2nd report - Priorities for water sector reform

Key findings

• The water sector has lost sight of its public purpose and increasingly operates as a network of financial services businesses rather than custodians of critical infrastructure, driven by a culture deaf to the crisis it faces.
• Seven of ten major water companies are now controlled by private equity investors, with approximately 70% overseas ownership (China, Hong Kong, UAE, Qatar, Malaysia), correlating with declining performance, egregious dividend and bonus payments, and investor focus on maximising profit rather than 'low risk, low reward' stewardship.
• Complex financial structures and whole-business securitisation enable debt accumulation outside regulatory oversight; Thames Water's gearing has reached 88%, with over 25% of revenues servicing debt, exemplifying systemic unsustainability.
• Bonuses to senior executives range from 50–240% of base salary despite poor sector performance; recent measures (bonus-blocking powers, fit-and-proper-person tests) are insufficient without clearer criteria and stronger regulator pre-approval mechanisms.
• Water companies resist transparency; citizen scientists and campaign groups have exposed pollution and sewage issues that companies initially concealed, revealing accountability gaps and the need for mandatory open-data publication and legal customer involvement requirements.

Recommendations

• The Independent Water Commission should analyse all potential water company ownership models—including publicly owned, not-for-profit, Community Interest Companies, cooperatives and hybrid approaches—and determine which are most likely to foster responsible culture, with consideration of regulatory context and incentive alignment.
• Regulators must be granted powers to vet and veto potential owners and senior leaders of water companies to prevent bad actors from running critical national infrastructure.
• Establish a shared understanding of acceptable financial reward through regulator pre-approval of bonuses and dividends, implementation of 'floor' and 'ceiling' dividend limits, and statutory criteria ensuring bonuses are awarded only for exceptional performance and clearly linked to environmental and customer priorities.
• Determine new measures to regulate debt accumulation and management; earmark loans predominantly for infrastructure investment while increasing customer bills to cover day-to-day expenditure, ensuring more revenue is directed to investment rather than debt repayment or shareholder returns.
• Reform the price review process to reflect long-term investment and environmental challenges, coupled with reform of regulatory processes for business plan approval; introduce protections for vulnerable households including swift implementation of a single social tariff.
• Require water companies to simplify complex financial structures for greater regulatory oversight and mandate legal requirements for regular publication of performance, environmental and financial data.
• Strengthen links between water companies, communities and citizen scientists through formalised transparency mechanisms and democratisation of company decision-making processes.
• Ensure performance metrics, fines and rewards reflect long-term resilience, pollution reduction, and responsible low-risk ownership; expand consumer involvement in establishing appropriate bonus schemes and governance reforms.

Key actors

Alistair Carmichael (Committee Chair), Independent Water Commission, Ofwat, Thames Water, Department for Environment, Food and Rural Affairs (DEFRA), River Action / Surfers Against Sewage (campaigners), Macquarie (Thames Water owner), Consumer Council for Water