Independent Water Commission: review of the water sector – DWI Summary Response
Drinking Water Inspectorate summary response
Section 2: Overarching Framework for the Management of Water
Water system outcomes
Ensuring the continuous supply of safe and wholesome drinking water, now and in the future is the Inspectorate’s priority.
In the UK, we are fortunate to have access to world leading drinking water quality (2024 Environmental Performance Index – Unsafe drinking water). This is a public health service, fundamental to a healthy and productive society.
Resilience to changing pressures is an important outcome, and resilience and reliability of water supplies supports the Government’s growth agenda by supporting productivity of businesses and development of industry. Pressures include impacts of climate change, infrastructure development, population growth and demand management, sufficiency and resilience of water supplies, emerging contaminants, external threats posed by cyber and physical security of assets, as well consumer trust in drinking water.
Access to water for vulnerable and marginalised groups, is another key theme, together with asset health and resilience of supplies, affordability of water and water poverty. Other outcomes are:
- drought preparedness and management, water sufficiency
- access for those on private water supplies to connect to public supplies especially those at high risk from drought and contamination,
- consumer confidence in drinking water removal of lead pipes from water all supplies.
Management of water
The Inspectorate is the competent authority for drinking water in England and Wales.
The Chief Inspector has an advisory role in section 86 of the Water Industry Act to advise the Secretary of State on matters of regulation and specifically that industry manages risk for the long-term benefit of supplies to consumers.
Collaborative decision making between the Inspectorate and government officials within an agreed framework is now being enacted following EU exit. The Chief Inspector commissioned an advisory group to deliver recommendations on standards. Further work will examine other areas of drinking water policy and legislation, such as standards of wholesomeness for other domestic uses, recycling and greywater, domestic risk assessments and water fittings.
The water sector is complex with many stakeholders across government departments, including the environment, housing and communities, health and social care, planning infrastructure, treasury and education. It requires effective cross-departmental working and support to achieve the larger beneficial outcomes that could be delivered.
There needs to be ongoing cross government and cross political support and long-term stable planning, protected to some extent from short-term party-political goals. The changes needed will take many years to achieve over successive governments, and short-term changes in political direction would be a risk to the sector achieving step changes in beneficial strategic outcomes.
For effective drinking water quality regulation, it is essential to have nationally aligned legislation for consumer equity and confidence. As the technical experts it is appropriate that the Inspectorate provides the necessary evidence-base to recommend legislative updates and this is a role that should be continued and where appropriate strengthened.
The Inspectorate publishes long term planning guidance for water companies, which forms the basis of the water company investment programme for drinking water. This covers key national interests of water quality, cyber security and security and emergency direction. Planning frameworks are frequently multi-AMP which, assists with affordability, capacity to deliver, time to research and investigate solutions, promote innovation.
Online safety legislation and regulation could consider drinking water misinformation as a public health risk.
The Inspectorate is working with Defra to identify legislative changes including to its duties and powers, to assist with drinking water regulation.
- Secondary legislation around sufficiency and resilience of supplies. The Inspectorate has a duty for sufficiency as defined in the Act but no associated powers to enforce such a duty in the Regulations;
- Revised standards for drinking water quality, including establishing mechanisms to ensure the timely update to legislation in the future
- Ensuring all aspects of water supply systems are within scope of the Regulations. Currently, the regulation of third parties and contractors are outside of the regulatory reach of the Inspectorate posing a huge risk to drinking water quality;
- Understanding the role and scope for water reuse and recycling as part of overall water resource planning and management. This includes associated risks to drinking water quality and establishing regulatory safeguards to protect against such risks;
- Including the Inspectorate as a Statutory Consultee on the requirements for infrastructure planning;
- The governance and regulation of private water supplies;
- Risks exposed by domestic pipework, which are the responsibility of the property owner. These could be addressed by domestic risk assessments, supply pipe ownership, a review of the Water Fittings Regulations, and conveyancing legislation regarding risks from lead pipes.
There is some overlap between the remit of the three main water regulators, with scope for a more integrated approach on overlapping topics such as resilience of supplies and abstraction protection.
Artificial fluoridation of supplies for dental health is expanding across the northeast. The Inspectorate owns the technical guidance on fluoridation but has no regulatory powers for ensuring compliance with the code of practice, or the administration of the correct and safe fluoride dose, other than ensuring compliance with the drinking water standard.
The Inspectorate currently has no statutory consultee role in several important frameworks:
- Strategic position statement
- Defra Plan for Water
- Water resource management plans
- River basin management plans (although we are a statutory consultee on the EA WISER guidance)
In future iterations of the above planning frameworks, it would be beneficial to the Inspectorate, as a formal part of the consultation process, to allow specific consideration of the potential interactions with drinking water provision and quality considerations.
Property conveyancing reports should have a legal requirement include information on the water supply, quality and sufficiency if a private supply, presence of domestic lead plumbing.
The water sector requires some form of strategic planning oversight that can assess the information, evidence and at times conflicting strategic priorities towards making informed high level policy decisions. This must include taking the responsibility for the necessary but difficult trade-offs, to provide more coherent and aligned planning objectives.
The Environmental Principles Statement was a positive policy step. However, the polluter pays principle is hard to enact in practice and insufficient emphasis has been applied to make it operate in a better way. Water companies and their consumers currently pay for cleaning up and these costs are passed on to bill payers. Developing a robust mechanism to bring the polluter pays principle into practice is urgently needed for a more effective and equitable approach.
Management of the water environment
Better protection of abstractions and more robust use of drinking water protected areas and safeguard zones would provide stronger protection from pollutants such as pesticides, nitrates and PFAS. Prevention is preferable to treatment – more cost effective, resilient and safer.
Measuring and assessing the water environment
The Inspectorate considers good reporting can be used as a very effective means of communicating complex and interconnected issues to both the industry, consumers and wider stakeholders. In reporting it is essential that recipients are not overwhelmed by the complexity
The Inspectorate publishes the annual Chief Inspector’s Reports for both England and Wales, these reports cover public supplies and also a separate report private water supplies. The public supplies reports contain summary statistics and performance indices for all water companies with explanation and commentary.
The Inspectorate also publishes quarterly reports and a triennial report on drinking water quality, for the public. These documents contain a huge amount of information, and the Inspectorate is always interested in feedback and ways to make the data more accessible and understandable.
The Inspectorate also produce consumer leaflets on various topics and our research outputs, together with water company improvement programmes.
Water UK publish summary data on the discover water website.
Strategic direction for the water industry
The strategic direction set for drinking water quality by the Inspectorate follows closely the best international practices, through World Health Organization (WHO) guidelines and recommendations, and the UK is one of only a few countries to achieve 100 % in the Yale environmental index with no burden associated with drinking water (2024 Environmental Performance Index – Unsafe drinking water).
The Inspectorate is an appointed collaborating center with the WHO and we share expertise through the international WHO regulator network (Regnet) and the European network of regulators (ENDWARE). As the competent authority for drinking water in England and Wales, the Inspectorate has the technical skills and capability to develop long term strategies for drinking water, in consultation or partnership with government and other stakeholders.
The issues facing drinking water supplies are long term and complex, and do not lend themselves readily to short term solutions, examples being sufficiency, lead pipes and climate change resilience. Investment in the water industry requires a much more systemic approach to deal effectively with underlying issues, and a longer time period to develop the best approaches and deliver beneficial results.
The Inspectorate publishes long term planning guidance for water companies, which sets out the expectations for drinking water, cyber security and physical security outcomes.
A greater focus on long-term thinking to address long-term risks and support large infrastructure projects is needed as many schemes take several AMP investment cycles to deliver outcomes.
Examples of multi-AMP schemes are the companies’ acceptability of drinking water undertakings for mains rehabilitation programmes to reduce discoloured water. A multi-AMP approach allows companies to project manage the work effectively, source the necessary skills and materials internally or through contractors and deliver the programme in the most efficient and cost-effective manner e.g. street by street, rather than inefficiently targeting sites which may become an imminent priority for regulatory compliance.
Section 3: The Regulators
The Inspectorate takes a highly collaborative approach, with regular liaison with Ofwat and the Environment Agency, and to a lesser extent with Natural Resources Wales. There is good communication and exchange of information on company performance, the price review process, emerging environmental threats, specific high-profile topics, and communications.
The three regulators have different priorities and there are some tensions around regulator specific objectives in the context of other overlapping issues managed by the other regulators. When handled and approached in a supportive and collective manner this can produce improved results.
The Inspectorate and Ofwat worked together constructively to enable the funding of PFAS strategies in PR24.
Section 4: Economic regulation
The water company’s primary duty is to supply high quality drinking water and to provide sanitation, therefore any investment process must be able to deliver adequate infrastructure resilience to meet these two aims.
There is no statutory requirement for sustainable asset replacement and health in England, although this is somewhat covered by the Future Generations Act in Wales. With appropriate checks and balances the price review process should be able to deliver these outcomes.
The strategic position statement has been unsuccessful due to the perceived cost of lead pipe replacement.
The Inspectorate publishes long term planning guidance for water companies, which sets out the expectations for drinking water outcomes.
A greater focus on long-term thinking to support long-term risks and large infrastructure projects is needed as many schemes take several investment cycles to deliver outcomes. Examples of multi-AMP schemes are the companies’ acceptability of drinking water undertakings for mains rehabilitation programmes to reduce discoloured water.
A multi-AMP approach allows companies to project manage the work effectively, source the necessary skills and materials internally or through contractors and deliver the programme in the most efficient and cost-effective manner e.g. street by street, rather than inefficiently targeting sites which may become the priority for regulatory compliance.
A more flexible and responsive funding framework would be beneficial on occasions, where there are fast-changing issues (e.g. cybersecurity – NIS is an area where the threat landscape is quickly changing and evolving and new guidance and/or legislation can quickly emerge to combat threats to national infrastructure, requiring service operators to invest and act promptly) or other quickly emerging risks which could materialize mid-AMP in relation to the toxicity of pollutants that enter the water environment with associated risks to abstractions for drinking water.
Insufficient infrastructure maintenance and poor asset health is one of the key risks to safe drinking water provision. The Inspectorate’s audit programmes frequently detect instances of poor asset health. The Inspectorate has very limited powers to prevent deterioration, and only where linked to an identified and reported risk of regulatory failure.
Drinking water schemes are required to have a statutory driver, to ensure they receive funding. This is usually a new parameter (an example being PFAS), a new statutory standard, or a risk of deterioration in quality – which must be clearly evidenced. This limited scope leads to a very restricted range of schemes being put forward for consideration. Enlarging the scope to include proactive maintenance and resilience schemes might be beneficial, and tracking the company scheme delivery across all schemes would ensure the money allocated is spent on the right issue. A lack of financial tracking has led to money being diverted into other solutions which are not as appropriate, or indeed even linked.
Every drinking water scheme is encapsulated into a legal notice, and forms part of the Inspectorate’s normal scheme delivery assessment process.
At PR24, Ofwat linked all drinking water quality, SEMD and NIS improvement schemes to Inspectorate legal instruments or acknowledged actions. This ensures that the technical regulator not only assesses the need and agreed with the justification but then monitors the progress through to benefits delivery.
The Inspectorate has worked closely with Ofwat through our regular liaison meetings to align drinking water outcomes with financial incentives where possible.
This has been achieved in the case of the Compliance Risk Index (CRI) which is linked to financial penalties and incentives, with a deadband based on median company performance, so company performance is benchmarked against industry performance, and poorer performing outliers are penalised.
Metrics about consumer contacts (complaints) for discoloured water are also aligned with Inspectorate agreed performance indicators.
The Inspectorate encourages the alignment of regulatory focus to drive improvements for the benefit of consumers but is careful to avoid double regulation. The Inspectorate works to develop suitable Memoranda of Understanding (MOUs) with other sector regulators to clarify roles and to avoid a ‘double’ regulatory burden on companies that is both unnecessary and inefficient.
Customer bills
Companies set bills depending on the amount of investment required to provide wholesome and continuous water supplies and wastewater services.
Ideally consumers would value drinking water and accept that there is a cost and that its very good value for money, compared with bottled water or filters for example.
Any changes should be mindful of increasing consumer confidence in drinking water quality and encouraging consumers to value and conserve water.
The Inspectorate supports water metering of water as part of an overall demand management strategy.
Currently abstractions below a certain volume do not require a license. We consider that all abstractions should preferably be licensed in future.
There is a need to tackle illegal water connections which would address unfair access and use of water.
Customer protections
The Inspectorate frequently carries out customer call center audits and additionally investigates consumer complaints against the water company relating to drinking water quality. There is an opportunity for closer integration of consumer contacts and experience measures to better inform the landscape of company performance and to better target improvements.
Bottled water stations used by companies to provide consumers with water during an event are a less preferred method of emergency water provisions than infusion into or re-zoning of the water supply network. Improved connectivity and network resilience could therefore improve the customer experience during events.
Water companies maintain lists of vulnerable consumers, who require additional support during emergencies. Vulnerabilities can change over time, and therefore such lists need to be maintained. Different organisations use different definitions of vulnerability, which can cause issues when combining lists. It should be clear for companies who should be supported, and how best to support these consumers.
Financial resilience
Competition
Competition must be managed so as not to hamper the ability to effectively regulate and potentially create an adverse impact on consumers.
Drinking Water Safety Plans (DWSPs) require risk identification and risk management through all stages from catchment to consumer tap. Where different parties are responsible for different stages, the risks can be held by non-licensees; and this aspect does not fit the current regulatory model and introduces complexity and potential accountability issues.
Where a CAP or similar under a DPC or comparable third-party arrangement is involved as part of the DWSP process this cannot currently be adequately addressed through contract law to retain the accountability. Careful arrangements are needed to ensure accountability and communication of risks to downstream parties.
Section 5: Water Industry Public Policy Outcomes
Protecting the environment
Greater emphasis on catchment protection for drinking water sources would naturally over time lead to less drinking water treatment. This not only provides benefits in reduced use of consumables, energy use, carbon footprint concerns and overall treatment costs but also reduces industry reliance on supply chains where certain elements of treatment chemicals may need to be imported.
A good example of catchment protection is the use of nitrate vulnerable zones to protect aquifers from nitrate pollution, thereby reducing the need for nitrate removal plants, or limiting the time they are needed to operate into the future.
Delivering clean drinking water
The drinking water regulatory system has been very effective in safeguarding consumers and providing high quality drinking water. It has incorporated the WHO water safety planning risk assessment process, whereby risks are identified and mitigated before any impact on consumers, leading to a robust system with no disease burden associated with public supplies.
There is no secondary legislation to safeguard sufficiency and resilience. This impacts consumers with supply interruptions occurring both during events, extreme weather and high demand. The Inspectorate is working with Defra to develop resilience standards and to improve the regulation for security and emergencies, including cyber security, that will accelerate developing a more resilient supply system, and we strongly support new secondary legislation to strengthen this area of risk.
The Chief Inspector has a duty under the Water Industry Act section 86(2) to provide recommendations on legislative updates. The Inspectorate is working with Defra to implement the output from the independent advisory group.
Regulation 31 controls the quality of products and chemicals (substances) in contact with drinking water to prevent contamination of public supplies and is an essential health protective measure. The Inspectorate supports the expansion of accredited laboratory capacity within the UK industry and strongly recommends the UK Government takes action to ensure reliable testing provision is made available and retained either as part of statutory obligations on the water industry or via a government supported laboratory service.
Other areas for review relate to include knowingly spreading misinformation and false assertions about drinking water quality online that erodes public confidence and incorporating water supply in conveyancing and planning system.
Securing resilient water supply
Integrated management through RAPID to address regional resource planning appears to be an effective approach for delivering large scale infrastructure projects across regions and companies, although projects are yet to be delivered. Integration with industrial and housing strategies for development are needed as water resources are not adequately represented in the current planning framework.
The Inspectorate has a duty for sufficiency under the Water Industry Act but no secondary legislation to ensure sufficiency at the consumers tap, or powers to make companies improve resilience of supplies. Secondary legislation is urgently needed to address this, and the Inspectorate is working with academics and water companies to understand the current risks and develop resilience standards for statute.
Building regulations cover grey water and recycled water but are not enforceable or aligned to the Water Industry Act or Water Supply (Water Quality) Regulations, which dictate that all water supplied to a premises must be drinking water quality. Reform is needed which takes into account the needs of all stakeholders including developers and consumers, and covers the regulation and maintenance of recycling schemes plus changes to legislation and standards of wholesomeness for recycled water. The Inspectorate is working towards new standards for wholesomeness to allow for different domestic uses and will work through the advisory group to make recommendations for the standards of wholesomeness needed and the regulatory framework, proportional to the risk, but health protective.
Abstraction reform is especially pertinent for smaller abstractions, including private water supplies which are out of scope of the current requirements for licensing and can cause sufficiency issues to other supplies. Such supplies are particularly vulnerable to dry weather, and there is no mechanism to address this issue, nor to prevent new developments on private water supplies (Scotland is introducing legislation to ensure water supply is sustainable at planning). Although private supplies are outside the remit of this review, a significant proportion of the population rely on this for their sole water supply.
Demand management through smart metering can reduce remand but must be applied equitably, so as not to unfairly impact on low-income households, who may be at risk of water or hygiene poverty. Stepped tariffs can assist, but further additional measures are likely to be needed to bring down demand further.
Infrastructure and supply chain resilience and security
The Inspectorate has a duty for sufficiency under the Water Industry Act but no secondary legislation to ensure sufficiency at the consumers tap, or powers to make companies improve resilience of supplies. Secondary legislation is urgently needed to address this, and the Inspectorate is working with academics and water companies to understand the current risks and baseline, and to develop resilience standards for guidance and statute.
Secondary legislation would provide clarity for water companies, improve resilience planning, and better delivery through the price review process. Improved recording of companies’ commitments for resilience, will reduce risks from double funding and highlight where a company has not previously sought funds for a particular item.
Insufficient infrastructure maintenance and poor asset health is one of the key risks to resilience and providing safe drinking water provision. As noted previously the Inspectorate has very limited powers to prevent deterioration, and only where linked to an identified and reported risk of regulatory failure. Therefore, the Inspectorate is unable to ensure companies replace assets ahead of asset failures and this in turn restricts our ability to regulate towards resilient infrastructure.
Examples which would benefit from the Inspectorate having powers in respect of sufficiency will include improved water treatment facilities that can operate under extreme weather conditions for example, infrastructure networks that are resilient and capable of maintaining supplies despite external stresses and instigating measures to reduce supply chain vulnerabilities; in particular those related to chemicals that are vital for water treatment.
The Inspectorate is the regulator for Security and Emergency Measures (Water and Sewerage Undertakers and Water Supply Licensees) Direction 2022 (SEMD).
The ability of the Inspectorate to issue legal notices in respect of SEMD is urgently needed, so that the improvements can be tracked and enforced using the Inspectorate’s enforcement ladder. Statutory notices are a very powerful legal instrument which allow a planned approach to project delivery, which is tracked and auditable. The legal notice for water quality sets out the risk, then the measures to address the risk, including investigation, monitoring and delivery. The Inspectorate carries out assessments at milestones, delivery and demonstration of benefits, which are all legally prescribed.
The Inspectorate is also the regulator for cybersecurity under the Network and Information Direction. The Inspectorate has an enforcement policy for NIS and can issue fines up to £17M.
We recommend measures to ensure improved engagement with security services to support the sector in making an informed risk-based decision on security is needed, with the Inspectorate developing a consistent understanding of risk across the sector.
We recommend measures to ensure improved funding for emerging risks or potentially consider funding companies to hold and manage risk ‘pots’ which are returned to consumers or rolled over between AMPs for rapid funding of specific items. The Inspectorate acknowledge the large asset base in the sector, and that change will necessarily take time, therefore a proactive approach is needed to identify and mitigate risks to allow for constructability cost.
A general and underlying recognition that a lot of security products life span is not necessarily how long the item will actually last e.g. a door 50 years, but rather if it still addresses the identified risk, it should be mitigating e.g. that door might not be suitable after five years potentially due to advances in techniques to breach physical security infrastructure. Electronic security might be more affected by this, but the same principle applies.
Improving environmental quality at source and addressing certain widespread water quality issues is likely to reduce amount and number of chemicals and treatment used in the treatment process. For example, removal of nitrate in catchments removes the need for nitrate removal treatment and lead removal policies would reduce the need for orthophosphate dosing. Many treatment processes, particularly those requiring chemical dosing relies on importing chemicals from abroad. This is not only costly and has associated environmental impacts but can be threatened by geopolitics and trade barriers outside of the industry’s control. Removing the need in the first instance is the preferred option.
The lack of resilience in the chemical supply is a known risk to the industry and was acutely highlighted during recent events such as EU Exit, industrial action by lorry drivers, and the war in Ukraine. Additionally, there was a recent environmental pollution incident at a ferric supplier, which highlighted a lack of capacity and alternative suppliers in the supply chain. Many sites are not designed for bulk storage of chemicals. Water companies are responsible for managing their relationship with suppliers and the industry came together to manage this acute situation through a platinum incident management process, but systemic weaknesses persist.
Previously a within sector arrangement was made to prioritise drinking water treatment above sewage treatment process for the immediate benefits to public health should the situation arise where common supply-chain resources were in limited supply. We do not know if this arrangement was formalised or continues, but we consider it an appropriate position to be retained. However, as the water cycle is interactive, extended disruption of either process would be likely to have detrimental impact on public health.
There are skills shortages within the industry, which competes for talent against other utilities. Efforts should be continued and further developed to attract younger staff at all levels and in a wide variety of related disciplines into the industry for its future wellbeing.
Innovation and technology
The Inspectorate strongly supports innovation and would like to see more innovation around our key priorities to improve water quality, consumer confidence in drinking water, asset health and resilience, security and emergencies, and cyber security.
For example, the Inspectorate promoted the green economic recovery lead replacement trials, and a large part of these trials was testing different methods of delivery and consumer engagement and sharing the results with the industry and regulators.
The Inspectorate runs an active research programme to support policy on drinking water quality, sufficiency, security and public health. All our research is competitively appointed and reports published on the website, shared with stakeholders, including the WHO. This provides the evidence base for our regulation, and much is focused on new and emerging risks and contaminant. The Inspectorate works collaboratively with UKWIR on drinking water research, supporting innovation and contributing to project steering groups when appropriate.
The Inspectorate is supportive of the use of advances in technology and innovation backed up by science and evidence, and accredited where applicable. However, given that treating and supplying drinking water is fundamental to public health and wellbeing it is paramount that innovations are well tested for their efficacy, robustness and present no risk to drinking water quality.
The Inspectorate would be supportive of advancements to real time monitoring of water quality and asset security, both microbiological parameters and chemical parameters, to speed up identification and response times when something goes wrong.
Section 6: Ownership
Consolidation of water companies historically has led to efficiencies of scale. Recent fragmentation of the market for competition, including the introduction of NAVs, has introduced a new level of complexity.
The water safety planning model relies on identifying risks from ‘source to tap’ and putting in place mitigation before there is any impact on consumers. Mitigation can be downstream of the risk in some cases, e.g. catchment risks identified and remediated at treatment, verified at sampling of the consumers tap.
Fragmentation directly cuts across this framework, and therefore risk management becomes more complex. Accountability and risk ownership must be maintained in any system. The regulator must therefore be empowered to reach all third parties in the supply chain.
Ownership (for Wales only)
It would be very difficult to directly link/measure the not-for-profit model to the outcomes around any drinking water quality improvements. The model appears generally to work, although the company performance is not leading across all indices and the company has recently been put into transformation by the Inspectorate. A full report on drinking water performance in Wales is produced by the Inspectorate annually, as part of the Chief Inspector Reports.
The Inspectorate does not consider that there are significant risks for consumers directly arising from the not-for-profit model, although more advantages could potentially be secured using this type of model, with potentially better outcomes for consumers.
The main risk associated with Dŵr Cymru’s not-for-profit model is that it is the single not-for-profit entity in its regulated industry. The financial regulatory model does not consider this status to take advantage of any opportunities, nor does it seek to mitigate any risks.