Water reform: how will a shift in governance impact land management?

The Independent Water Commission – also known as the Cunliffe Review – published its final report last month, which recommends the biggest overhaul of water policy in a generation in England and Wales. This blog summarises some of its main suggestions and analyses what they could mean for CLA members.

Media following the report mainly focused on water companies and the UK Government’s decision to axe Ofwat, the economic regulator. However, within the 464-page report are 88 wide-ranging recommendations that could have substantial implications for all those managing water. In the main, the CLA welcomes the report’s findings, and we are pleased that the commission recommended many of the suggestions from our submission last April. The next step is to see which of these make it into Defra’s Water Reform Bill next year.

The report’s first recommendation is for the UK and Welsh Governments to each publish a 'National Water Strategy' setting out its principles and priorities for water management. It should “include the impact of agriculture, land-use, energy, transport and housing development, and any other sectors that are particularly reliant on or impact the water system”. Alongside this, the water sector would receive a specific ‘Ministerial Statement of Water Industry Priorities’. Published on a statutory basis every five years, but taking a time horizon of up to 25 years, these plans would allow the government to transparently determine how to make trade-offs in who has access to water, and how to minimise pollution.

A rung below this, the commission recommends establishing a set of new regional ‘systems planners’ or ‘regional water authorities’ tasked with deciding how national targets and requirements should be translated regionally. Water companies and other users would need to respond to these regional priorities alongside their regulatory responsibilities. The regional authorities would take the form of independent boards, separate to the regulator, with their own secretariats, funded either from Defra or local taxation. The boards would feature the range of interests in water, including agricultural, transport, public health and local government representation.

Nested beneath the regional tier, catchment partnerships would be strengthened with a Defra-funded project officer per catchment.

The report contains a spidery chart of over 100 pieces of active regulation on water. The commission recommends an extensive review and rationalisation exercise of these, initially focused on the Urban Wastewater Treatment Regulations 1994 and the Water Framework Directive 2017. Water companies would see their statutory planning responsibilities consolidated into two plans rather than nine overlapping ones. The commission emphasises that the overall goal of “legislative changes [should be] to drive a more coherent approach to ‘pre-pipe’ solutions to stop pollutants and rainwater entering the system” in the first place. For example, it recommends mandating the use of Sustainable Drainage (SuDS) and banning wet wipes containing plastic.

In terms of specific legislative changes, the report recommends “tighten[ing] regulatory oversight of sludge activity by moving the treatment, storage and use of sludge into the Environmental Permitting Regulations (EPR)”. It also recommends moving water industry abstraction into the EPR, and consulting on extended producer responsibility, which could see manufacturers of micropollutants like pharmaceuticals paying water companies for their removal. Another recommendation is to establish a mechanism to regularly review and update drinking water standards.

The government’s decision to abolish Ofwat sits within a more radical recommendation: to combine Ofwat’s economic regulatory functions with the Drinking Water Inspectorate and the water-related aspects of the Environment Agency (EA) and Natural England (NE) to form a new integrated regulator. This would have the effect of partitioning the EA in two. The new regulator would ‘supervise’ water companies more comprehensively, with dedicated teams for each company, and it would also have ‘constrained discretion’ to avoid regulation of companies leading to perverse or suboptimal outcomes. Another recommendation is to support innovation through ‘regulatory sandboxes’ (i.e., confined areas in which regulation temporarily does not apply to test an innovative approach).

Other changes would be to reform operator self-monitoring (i.e., where water companies test water themselves), to improve cost recovery from licencing, and to use new technologies in regulation. The government and new regulator should have a constructive but separated relationship with water companies, and to this end, the government should reset public messaging about water companies away from continual criticism, and regulators should conclude long-running investigations quickly.

The commission is keen to see compulsory smart metering in a wider range of circumstances, and for tariff structures to change to incentivise greater water efficiency. It particularly singles out non-household consumption, and ending fall block tariffs (where consumers pay less the more water they use). The government should also “develop a new policy and regulatory framework to drive the adoption of water re-use infrastructure in household and non-household markets”, such as grey-water recycling within buildings.

Billpayers would see stronger protection through the commission’s recommendation to introduce a national social tariff with consistent eligibility criteria and levels of support in England. The current recourse for consumers is through the Consumer Council for Water (CCW), which the commission proposes converting into a new mandatory water ombudsman. Citizen advocacy would be transferred to Citizens Advice.

Defra excluded the most hotly debated question – whether water companies should be renationalised – from Sir Jon Cunliffe’s scope. Therefore, the recommendations on ownership are more muted, but still powerful. They focus on allowing the regulator to block disadvantageous changes in control of water-company ownership, strengthening governance standards, mandating certain financial resilience standards, and making the backstop – the Special Administration Regime (or SAR) – a more credible threat.

The commission recognises the central importance of water companies in delivering new housing. It recommends government in England should consult on making water companies statutory consultees on certain planning applications, mirroring Wales. They should be required to assist with developing Local Plans. Certain companies in a category called New Appointments and Variations (NAVs) now connect one in five new homes to the water and sewerage networks, and the commission recommends that some superfluous plans and water testing required of NAVs should be removed. It also considers it may be necessary to remove the automatic ‘right to connect’ to the public water supply or sewerage networks for housing developers and private water supply operators. There are various recommendations for streamlining infrastructure delivery.

Finally, the commission recommends introducing statutory resilience standards, covering infrastructure and supply chains. The government “should strengthen the requirements on companies to map and assess the health of their assets”. It should also tighten regulation covering the security of water-industry infrastructure against attacks, including cyberattacks. Companies are asked to improve their pipeline of labour and talent.

Overall, the report is impressive: it was produced in under nine months, it engaged 250 organisations directly ( including the CLA), and had over 50,000 responses to its call for evidence. Many things the CLA advocated for made it into the report, including: clearer national and cross-department direction on water, regional water governance, stricter testing for sewage sludge, a consultation on extended producer responsibility, regulatory sandboxes and more flexibility for water companies overall to support nature-based solutions, and a review of the cost-efficiency of spend on continuous monitoring of sewage outfalls.

Among the positive outcomes is that, if the National Water Strategy recommendation is implemented, agricultural water needs would become explicitly considered alongside other users. Currently, legislation prevents water for agriculture having higher priority during droughts, and decisions about who gets abstraction are not as fair and transparent as they could be. Any targets for improvements in the water environment would need to be costed to see if they are effective to deliver. This would avoid the government setting unachievable targets, like all waterbodies in Good Ecological Status by 2027 through the Water Framework Directive, which has driven disruptive and expensive grey infrastructure like water transfers pipelines rather than nature-based and catchment solutions.

The decision to combine the regulators should be positive news for members once the merger is complete, not least because it will reduce inefficiencies during decisions on permit applications. There are short-term disadvantages like low morale and disruption to routine service which the merger must minimise.

The commission’s report adds urgency to widespread calls to reform sewage sludge spreading. We emphasised stricter testing and reform to the Sludge (Use in Agriculture) Regulations 1989. Sir Jon Cunliffe has taken a different tack, adding transport, storage, and use of sludge into the Environmental Permitting Regulations. This may prevent or reduce micropollutants contamination of farmland more effectively, but a key question will be who administers and pays for sludge application permits. Water companies could face growing volumes of sludge that land managers do not want the hassle of applying to spread. Water companies would then need to invest in alternative disposal methods.

As the Water Reform Bill progresses, the CLA will pay close attention to the extent to which toughened measures for water companies apply to private water supply operators too. Several recommendations – updated drinking water standards, new nationwide social tariffs, requirements to map pipe networks, and new regulatory powers to inspect and fine onward distributors of water from the mains network – could impact members operating private water supplies. This could include Regulation 8 suppliers who distribute mains water onwards, and who often do not realise they are classified as a private water supplier. (For more information, please see the CLA guidance note 19-24 Managing Private Water Supplies.) The mooted removal of the automatic right to connect is concerning. It could determine where development is viable, and could mean that some members have no option but to continue operating private water supplies indefinitely.

Bringing abstraction licencing into EPR is another area with risks. Whilst Cunliffe only recommends this for water-company abstraction, the government consulted on bringing all abstraction into permitting in 2021. (See the CLA’s response here.) The government has repeatedly failed to publish its response to the consultation or to stick to a timeline for the move. The CLA has reservations on a number of areas, and we will need to see the draft legislation government brings forward. Permits must have a long enough duration to enable businesses to invest in water-storage infrastructure. The cost of licences is another area to monitor: farms with multiple EPR permits currently benefit from reduced, ‘bundled’ application fees, which the report’s recommendation could remove.

Finally, if implemented, the commission’s recommendations would require land-based businesses to speed up action to tackle water pollution and water inefficiency. For example, the recommendation to the regulator to use more remote-sensing for enforcement could help the regulator to identify more farmers illegally spreading fertilisers, e.g., during closed periods. Removing the falling block tariff could impact farms with large consumption from the public water supply; they may need to consider water efficiency or developing their own abstraction. Changes like this are necessary from an environmental perspective and could have business benefits from improved efficiency, but may initially impose costs on businesses.

Defra will now consider the commission’s recommendations and produce a white paper as a guide by October 2025, setting out what it intends to take forward into a bill. This will be subject to public consultation and the CLA will engage throughout this process. It is possible that the Water Reform Bill will also contain other measures outside the commission’s scope, for example on reformed agricultural pollution regulations, whose co-design the CLA is currently involved in with Defra. Whatever the government decides, it is undeniable this is a once-in-a-generation opportunity to improve how water is managed.