Water firms could be let off pollution fines as part of government overhaul | Environment

According to the changes announced in the government’s new white book, water companies can be given fines for polluting the environment.

Environment Minister Emma Reynolds hailed the changes as “once-in-a-generation reforms” with “tight oversight, real accountability and no more excuses”.

Campaigners described the proposed move to soften the approach to fines as “desperate” and said the government was letting companies off the hook.

Under the plans, a new turnaround regime will be introduced that will force companies failing financially or in terms of sewer pollution and water shortages to resolve their problems more quickly. The government said this would “provide stability for investors”.

The Guardian understands that the white paper, which will be published on Tuesday and has not been made available to journalists in advance, will include provisions for the regulator to step in and “manage” fines to prevent a company from collapsing. This may include deferring penalties or exempting the company from certain payments. A source at the Department for Environment, Food and Rural Affairs said “the aim is for every water company to pay their fines eventually”.

Creditors have asked for Thames Water to be exempt from future penalties as the company avoids financial collapse. In May 2025, it was fined over £120 million for environmental breaches involving sewage leaks, following a failure to effectively operate and manage treatment works and wastewater networks.

“We are solving problems and putting companies in a position where customers don’t have to pay for their failures,” a Defra source said.

Richard Benwell, chief executive of Wildlife and Countryside Link, said: “If a company is fined for doing something wrong, it must either pay compensation or the polluter must pay.”

He added: “Getting off the hook at the last minute seems like a hopeless game, and companies should consider this when they engage in illegal actions and fail to fulfill their duties in the public environmental interest. If a business has not managed itself well enough to deal with the consequences of its shortcomings, then it must deal with those consequences.”

Industry sources said the possibility of a fallback regime would be welcomed, although they acknowledged that companies would have to accept restrictions on payments to directors and investors if penalties were reduced or postponed.

A new “MOT for water companies” will be announced as part of measures that ministers say will force companies to disclose the state of their infrastructure.

Government sources said this would prevent the water shortages that tens of thousands of people in Kent and Sussex have faced recently. This was because the shortage was caused by old pipes and a poorly maintained water treatment centre.

Pipes in the UK are largely Victorian, with no major reservoirs built for over 30 years. Many water treatment centers were built decades ago and have not been updated.

Other changes include:

• Special inspection teams for each water company.

• “Without notice” audit powers for the new regulator.

• A new chief engineer has been brought in at Ofwat to oversee practical checks of water infrastructure.

The revision to the water reform bill, which is expected to be enshrined in law, is part of the government’s response to former Bank of England official Jon Cunliffe’s wide-ranging report on the water sector. He made 88 suggestions for improving the sector, and some of them (such as the audit model) were accepted.

There will be no change in the ownership structures of water companies, and Cunliffe was banned by the government from considering nationalizing the sector in his report. England and Wales are the only countries in the world where the water system is fully privatised.

Water campaigner and former Undertones singer Feargal Sharkey said: “This is just rearranging sun loungers. After 35 years of privatisations we have two hospitals, a kidney treatment centre, 15 schools, 19 care homes and 29 nurseries in Tunbridge Wells that went without water for two weeks. The government is afraid to tackle privatization and is sacrificing water quality on the altar of shareholders and private capital.

“No 10 is operating in a state of paralysis about doing anything that might slightly spook bond markets. Ministers have failed to grasp the underlying problem of corporate greed. The only people who will pay the price are customers and bill payers.”

The government has previously said it would abolish Ofwat, as Cunliffe suggested, and combine its powers with those of other water watchdogs under a new “super regulator”. It remains unclear whether the new regulator will be ready in time to oversee the next price review in 2029, which will determine household bills and company spending plans through 2035. The government is expected to set the timeline for the new regulator in March.

Cunliffe suggested allowing companies to avoid penalties under the fallback regime.

He said in his report: “A fallback regime could give the water regulator additional discretion over enforcement in certain circumstances and allow them to defer or waive fines and penalties where it is in the interests of customers more broadly. This could include, for example, where additional fines are likely to hinder the company’s ability to invest in infrastructure improvement.”