Water sector overview

Every day, over 50 million household and non-household consumers in England and Wales receive good quality water, sanitation and drainage services. These services are provided by 32 privately-owned companies in England and Wales.

Since the water and sewerage industry was privatised in 1989 a regulatory framework has been in place to ensure that consumers receive high standards of service at a fair price. This framework has allowed the companies to invest more than £108 billion in maintaining and improving assets and services. The industry must also comply with national and European legislation.

In this section you can find out more about:

  • the companies that deliver water and sewerage services in England and Wales
  • the regulatory framework that oversees, licenses and monitors them
  • the legal framework under which they operate
  • the difference between the arrangements that apply in England and Wales
  • the achievements of the water and sewerage sectors since privatisation

Regulatory framework

Department for Environment, Food and Rural Affairs (Defra)

Sets the overall water and sewerage policy framework in England. This includes:

  • standard setting
  • drafting of legislation
  • creating special permits (e.g. drought orders)

Welsh Government

Sets the overall water and sewerage policy framework in Wales. This includes:

  • standard setting
  • drafting of legislation

creating special permits (e.g. drought orders)

The Welsh Government and Defra work closely together on water issues.

European Union

Sets European water, wastewater and environmental standards.

Ofwat

We are the economic regulator of the water and sewerage sectors, we:

  • protect the interests of consumers, wherever appropriate by promoting competition
  • make sure that the water companies properly carry out their functions
  • ensure that the water companies can finance their functions

We also (among other things)

  • promote economy and efficiency
  • contribute to the achievement of sustainable development

Natural Resources Wales

The environmental regulator of the water and sewerage sector in Wales. Their purpose is to ensure that the natural resources of Wales are sustainably maintained, enhanced and used, now and in the future.

Environment Agency

The environmental regulator of the water and sewerage sector in England. They are the principal adviser to the government on the environment, and the leading public body protecting and improving the environment of England. They work in partnership with a range of other organisations to

  • reduce flood risk
  • promote sustainable development
  • secure environmental and social benefits.

Drinking Water Inspectorate

The drinking water quality regulator. They check that the water companies in England and Wales supply water that is safe to drink and meets the standards set in the Water Quality Regulations. They do this by:

  • checking the tests that water companies carry out on drinking water
  • inspect individual companies

Consumer Council for Water

They represent consumers within the water and sewerage sectors. They also investigate consumer complaints that have not been satisfactorily resolved by the water companies.

Natural England

The government’s advisor on the natural environment. They provide practical advice, grounded in science, on how best to safeguard England’s natural wealth for the benefit of everyone.Their purpose is to protect and improve England’s natural environment and encourage people to enjoy and get involved in their surroundings.

History of the water sector

Access to clean water and sanitation is important to prevent the spread of disease. While some parts of England and Wales enjoyed piped water supplies as early as the 15th century, it was only in the late 18th century that piped water was available to the vast majority of the population. And, some years later, the widespread building of sewers allowed many people to access adequate sanitation for the first time.

By the early 20th century most people had piped water supplies and sanitation. Each area organised its own water and sewerage services, often by an individual Act of Parliament or Royal Charter. This meant that at the end of the Second World War there were more than 1,000 bodies involved in the supply of water and around 1,400 bodies responsible for sewerage and sewage disposal. Most of these were local authorities.

Over the last 60 years, the water and sewerage sectors have changed significantly. Most people now receive their supplies from one of a small number of private monopoly water companies. The quality of the water at the tap is of a high standard, and the cleanliness of our rivers and lakes have improved significantly.

Early consolidation (1930s to 1960s)

The water industry was highly fragmented in the period up to and after the Second World War. The industry had largely developed in response to a growing population and increasing demand for water driven by the industrial revolution and accompanying economic growth. Each area organised its own water and sewerage services, often by an individual Act of Parliament or Royal Charter. This left different areas of the country with varying levels of water and sewerage services.

In 1945 there were more than 1,000 bodies involved in the supply of water and around 1,400 bodies responsible for sewerage and sewage disposal. Most of these were local authorities, but there were also several statutory private water companies. Planning for water resources was a highly localised activity, with little co-ordination at either a regional or national level.

Post-war legislation aimed primarily to consolidate water authorities so that they could benefit from economies of scale, and to provide funds for investment in rural areas.

The Water Resources Act 1963 led to further changes, which were in response to a severe drought in 1959 and flooding events in 1960. The Act recognised the importance of a co-ordinated approach to water resource planning and introduced an administration system for the right to remove groundwater (‘abstraction permits’). This was intended to make sure that existing and future water resources were adequately conserved.

Restructuring of the water industry (1965-1989)

Although there was a general consolidation of water and sewerage services after the Second World War, and greater investment in the form of grants from central government, water supply and sewerage services were still provided on a local basis.

Responsibility in any one area lay with one of a number of different types of organisation.

  • water supply:
    • individual local authorities (for example Wrexham Rural District Council)
    • joint organisations covering the areas of two or more local authorities (for example Doncaster and District Joint Water Board)
    • statutory private water companies which were set up by Act of Parliament (for example Cholderton and District Water Company)
  • sewerage services:
    • individual local authorities
    • joint organisations covering the areas of two or more local authorities

In the late 1960s and early 1970s ongoing problems with water resource planning and future demands forecasts prompted further restructuring of the industry.

Establishing regional water authorities

The Water Act 1973 established 10 new regional water authorities. These authorities were responsible for managing water resources and supplying water and sewerage services on a fully integrated basis. These authorities took over control of the services that local authorities had previously been supplying.

The area that each water authority covered was broadly based on river catchment areas. Existing statutory private water companies were unaffected by the changes.

The Water Act 1973 required the regional water authorities to operate on a cost recovery basis. Capital to meet the necessary investment was raised by borrowing from central government and from revenue for the services provided.

Central government set financial constraints and performance aims for each authority.

Trying to meet investment needs

Although the restructuring had some improvements, it was difficult for water authorities to invest significantly in their assets. Additionally, the structure of the authorities meant that they were responsible for both discharging treated water into the environment and also monitoring discharges into the environment – both their own, and that of others. At the same time during this period increased environmental demands were made on the water industry, both with the public in favour of higher standards, and from more stringent European legislation.

In response, in the Water Act 1983 the government:

  • made some constitutional changes
  • reduced the role of local government in decision making
  • gave the authorities scope to access the private capital markets.

These changes did not result in a significant decrease in the number of pollution incidents but there was little desire to provide any additional public finance to meet the demand for capital investment. With the privatisation of other public services already underway, the decision was taken to privatise the water authorities. This was enacted by the Water Act of 1989, which:

  • separated the functions of providing water and sewerage services, and monitoring discharge into the water system
  • allowed the privatised water authorities to borrow money to invest in water and sewerage services

Privatisation (1989 onwards)

The ten publicly owned water and sewerage authorities were privatised in 1989 (after initial plans for privatisation were put on hold in 1986).

Privatisation was achieved by transferring the water supply and sewerage assets, and the relevant staff, of the ten existing regional water authorities into limited companies (the water and sewerage companies). This was accompanied by:

  • the raising of capital by floating parent companies on the London Stock Exchange
  • a one-off injection of public capital
  • the
    write off of significant government debt
  • the provision of capital tax allowances.

Regulating the privatised companies

To protect the interests of customers and the environment, at privatisation there was further restructuring of the industry. This entailed separating the roles of regulation and the provision of water and sewerage services.

Three separate, independent bodies were established to regulate the activities of the water and sewerage companies. These were:

  • the National Rivers Authority – which took over the remaining functions, assets and staff of the water authorities as the environmental regulator
  • the Drinking Water Inspectorate – as the regulator of drinking water quality
  • the Director General of Water Services supported by the Office of Water Services (Ofwat) – as the economic regulator

These bodies now also regulate the statutory private water companies (the water only companies).

In 1996, the functions of the National Rivers Authority were taken over by the newly created Environment Agency.

The Office of Water Services and the Director General of Water Services were replaced by the Water Services Regulation Authority in 2006. The organisation is still known as Ofwat.