The Government has announced that water industry regulator Ofwat will be reviewed to ensure it is fit for future challenges. The Coalition Agreement committed the Government to reform the water industry to ensure more efficient use of water and the protection of poorer households.

The process will examine how the industry regulator works, whether it offers good value for money and if it is delivering what the Government and customers expect.The economic regulator was established 20 years ago, at the time of water industry privatisation. The review will also feed into the Water White Paper Defra is due to publish early next summer which will set out policies for the future of water management.

Announcing the review, Environment Secretary Caroline Spelman said:

“Ofwat has been successful in holding down household bills while water companies invest in their infrastructure.

“But we need to make sure the regulator is in good shape to help the industry prepare for a changing climate and a growing population, at the same time as keeping bills affordable.

“It’s important to reassure water companies and bill payers that Ofwat provides good value for money by carrying out its duties without unnecessary red tape.”

The Defra review will be led by David Gray, an experienced regulator and advisor in the utilities sector with wide-ranging knowledge of financial markets, government and regulation. Currently a non-executive director of the Civil Aviation Authority and a member of the Council of Management of the Regulatory Policy Institute, Mr Gray previously worked for Ofgem as Managing Director, networks and was an executive member of its board, the Gas and Electricity Markets Authority. Mr Gray also advised the Government on the privatisations of British Gas and the Electricity industry in England and Wales.

The review team will call for evidence to give customers, water companies and their investors a chance to influence the review.The process, due to be completed early next year, will examine the role of Ofwat. This will include its objectives, its responsibilities, and how it will meet future challenges and ensure value for money.

The review will also look at how well the current arrangements, involving Ofwat and the Consumer Council for Water, work in protecting water customers and in making sure their views are heard.

Water UK, the body which represents all the UK water and wastewater companies at both national and EU level, said the decision to review Ofwat's role and remit was timely in the light of changing demands on both companies and regulator. In tough economic circumstances it was important to ensure that sectors responsible for core elements of the national economic infrastructure were well-regulated.

Water UK said the industry would respond in due course to ministers' call for evidence, with questions it might consider including:

•  Is economic regulation as efficient as it might be?

•  Does Ofwat prioritise the real wishes of customers?

•  Does existing regulation enable companies to be as effective as possible in meeting the requirements of their customers and their social/environmental obligations?

•  Is Ofwat sufficiently aware of the needs of investors whose confidence in both regulator and companies has been an essential part of their success up to now, and will be no less vital to the industry's ability to meet future challenges?