The Government has backed the recommendation by an independent commission to abolish water regulator Ofwat as part of a shake-up of the sector.

Here are some key questions answered.

– What is the problem?

There has been growing anger about the state of the privatised water industry.

Pollution in England’s rivers, coasts and lakes, hikes to bills, shareholder dividends and bosses’ bonuses, along with the well-publicised financial woes of the biggest water firm Thames Water, have led to calls for action to tackle what the Government and others have labelled a “broken” sector.

There is also the looming issue of future water supplies in the face of climate change which is bringing more extreme weather.

That means a rising risk of drought like the one currently gripping swathes of England and leading to restrictions on supplies for millions of people, heatwaves which push up demand and intense downpours which overwhelm water and sewage systems.

Climate change, along with a growing population and historic underinvestment in water infrastructure such as reservoirs, are putting pressure on future supplies and the natural environment.

– How does the water system work in England and Wales?

It is a “regulated monopoly” in which a series of private water companies in England are responsible for supplying households in their area with drinking water and/or removing and treating sewage.

Ofwat regulates the financial conduct and health of the water firms, while the Drinking Water Inspectorate ensures water supplies are safe for consumers, and the Environment Agency and to a lesser extent Natural England regulate environmental issues around water.

Ofwat is also the economic regulator for water companies in Wales, which is mostly supplied by not-for-profit Welsh Water.

Unlike with energy companies, you cannot change your water company, so there is no competition between the firms.

Instead a five-yearly system known as the “price review” involves water companies putting in proposals to economic regulator Ofwat on how much they can charge on bills and what they will deliver in return.

The regulator determines a final settlement – which can then be contested by the firms and ruled on by the Competition and Markets Authority (CMA).

– What was the Independent Water Commission? 

With the new Government’s postbag on environmental issues dominated by concerns over water, ministers launched an independent water commission led by Sir Jon Cunliffe, former deputy governor of the Bank of England, to conduct a wholesale review of the water sector.

But the terms of reference excluded renationalising the industry.

– Why not renationalise water services?

Many countries have publicly-owned water services, and some campaigners see it as the only way to ensure that public interest is favoured over private profits.

They complain that the owners of water companies have loaded them with debt and paid out large profits to shareholders over the years since privatisation, while putting insufficient investment into infrastructure and hiking bills.

But ministers have insisted that renationalising the sector is not the answer, with Environment Secretary Steve Reed warning it would cost £100 billion and slow down efforts to curb pollution as efforts to return them to public ownership would be snarled up in legal wrangles.

– What did the review say? 

It made 88 recommendations, with key ones including a recommendation to overhaul the sector’s regulators and replace them with one body for England and one body for Wales.

For England, this would see Ofwat and the Drinking Water Inspectorate abolished, and the removal of the environmental regulation functions for the Environment Agency and Natural England.

It also recommends measures such as expanding the role of the voluntary Consumer Council for Water into an ombudsman to give stronger protection to customers and a clearer route to resolving complaints, and the introduction of a national social tariff.

And on the environment, it calls for stronger regulation on abstraction, sludge, drinking water standards and water supply, improving the process where companies collect and analyse wastewater discharges and compulsory water metering and greater water reuse and rainwater harvesting schemes.

Sir Jon has warned that all the issues outlined in the report need to be addressed to solve the fundamental problem with the sector.

– What is the Government doing now?

Environment Secretary Steve Reed has already announced abolishing Ofwat and rolling the four separate regulators into a “single, powerful” body acting on behalf of customers, investors and the environment, in one of five recommendations the Government will fast-track.

He has also pledged to halve pollution from the water sector by 2030, a higher target than previously, albeit from a higher baseline of 2024 compared to the previous start date of 2021.

And he said the Government would be consulting on all 88 different recommendations in Sir Jon’s report, as well as pointing to securing £104 billion in investment from water companies and more powers to the regulator.

– Will it be enough?

Mr Reed has said the reforms will protect customers from the kind of bill hikes seen this year, attract investment into the sector and clean up rivers, lakes and seas.

Water UK, which represents water companies, welcomed the review’s recommendations, saying they would “establish the foundations to secure our water supplies, support economic growth and end sewage entering our rivers and seas”.

But critics continue to call for more fundamental reform, including nationalising companies such as heavily-indebted Thames Water, battling to secure funding to shore up its creaking finances and responsible for major pollution incidents.

River Action chief executive James Wallace accused the commission of falling short, leaving “the current failed privatised water company model intact.”

And Richard Benwell, a member of the Independent Water Commission’s expert advisory group and chief executive of Wildlife and Countryside Link, said reforms would “fall short” without proper funding and a clear steer from Government.