Expert analysis of the UK water sector
Excerpts from the latest edition of The UK Water Report.
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Home grown
Water reform in Wales will have a distinctly Welsh identity.
By Karma Loveday
Although it has to be closely choreographed with water reform in England and has plenty of themes in common, water reform in Wales is treading a very distinctly Welsh path.
Most obviously, in its Green Paper: Shaping the future of water governance in Wales, the Welsh Government (WG) rejected the idea of an integrated regulator for Wales. Instead, it proposed creating a Wales-specific combined economic regulator and system planner, that continues to interface with separate environmental and drinking water quality regulators. But that is far from the only difference.
The Green Paper is the WG’s policy response to the recommendations of the Independent Water Commission (IWC). The paper emphasised how Wales’s circumstances differ from those in England: the country is smaller, has devolved priorities, and there is already legislative provision through the Wellbeing of Future Generations Act 2015, the Environment (Wales) Act 2016 and the Wales Act 2017 for fairness, sustainability and public value. There is also an existing water strategy, in the form of the Water Strategy for Wales created in 2015.
The next phase of reform will also be shaped by the Environment (Principles, Governance and Biodiversity Targets) (Wales) Bill, which was passed by the Senedd at the end of February. This established a new framework for environmental protection, created the Office of Environmental Governance Wales, empowered Welsh ministers to set legally binding biodiversity targets and embedded key environmental principles and duties to integrate environmental protection – including the polluter pays principle – into Welsh law.
The Welsh Government rejected the the idea of an integrated regulator for Wales.
Regulatory stability returns: M&A next?
Verity Mitchell on prospects for new capital providers to take the plunge into UK water.
By Verity Mitchell
In our review of the White Paper (The end of the beginning for investors, The UK Water Report, February 2026), we noted that there have already been inflows of equity and debt to support transformational investment in AMP8. With the Government taking responsibility for the water sector and ending the blame game, might new capital providers emerge?
The growing reputational stability of the sector is likely to attract new private capital market investors. These may be private equity investors, private credit lenders or focused infrastructure investors. The private capital market has grown exponentially. Moody’s sees assets under management exceeding $2tn in 2026 and approaching $4tn by 2030 (Global 2026 Outlook - Growth to accelerate, along with complexity and liquidity risks). New investors may look to buy stakes, rather than acquire the whole capital of water companies.
The White Paper states that the Government “….will create a regulatory system that supports owners with long-term business models and prevents the inappropriate financial engineering of companies in the past.”
This desire for a long investment time frame does not match the aspirations of many private capital investors, including many of the current owners of stakes in the English water companies.
This desire for a long investment time frame does not match the aspirations of many private capital investors.
Rising damp
The minister’s evidence to the Drought Inquiry shows water availability is surging on the policy agenda.
By Karma Loveday
“The short answer to your question is: it has become more of an issue than it ever has been before, and it is being taken more seriously than it has been before.” That was water minister Emma Hardy responding to this question from Baroness Whitaker at the House of Lords Environment and Climate Change Committee’s drought inquiry: “How much is water availability a material consideration when deciding where new planning and infrastructure projects will be located?”
Hardy’s response encapsulates the sense her evidence gave throughout the session, that the criticality of water for the economy and society is really rising up the agenda. Her answers to the Committee’s questions also conveyed a sense that Defra gets this and is taking long-overdue action to make more robust preparations for drought.
For instance, the Government is working on a detailed plan to prioritise water users in severe drought situations. On 4 February, there was a COBRA test on responding to drought, and work is now underway to determine who should be where in the queue for water, if it was in seriously short supply – hospitals, the fire service and so on. Hardy said: “We are grappling with that now…The last thing I want to happen is that we face a severe drought and we are scrambling around trying to work out where we think the water needs to go most urgently.”
“The last thing I want to happen is that we face a severe drought and we are scrambling around trying to work out where we think the water needs to go most urgently.”
Back to the future
The Grand Union Canal Transfer partners are seeking community input into the plan to harness a 18th century asset for 21st century need.
By Karma Loveday
The Grand Union Canal Transfer (GUCT) has always stood out in the Strategic Resource Options portfolio for innovative use of an existing asset. Rather than carving a new pipeline corridor through the heart of England, it proposes to move high‑quality recycled water from the Midlands to the southeast, using the historic canal network as a strategic water artery.
Between 11 February and 2 April, anyone who lives near, works along or uses the canal network in any way, has the opportunity to have a say on the plan, as GUCT partners Affinity Water, Severn Trent and the Canal & River Trust run the Phase Two public consultation. The focus is very much on these communities. Fifteen public meetings are being held at venues along the route through March.
Clare Carlaw, Affinity Water’s head of engagement, land and consents, shares that the core idea of harnessing the canal for a new purpose resonates strongly with the public. “It’s an 18th century asset for a 21st century need,” she says. “There’s a real connection with heritage, and that gives us something to build on.”
“It’s an 18th century asset for a 21st century need. There’s a real connection with heritage, and that gives us something to build on.”
The food drain
David Lloyd Owen looks at why farming is harming our inland waters.
By David Lloyd Owen
According to the Environment Agency (EA), agricultural run-offs account for 41% of failures under the Water Framework Directive for inland waters in England. Compared with sewage treatment works and sewer overflows, this generates limited public and media interest. To understand what is going on, we need to appreciate the situation is framed by the relationship between farming and supermarkets and food processing and distribution chains. The fact that farming has become progressively more intensive in recent decades is well known. How intensification impacts water quality is a great deal more nuanced than may be expected.
The fact that farming has become progressively more intensive in recent decades is well known. How intensification impacts water quality is a great deal more nuanced than may be expected.
In your face
Big business wakes up to water risk.
By Karma Loveday
“Water has gone from out of sight, out of mind, to in your face…you have to deal with it.” Those words from David Henderson, managing partner of investment firm XPV Water Partners, summed up the takeaway message from The Economist’s inaugural Water Summit, held in London last month.
The event tagline – ‘Making water strategy a boardroom priority’ – would in the past have been something of a pipe dream. But the high calibre and highly engaged multi-national corporates at the event tell a different story. It seems that water is, finally, beginning to cut through as a strategic level topic that boards need to take seriously.
And there’s more good news. Having been down the agenda for so long, there seems to be lots of low hanging fruit that businesses can gather to use less and steward better. As the event’s chair, The Economist deputy editor Tom Standage, summarised: “This is a target-rich environment”.
The extreme negative is that corporates are being forced to sit up and take notice because water issues have become so pressing and so persistent. In January, United Nations researchers declared that the world has moved beyond a water crisis – a temporary state from which recovery is possible – into a state of “global water bankruptcy”.
“Water has gone from out of sight, out of mind, to in your face…you have to deal with it.”
Hard cash
Scotland’s licensed providers tell the CMA of structural problems in the market that leave them strapped for cash.
By Karma Loveday
Licensed providers (LPs) in the Scottish business retail market have raised concerns about the cashflow impacts of key elements of the market’s structure and regulatory framework. The chief issues are wholesale pre-payment demands and bad debt. Not only does the situation make for a difficult operating environment, but it also limits investment in service offerings and innovation.
These issues are documented in market operator the Central Market Agency’s 2025-26 Stakeholder engagement report, which consolidated themes arising from all of the CMA’s engagement with market participants.
According to the report, many LPs described the requirement for two- and three- months pre-payment of wholesale charges as a barrier to entry to the Scottish market and an impediment to customer acquisition and business expansion. In fact: "Some said their rationale for doing business in Scotland was solely to provide services to cross-border customers that demand UK-wide service. Some also suggested that they would not actively seek a greater market share for this reason.”
The chief issues are wholesale pre-payment demands and bad debt.
Little comfort
Consumer Scotland research has found that water delivers the second lowest satisfaction to small Scottish businesses.
By Karma Loveday
Small businesses in Scotland ranked water as the sector they are second-to-least satisfied with (see chart), in a survey by Consumer Scotland.
The watchdog surveyed 700 small businesses (those with under 50 employees) about their engagement in and satisfaction with various services, from utilities to building and professional services. Key findings included:
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Small businesses are just as likely – and in some cases more likely – than individual consumers to experience problems when purchasing goods and services, with nearly half reporting problems including unclear contract terms, poor service quality and delivery failures.
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Despite this, small businesses often have lower levels of legal protection, fewer rights and less access to advice and redress than individual consumers.
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Satisfaction levels vary significantly across markets, with energy, water and telecoms performing worst out of 11 markets studied. Energy market dissatisfaction was particularly pronounced, with one in five businesses reporting problems including contacting energy suppliers, understanding bills and unfair terms and conditions.
Small businesses are just as likely – and in some cases more likely – than individual consumers to experience problems when purchasing goods and services.
CONTENTS
This month's articles
Report
Wales goes its own way on water reform
4
Pg
Report
Portsmouth Water scopes out supervisory regulation
8
Pg
Industry Comment
Grundfos on asset MOTs
10
Pg
Analysis
Listed company fortunes
12
Pg
Report
Drought Inquiry: Water availability surges up the agenda
14
Pg
News Review
Thames' refinancing edges closer
19
Pg
News Review
Sludge spreading set to move into EPR regime
23
Pg
News Review
Thames CCG calls for a core trust metric
25
Pg
Report
Licensed providers air concerns about structural constraints on cashflow
28
Pg
News Review
Ofwat to streamline third party access to consumption data
30
Pg
Report
Baringa seminar urges prompt Transition Plan clarity
7
Pg
Industry Comment
Binnies on storing water in catchments
9
Pg
Report
Water Voice panels launch
11
Pg
Analysis
Regulatory stability returns - M&A next?
13
Pg
Feature
Grand Union Canal Transfer consultation
16
Pg
Analysis
Why farming is harming our inland water
20
Pg
News Review
Environmentalists condemn Defra's PFAS plan
24
Pg
Report
Big business wakes up to water risk at The Economist Water Summit
26
Pg
Report
Consumer Scotland reveals small business water woes
29
Pg