The UK government has announced a sweeping overhaul of the water sector, pledging to dismantle the current regulatory body, Ofwat, and replace it with a new agency amid growing public concern over sewage pollution, skyrocketing bills, and a perceived lack of accountability among water companies. As part of the reforms, Environment Secretary Steve Reed committed to halving the amount of sewage released into rivers and seas by the end of the decade.

Reed, who outlined the measures over the weekend, described the existing regulatory structure as “not fit for purpose” and said the reforms would offer “real accountability” while restoring public confidence in the system. “Ofwat has failed to protect the environment and failed to protect the public from unfair bills,” he said, citing mounting criticism over the watchdog’s inability to prevent water companies from engaging in practices that led to wide-scale pollution and financial instability.

The decision follows a critical review by Sir Jon Cunliffe, who concluded that the current model of regulation had allowed systemic failures. According to Reed, consultations on the creation of a new regulatory authority will begin Monday, with the primary focus on ensuring better oversight of industry investment and pollution controls.

The announcement comes at a time of acute public dissatisfaction. In 2024, water companies in England and Wales recorded over half a million sewage spills, totalling what environmental campaigners equated to nearly 500 years’ worth of continuous discharge. Thames Water, the largest water utility in the UK, has become a flashpoint in the debate, saddled with a debt burden of around £20 billion and facing dwindling investor confidence.

Reed said the new measures are designed to align water companies’ interests more closely with environmental standards and customer outcomes. Under the proposed legislation, dubbed the Water (Special Measures) Act, company executives could face prison sentences for severe non-compliance, and bonuses would be banned for those whose firms were found polluting. Additionally, funds collected as penalties would be directly reinvested into environmental remediation projects.

To support the environmental ambitions, the government has earmarked £104 billion for infrastructure upgrades, with the aim of modernising sewer systems and treatment facilities. A ban on plastic-containing wet wipes—a significant source of blockages and environmental damage—will also be introduced, complementing broader efforts to reduce pollution at the source.

On household finances, Reed sought to temper expectations. While he didn’t dismiss further bill increases, he emphasised that rises would be “small and steady,” contrasting sharply with the “shock” 26% increase seen earlier this year in some areas. “Families deserve stability, not unpredictability when it comes to essential services,” he remarked. According to the latest figures, average annual water bills in Wales alone exceed £575.

The reforms reflect an attempt by the newly elected Labour government to respond to both public frustration and institutional inertia. Political pressure around water quality has mounted in recent years, with accusations that the industry has prioritised shareholder dividends over essential maintenance. Reed rejected calls for full nationalisation, arguing it would cost over £100 billion and could further delay the environmental goals.

Opposition voices, however, expressed scepticism. Shadow Environment Secretary Victoria Atkins argued that while the proposals signal progress, they fall short of addressing the root causes. “Without immediate enforcement and clarity on funding, today’s promises may struggle to yield results,” she said.

Industry reaction has been cautious. Some insiders have warned that abolishing Ofwat during a period of financial instability—particularly as Thames Water negotiates its future—could unsettle investment. Yet others suggest that the reforms may create a more predictable and transparent framework over time, potentially restoring investor trust in the long term.

Looking ahead, the government will launch a public consultation on the structure and mandate of the new regulator beginning this week. Meanwhile, the Environment Agency is set to receive a record budget of £189 million to improve enforcement and monitoring across the country.

“If we want clean rivers, reliable service, and fair prices,” Reed concluded, “we need a system built for this century—not the last one.” The coming months will test whether these plans can translate into lasting improvements for communities around the UK.