Water White Paper: Is This The Turning Point We Have Been Waiting For?

On 20 January 2026, the UK Government published its Water White Paper, responding to last year's Cunliffe Report.

The accompanying press release describes the White Paper as a once-in-generation plan to overhaul the water system. Much of the rhetoric attacks poor performance and champions tougher oversight and accountability for water companies. But if you scratch the surface of the White Paper itself, something more conciliatory and constructive emerges. Might it be the turning point for the water sector that companies and investors have been waiting for?

Investment at the fore

The White Paper is not subtle about the need to attract investment into the water sector. It is the first point that emerges from the Executive Summary and is repeated throughout. Much of the changes trailed in the White Paper are framed in terms of the need to attract investment. For example:

• A commitment to a stable and predictable regulatory environment for the water industry, including an objective for the new regulator to improve the creditworthiness of the industry so it can provide long-term investors with the lower risk environment they seek.
• A more open and collaborative approach to reform with a view to building strong partnerships with all parties with a stake in the water system attracting the investment it needs.
• A new supervisory approach to regulation targeted to the specific needs of each water company to improve performance. The reforms will establish a model for the new regulator to intervene early to help underperforming water companies recover faster, attract the investment they need, and improve long-term financial resilience, asset health, and environmental performance.
• Rationalising and simplifying performance commitments to reduce the volatility in returns.
• A new Performance Improvement Regime (PIR) for poorly performing companies that, while ensuring that entering the PIR has genuine consequences where owners and management have contributed to under-performance, nevertheless recognises that enforcement alone will not fix the problems they face. To avoid trapping water companies in a cycle of decline, the regime will include tools to break that cycle and establish a path to improvement.

The White Paper acknowledges that investors have lost trust that the water industry regulatory framework offers them a fair bet. It says it wants investors to be confident that the new rules underlying this regulated sector are stable, predictable, and will secure returns over the long-term.

Other key points

This blog post is not an opportunity to rehearse every point that emerges from the White Paper. That said, for this author, the following points were of particular note:

• The new single regulator will be able to look at all water company activities in the round for the first time, enabling a 'whole firm' view of economic and environmental performance and the provision of water services. Delivery targets, business planning, and cost assessment will be fully integrated ensuring that investment meets the needs of the sector
• There is express recognition that the current model of regulating water companies relies too heavily on industry-wide benchmarking and economic modelling. This is particularly noteworthy given the CMA's current proposed approach to base cost modelling in its PR24 redeterminations.
• The new water reform bill will embed the concept of 'constrained discretion' to empower the regulator with greater flexibility to support improved outcomes for people, the environment, and economic growth.
• The Government will consider new measures to create a regulatory system that supports long-term business models and prevents the inappropriate financial engineering of companies in the past. Moreover, it will consider how the regulator can work with companies and investors to ensure companies do not accumulate unmanageable levels of debt, remain financially resilient to deliver vital services for customers and the environment, and are able to attract further investment as required.
• The Government will work with the regulator to develop a fuller picture of asset health and develop forward-looking asset health metrics to ensure it gets the funding it needs.
• As regards price controls, the Government is committed to retaining a 5-year cycle for water industry price reviews. However, it will abolish Ofwat's Quality and Ambition Assessment to ensure companies are not incentivised to bid for less investment than they need. And at future price reviews, companies will receive separate allowances for capital maintenance, operating expenditure, and enhancement capital expenditure; this is to ensure that capital maintenance allowances are spent only on maintaining assets.
• The Government is proceeding with changes to the Specified Infrastructure Projects Regulations (SIPR) regime, including amended statutory thresholds to enable a wider range of projects to be delivered under SIPR. It is also considering direct government involvement in SIPR projects to strengthen incentives and reduce costs.

Next steps

A water reform bill is promised to be introduced this Parliament. In the meantime, the Government will publish a Transition Plan this year.

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