The House of Commons Public Accounts Committee (PAC) is warning that piecemeal regulators appear to be missing in action as failing water sector left to flounder, saying that regulators must provide much more clarity on plans to improve the financial precarity of the sector.

A new report released today by the Committee says the water system has been left to sink for too long, with hikes in customer bills now required to update and expand the failing infrastructure. The PAC is calling for the government to act with urgency to strengthen oversight of the sector in order to rebuild trust and force the sector to improve its poor past performance.

With water bills expected to rise at their fastest rate in 20 years, the PAC’s inquiry found that 20% of people are struggling to afford their water bills – yet companies are implementing these huge increases without explaining why, or how the money will be spent.

The report says Ofwat must set clear expectations for companies to explain where customer money is being spent, why bills are rising and what improvements customers can expect for their money, in the next six months.

MPs on the Committee say akey element damaging consumer trust is the pollution resulting from decades of underinvestment in antiquated sewage systems. The Environment Agency (EA) says there are too many offences to prosecute every wastewater company for their poor environmental performance. Companies are expected to spend around £12 billion in the next 5 years to update the system, but this will only fix around 44% of overflows.

Defra created an £11 million fund for environmental improvements from water company fines in 2024, but has still not distributed the money. The report recommends Government disburse the amounts promised by the end of the year, and for regulators to work urgently to ensure money raised from fines is reinvested into improving the system.

The PAC warns that there appears to be “no single guiding mind” balancing the need for improvements with the impact on bills and as such in the past, the wrong approach has been taken. It is calling for the government to plug the gaps in regulator responsibilities and be explicit on the trade-offs between the need for improvements, water supply needs, and the impact on bills.

The report flags up England faces a predicted daily shortfall of 5bn litres of water in England by 2050 requiring the water companies to build 10 new reservoirs. This is not the only infrastructural issue, the report says - if work to replace the ageing water mains continues at the current rate, it will take 700 years to replace the entire network.

Commenting on water sector finances, the PAC says the financial failings of water companies are well documented, with payments of excessive dividends worsening trust in the sector. With 10 companies unable to generate enough income last year to cover their interest payments, the PAC is now calling on Ofwat to review its powers and capabilities to ensure it can act to improve the financial resilience of the sector. It should also set out what is likely to happen, and importantly, who will bear the costs in the event of a company insolvency.

Monumental scale of work required to reverse the fortunes of failing water companies

PAC Chair Sir Geoffrey Clifton-Brown commented:

“The monumental scale of work required to reverse the fortunes of failing water companies is rivalled only in difficulty by the efforts needed to repair customers' faith in the sector. In the face of looming water shortages, steps must be taken immediately if the Government is to set the sector back on the right path….

“Customers are being expected to shoulder the burden of water companies’ failings, without being told why or on what their money will be spent. The fines imposed for the environmental harms caused by neglected infrastructure must be diverted to fund improvements, and we must know what will happen in the event of company insolvency. Reports of Thames Water's impending insolvency are deeply concerning.

“It is past time that we had a low risk, low return water sector, from its current farcical state of overly complex, sometimes unregulated companies, and a culture of excessive dividends and borrowing. There is also a lot to be done in the regulatory sphere, with a pressing need to improve and streamline the existing regulatory regime.

“More must be done to stem the flow of pollution entering our waterways, as it poses a serious risk to human health and continues to degrade the quality of our lakes and rivers. However, regulators are overwhelmed by the number of prosecutions and appear unable to deter companies from acting unlawfully.”

Key conclusions and recommendations in the PAC report include:

Water companies are implementing huge increases to the bills charged to customers without explaining why, or how the money will be spent.

Recommendation: Within the next six months Ofwat must set clear expectations for companies to set out where customer money is spent, why bills are rising and what improvements in infrastructure the funding will deliver.

Over many years, the Environment Agency and Ofwat have failed to ensure water companies maintain vital infrastructure. Ofwat and the Environment Agency (EA) have not done enough to ensure companies actively manage their infrastructure.

Recommendation: Ofwat and the Environment Agency, working with the sector, should develop survey standards and collate information to assess the health of infrastructure in good time for companies to use the results to inform business plans which are likely to be submitted in autumn 2028 and implemented shortly thereafter, and a programme of inspection to ensure infrastructure projects funded in PR25 are completed to satisfaction and deliver value for money.

Defra and the Environment Agency have been far too slow in planning for the future and this now hinders economic growth.

Recommendation: By the end of 2025, the Environment Agency must be in a position to publish a list of all housing and commercial developments, including a list of the number of homes, that it is delaying or blocking. It should update this list every month.

By the end of 2025, Ofwat must set out a clear path by which it could reopen the price review if needed to permit new investment that pertains to new housing developments, commercial developments and economic growth.

Financial fragility of a few large companies in the sector is leading investors to lose confidence in regulation as well as the sector.

Recommendation: Over the course of the next six months Ofwat should review its powers and capability to ensure it can take action needed to improve the financial resilience of the whole of the sector, and be clear in public about what is likely to happen and who will bear the costs in the event of a company insolvency.

Click here to download the report