properly but worked out at decent pace so focus isn't taken away from what really matters – improving services, making sure people are paying a fair price and turning around the dissatisfaction they are feeling."
“The big danger is spending so much time and energy working out how to manage this transition that you take time and energy away from delivery of improvements people are desperate to see.”
Mike Keil, chief executive, Consumer Council for Water
Border issues
And the complexities are not limited to the transition period. There are several areas to iron out ahead of when the new economic regulator does start operating in Wales, and the all-encompassing water watchdog is up and running in England.
Our first source points out that while Scotland manages its own sector independently, "water flows more between England and Wales" and measures will be needed to manage transfers fairly and effectively. Meanwhile, the River Wye "literally goes across the border", they add, and "where there are cross-country environmental impacts, arrangements will need to be in place".
Keil adds that the new Welsh watchdog will need to punch above its weight. "One risk is in resourcing," he says. While Ofwat employed 408 people in March 2025, according to its latest annual report, Keil says an organisation that size in Wales would have a significant impact on customer bills.
"It will be much smaller but how do you ensure you have the right skills in place?" he asks. "If you get price-setting wrong in either direction it's bad – either customers are paying more than they need to or investment is lower than we need for the future. You have to find the right path."
Meanwhile, the Drinking Water Inspectorate, which currently covers England and Wales, could be folded into the English super regulator under the combined vision, yet retain responsibilities west of the border. "It could have a unit within it that focuses on Wales as long as there is no democratic deficit," suggests Keil. "The Welsh Government has to be able to make decisions and have jurisdiction over that unit."
Water UK regulation director Jeevan Jones backs the Green Paper's pledge to bring forward a National Water Strategy for Wales in the next Senedd term.
"You could see Welsh stakeholders saying they want this strategy to influence Ofwat and the English regulator in the interim period," he adds. "Otherwise what is the point of a nice document?"
Jones backs the principle of reducing the volume of relevant planning documents and mandating smart meters, two recommendations made by Cunliffe but not wholeheartedly supported in Wales.
The success of Wales’ plan will largely rest on them being given the powers to carry out its vision. A statement released by the Welsh Government makes it clear that Wales wants to be in sole charge of the future of its water regime: “Our ambition is to develop a regulatory framework that is firmly rooted in Welsh values and principles. A Welsh regulator would, for the first time, be able to prioritise Welsh needs, reflect Welsh values and the characteristics of our water companies, and ensure decisions support future generations.”
Whether Wales is able to fulfil its ambition will largely be shaped by those on the other side of the border.
