Water companies could be exempted from fines for polluting the environment under changes announced in the government’s new white paper.
Environment Minister Emma Reynolds hailed the changes as “once-in-a-generation reforms” characterized by “tough oversight, real accountability and no more excuses”.
Activists described the proposed move to ease the approach to fines as “desperate” and said the government was allowing companies to escape punishment.
Under the plans, there will be a new turnaround system to force companies that fail, whether financially or in relation to sewage pollution and water outages, to fix their problems faster. The government said this “will give stability to investors.”
The Guardian understands that the white paper, which will be published on Tuesday and was not previously made available to journalists, will include provisions allowing the regulator to step in and “manage” the fines so the company does not collapse. This may include deferring penalties, or allowing the company to make certain payments. A source in the Ministry of Environment, Food and Rural Affairs said, “The goal is for every water company to eventually pay its fines.”
Creditors have demanded Thames Water be relieved of future fines as the company avoids financial collapse. In May 2025, it was fined more than £120 million for environmental violations involving sewage spills, after failing to effectively operate and manage its treatment works and sewerage networks.
A Defra source said: “We are working to solve the problems and get companies to a position where customers do not pay for their failures.”
Richard Benwell, chief executive of Wildlife and Countryside Link, said: “If a company is fined because they have done something wrong, they must either compensate or the polluter must pay.”
He added: “It feels like a desperate play to get off the hook at the last minute, and companies need to think about that when they engage in illegal actions and fail in their environmental public interest duties. If a company cannot manage itself well enough to deal with the consequences of its shortcomings, it needs to deal with those consequences.”
Industry sources said the possibility of a shift regime would be welcome, although they acknowledged that companies would have to accept limits on payments to executives and investors if fines were reduced or deferred.
A new “Department of Transport for Water Companies” will be announced as part of the measures, which ministers say will force companies to disclose the condition of their infrastructure.
Government sources said this would prevent water cuts like those recently faced by tens of thousands of people in Kent and Sussex. This is because old pipes and a poorly maintained water treatment center have been blamed for the shortage.
Most pipes in the UK date back to the Victorian era, and no major reservoir has been built for more than 30 years. Many water treatment centers were built decades ago and have not been updated.
Other changes include:
-
Dedicated supervisory teams for each water company.
-
‘Without notice’ inspection powers of new regulator.
-
A new Senior Engineer within Ofwat to oversee practical checks on water infrastructure.
The reform, due to be enshrined in law under the Water Reform Bill, is part of the government’s response to a wide-ranging report on the water sector by John Cunliffe, a former Bank of England official. He made 88 recommendations to improve the sector, some of which were accepted – such as the supervisory model.
There will be no change to the ownership structures of water companies, and the government has prevented Cunliffe from considering nationalization of the industry in his report. England and Wales are the only two countries in the world with a fully privatized water system.
Fergal Sharkey, water campaigner and former Undertones singer, said: “This is just a rearranging of the chairs. After 35 years of privatisation, we have two hospitals, a kidney centre, 15 schools, 19 care homes and 29 nurseries in Tunbridge Wells, left without water for two weeks. The government is terrified of dealing with privatisation, and has sacrificed water quality on the altar of shareholders and private equity.”
“No10 is too paralyzed to do anything that might spook the bond markets a little. Ministers have failed to understand the fundamental issue which is corporate greed. The only people who will pay for this are customers and bill payers.”
The government had previously announced it would abolish Ofwat, as recommended by Cunliffe, and merge its powers with those of other water watchdogs under a new “super-regulatory body”. It remains unclear whether the new regulator will be in place in time to oversee the next rates review in 2029, which will set out household bills and businesses’ spending plans until 2035. The government is expected to set out its timetable for the new regulator in March.
Cunliffe recommended allowing companies to escape fines under the transition regime.
He said in his report: “A transition regime could provide water regulators with additional enforcement discretion in specific circumstances, allowing them to defer or waive fines and penalties when doing so is in the broader interests of customers. This may include, for example, circumstances where additional fines are likely to hinder a company’s ability to invest in improving infrastructure.”