On 3 February the Welsh Government published its Green Paper: Shaping the Future of Water Governance in Wales, outlining an “initial direction of travel” toward a “fundamental reset” of the water sector in Wales.
The move follows years of public concern over the performance of water companies, with both increasing pollution incidents and increasing bills.
The Green Paper includes the Welsh Government’s response to the final report of the Independent Water Commission (IWC), which undertook the “largest review of the industry since privatisation”. The IWC Report made 88 recommendations under eight broad themes, the Green Paper responds to each of these themes.
The UK Government published a White Paper on 20 January, setting out its response to the IWC review. However, as the water industry is largely devolved, proposals for Wales differ to those for England (detail on this below).
Here’s our three key take-aways from the Green Paper:
1. Whole system shake-up planned for the water sector
The proposals for Wales broadly include:
- publishing a new National Water Strategy for Wales, and changes to the way strategic priorities are communicated to the industry;
- introduction of a national system planning function to coordinate water management across Wales, and across sectors; and
- strengthened regulatory responsibilities and accountability through regulator reforms – Ofwat, the current economic regulator for England and Wales, is to be abolished, and a separate, independent economic regulator for Wales’s water sector established.
It’s suggested that the new systems planning approach is made a function of the economic regulator, to “ensure short-term affordability is balanced with long-term infrastructure and environmental needs”. There are also recommended changes to the way regulators engage with companies, including consideration of performance frameworks and enforcement tools.
The Welsh Government proposes to review, and make any necessary changes to, the existing legal framework for water. There are further recommendations relating to strengthening water company governance which are largely directed at regulators, and some aiming to change how water industry infrastructure is managed, monitored and delivered.
The big difference between the English and Welsh proposals is that the UK Government intends to establish an integrated water regulator for England, by bringing together the relevant water system functions from existing regulators - Ofwat, the Drinking Water Inspectorate (DWI), the Environment Agency, and Natural England - into one new body. In Wales, the current water regulatory functions of Natural Resources Wales (NRW) would remain with NRW.
It’s also proposed that the DWI’s remit would remain ‘England and Wales’, while incorporated in the English integrated regulator. The Welsh Government recognises this may “pose challenges” regarding the new English regulator’s geographic scope and remit, and will assess the ”appropriateness” of this situation during transition.
2. Extra powers needed to deliver Welsh reforms
Establishing a separate economic regulator for Wales will require additional Senedd legislative competence, and executive competence for the Welsh Ministers.
The Green Paper says the Welsh Government is “working with the UK Government to explore the proposals”, including “discussing the scope of the legislative and executive competence” required.
Major legislative reform will be needed across England and Wales to implement the reform proposals in both the UK Government’s White Paper and the Welsh Government’s Green Paper. While dates are not clear from either paper, a first version of a joint transition plan, setting out more detail on how the reforms will be implemented, is due to be published in 2026 by the two governments.
The UK Government will first introduce its primary legislation, setting out the legal framework for England, as well as the enabling powers for Wales. It is expected to put the transitional arrangements on a statutory footing, and set out how English and Welsh bodies will work together on cross-border issues.
Following the UK Government legislation, and subject to the agreement of the incoming Welsh Government, it’s proposed a White Paper for Wales, containing details of the Welsh legislation, and incorporating feedback gathered through the Green Paper, is published. This is expected to set out a comprehensive framework for reform in Wales, and a delivery pathway for a new Welsh economic regulator.
Again, subject to the agreement of the new government post-election, it’s intended that a Welsh Water Bill will be brought forward in the next Senedd term.
3. New Welsh regulator operating from mid-2030s
The Green Paper sets out a rough timetable for water sector reform for Wales:
- Phase 1 Legislative change: 2026 to around 2028 / 2029.
- Phase 2 Establishing a new Welsh economic regulator and system planning function for water: 2028 – early 2030s.
- Phase 3 Economic regulator for water established and undertaking its role: mid 2030s onwards.
The reason given for the lengthy timeframes is that reform will need to be delivered against the backdrop of Ofwat’s 5 year Price Review cycle.
The Green Paper explains that, to ensure there is no gap in regulation for Welsh water companies, from 2026:
Ofwat, and any subsequent integrated regulator, must continue to provide economic regulation functions for Wales, including undertaking the price review determined in 2029.
For the new Welsh regulator to lead the price review for Wales in 2034 (PR34), it would need to be operational by 2030 at the latest:
As the legislative process in Wales will need to proceed in sequence, this timeline means that contingency arrangements will be required to ensure effective regulation for PR34.
Depending on how quickly any Welsh legislation can be passed, and subsequently a regulator set up, it’s possible that the new English regulatory body “temporarily oversee[s] certain regulatory functions for Wales” until PR34 is delivered.
Next steps
Further detail on how these reforms will be implemented should be set out in the transition plan, expected this year. This will provide a “roadmap to guide the sector from today’s system to the future model… by setting out what needs to happen and when, and who is responsible.”
Article by Lorna Scurlock, Senedd Research, Welsh Parliament
