With the Cunliffe Review, Water White Paper and anticipated Water Reform Bill, the English water sector is undergoing its most significant changes since privatisation, prompting urgent questions about how regulation can better protect the public interest.
Against a backdrop of environmental and social crises in the sector, Claire Hoolohan and Jacob Ainscough explore how embedding ‘citizen vigilance’ in the regulatory system could help hold institutions to account, whether or not England’s water remains privatised or moves towards nationalisation.
The case for water sector reform is increasingly clear: The number of serious water pollution events in England is rising, bathing water quality sits well below EU averages, and rising demand is outpacing the development of new water supplies. In an era characterised by increasingly extreme weather and escalating water demand, system reform is essential to protect public health, ecological integrity, and the communities that depend on clean water.
Overlapping crises and public backlash
Public sentiment toward water privatisation has long been ambivalent, but latent dissatisfaction has recently crystallised around the sewage scandal, which has dovetailed with a financial crisis that pushed several water companies to the brink of bankruptcy. Substantial sewage discharges, including into protected waters like Lake Windermere, and the uncovering of significant misreporting have signalled to the public that water infrastructure is overwhelmed. At the same time, widespread reporting on extractive financial practices has highlighted the conflict between economic performance and social and environmental outcomes.
How has such a situation been allowed to develop? Much of the answer lies in the practices of new financial actors that have moved into the sector since privatisation. These actors have loaded water companies up with debt to take advantage of how the economic regulator calculates the prices water companies are allowed to charge consumers. Prioritising cheap debt has allowed water companies to retain more of the money they collect from consumers and redistribute this to their owners, shifting the financial risk downward onto bill-payers while leaving long-term infrastructure needs unmet.
By March 2023, water companies accumulated £60.3billion in debt, costing households 20% of their bills, and approximately £52 billion had paid out in dividends (not adjusting for inflation), leaving infrastructure underinvested and companies exposed when interest rates rose. Increasingly complex and opaque ownership structures have made it harder for the regulator to police the line between welcome investment in the sector and extractive financial practices.
How scandals can open the door for change
The story of UK water sector is an example of a broader dynamic in which well-resourced corporate actors have, over time, outpaced regulators’ ability to protect public interests. Yet political science offers an optimistic counterpoint to this dynamic.
Political scientists Culpepper and Lee document how periods of scandal provide windows of opportunity for citizens to fight back and win in political systems dominated by corporate elites. Their examples include the bolstering of financial regulation post-2008 and the growth of privacy law across the EU and the USA in the wake of the Snowden and Cambridge Analytica revelations. The English water sector is in such a moment. Public concern has reached sufficient breadth and intensity to prompt the government to commission the Cunliffe Review - a major independent review of the sector - and new legislation, suggesting that the window for meaningful change is open.
Culpepper and Lee caution that, historically, when scandals pass and questions of corporate structure and regulatory competence fall back to the area of ‘quiet politics’, corporate. While the Cunliffe Review and the reforms to follow are hugely significant, they also exhibit clear vulnerabilities that suggest the dynamic of regulatory roll back may well re-assert itself once political and media attention moves on to the next issue. powers reassert themselves.
Citizen vigilance: How can it strengthen new water regulations?
The question, then, to address the overlapping challenges of environmental crisis and democratic renewal is: how do we ensure the incoming regulatory system more effectively protects the public interests, so we aren’t left again in 10 years’ time asking what has gone wrong?
The answer, we think, hinges on institutions designed to catalyse and mobilise citizen vigilance, rather than relying on periods of acute politicisation. Citizen vigilance – in other words, sustained public scrutiny – is an important yet under-appreciated feature of democratic politics. In sectors like water, which are dominated by a small number of powerful actors, it can act as a vital check to expose failures, challenge complacency and keep reform focused on the public interest.’
Citizen vigilance has played an important role in highlighting recent scandals, with ordinary people mobilising around water quality monitoring, ‘Paddle-out’ protests and major legal challenges.
So, how can we bolster current reform proposals to hold space for the democratic power of citizen vigilance and protect the public interest?
Recommendation one: Build ‘bright lines’ into water regulation
Highly complex regulatory systems are inherently difficult to monitor. To increase democratic oversight, reforms should build what legal scholar Sabeel Rahman calls ‘bright lines’ into water regulation. ‘Bright lines’ are clear, enforceable boundaries that make regulation easier to understand, apply and scrutinise not only for regulators, but also non-specialists including policymakers, civil society and the public. Embedding these clearer rules would make it easier for a range of groups to see whether the water system is truly working for them and be able to hold institutions to account.
For example, the new regulator will have the power to block acquisitions by new owners – a power intended to exclude financial actors oriented more towards profit extraction than public provision - but there are not yet explicit criteria by which these decisions will be made. Providing ‘bright lines’ would make already existing forms of citizen vigilance easier, clarify where additional vigilance would improve democratic oversight, and ensure that vigilance is more enforceable.
Bright lines focused on economic regulation (such as gearing ceilings, dividend restrictions tied to environmental performance, and prohibitions on offshore ownership structures) have strong backing from parliamentary committees, opposition parties, academics, journalists and other critical stakeholders, with proponents arguing these would have cut through opaque financing practices before they became systemic. However, this focus sustains a structural hierarchy where economic regulations are prioritised over environmental and social objectives. An alternative approach would be to set firm environmental and social floors, anchoring the regulatory framework in service of public goods and does not entrench existing inequalities - whether the sector is privatised or not.
On the environmental side, these could include an enforcement mechanism for the Water Framework Directive’s “good ecological status” standard - a nominal target already missed by 84-86% of rivers, and to be comprehensively missed by the 2027 deadline without legal consequence. On the social side, social tariffs with a statutory affordability threshold could replace the current patchwork of voluntary schemes with different eligibility criteria. These social and environmental thresholds rebalance regulation in favour of socially just, observable outcomes, rather than purely financial performance.
Recommendation two: Embed citizens’ audits in water sector planning
Second, we recommend a regular ‘citizens’ audit’ embedded in water sector planning would bring water regulation out of the arena of ‘quiet politics’ and into the public limelight in regular cycles – building on examples of participatory audit approaches in countries such as India and the Philippines. These examples have shown citizen audits can be a powerful tool to hold public bodies to account but need to be linked to wider social movements and empowered to effect change if they are to have substantial policy impact.
The audit process would provide an anchor point around which those keeping watch over the sector – journalists, non-government organisations, citizen scientists, academics and the public – can mobilise and drive change, extending their power to amend the regulatory framework.
The following model illustrates how this could work in practice:
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Every five years, a jury of 50 citizens, selected by lottery, meet to hear evidence from different parties on whether the regulatory framework is working as planned – that is, that it is being adhered to in spirit, not just in word, and that it has not been eroded over time.
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This audit would be designed to catalyse wider public and political interest and be empowered to make genuine change. To this end, it should include a listening process where members of the auditing body attend events around the country to hear from community groups dealing with water company failures. This process could draw from existing mechanisms for engagement in the sector, such as the Consumer Council for Water.
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The citizen’s audit report should be launched alongside a debate in Parliament, to help socialise the ideas it contains and secure support amongst politicians and the media.
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Crucially, the body should be empowered to propose one regulatory change per audit cycle that the government of the day is obliged to assist in translating into a workable amendment and introducing to the Commons.
Conclusion
The forthcoming Water Reform Bill represents a genuine opportunity to reset the relationship between water companies, regulators, and the public, but structural reform of the regulatory architecture, however welcome, is not sufficient on its own.
The history of this sector - and of regulated industries more broadly - shows that without sustained democratic pressure, the window of reform closes, corporate power reasserts itself, and the public interest is again quietly deprioritised. The two proposals outlined here are designed to hold that window open, anchoring the water sector to public scrutiny and ensuring it is governed to serve the long-term interests of people and the environment.
