The Act’s provisions can be grouped into two related categories: 1) those increasing the accountability of water and sewerage undertakers (hereafter ‘water companies’); and 2) those introducing new procedural duties and requirements in order to further tackle water pollution. The Act puts these measures in place predominantly through amending existing legislation, namely the Water Industry Act 1991, Water Resources Act 1991, Water Act 2014 and the Environment Act 1995.               

This blog post will focus on sections 1-8 of the Water (Special Measures) Act 2025, which promote greater accountability in the water industry and introduce new regulatory mechanisms.

Key accountability provisions

Provisions relating to accountability can be seen as the main focus of the Act, and a response to growing lack of public trust in the water industry. As the government highlighted in its policy statement on the Act, ‘in 2022 to 2023, £9.7 million was paid out in executive bonuses and benefits to water and sewerage company executives in England and Wales, despite poor performance,’ so ‘the measures in the [A]ct will ensure water companies are better held to account where they have failed to deliver for the environment and customers and begin to restore trust in the industry.’

Remuneration, governance and transparency provisions (in force from 24th February)

Sections 1 and 2 of the Act set out new rules about remuneration, governance and financial transparency. Under section 1, Ofwat is empowered to make rules relating to water companies’ remuneration and governance arrangements. Any such rules must prevent water companies ‘from giving to persons holding senior roles [namely, chief executives and directors] performance-related pay in respect of any financial year in which the undertaker has failed to meet specified standards.’ Those standards must include standards relating to consumer matters, the environment, the financial resilience of water companies, and the criminal liability of water companies.

Rules made by Ofwat must also ensure that senior roles are given only to those who ‘meet specified standards as to fitness and propriety or in respect of other matters,’ and they must provide for the involvement of consumers in decisions likely to impact consumer matters.

Relatedly, section 2 of the Act requires water companies to publish overviews of their financial position at least once a year, in a manner easily accessible to the public.

The payment of bonuses to senior executives of water companies while the sewage crisis continues has been a major source of public distrust in the water industry, raising questions of where money is being spent. Section 1 of the Act is therefore a welcome incentive for water companies to consider the environmental and societal impacts of their operations.

However, since any rules made under section 1 must prevent the payment of bonuses where standards are not met, this may disincentivise water companies from pursuing any improvements unless those improvements are certain to lead to standards being met. Nonetheless, such a risk may be lessened by the fact that, before issuing any such rules, Ofwat must produce a draft and must consult, among others, ‘each relevant undertaker likely to be materially affected by the rules.’ This may help to ensure that standards are realistic and encourage companies to pursue improvements.

Sanctions

Civil sanctions (in force from 24th February 2025): Sections 7 and 8 of the Act relate to the fixed monetary penalties that can be imposed on water companies (under sections 36 and 62 of the Regulatory Enforcement and Sanctions Act (‘RESA’) 2008). The RESA sets out that the standard of proof for these offences is beyond reasonable doubt. However, under section 7(2) and 7(3) of the Water (Special Measures) Act, where certain offences – such as contravening licences and notices, or undertaking unlicensed abstraction or impounding – are committed by water companies, a lower standard of proof is set. Thus, s 7(2) of the Act directs that ‘the powers may be exercised as if “on the balance of probabilities” appeared instead of “beyond reasonable doubt”’ in the RESA.

This change is notable, reflecting the seriousness with which the government intends to respond to such offences. It is likely to make a significant difference with regard to breaches for which evidence is less likely to be available, such as unlicensed abstracting. However, for other specified offences – for instance, the contravention of enforcement notices or water resources information notices – any evidence of a breach is likely to be overwhelming in any case, meaning that a varied standard of proof may make little difference.

Section 8 provides that, where the Environment Agency or Natural Resources Body for Wales has the power to impose a fixed monetary penalty on a water company in relation to the offences at s 7(3), it must do so unless there are ‘exceptional circumstances mitigating the culpability of the company,’ or ‘alternative enforcement action’ (criminal proceedings or a variable monetary penalty) is being contemplated or undertaken. While this is clearly intended to make enforcement action against water companies stricter, it raises the question of whether creating such ‘automatic penalties’ compromises the independence of the Environment Agency as a non-departmental government body.

Criminal sanctions (in force from 24th April 2025): Section 6 relates to criminal sanctions for water companies that impede investigations by environmental investigators (under s 110 of the Environment Act 1995) or fail to assist or provide information to drinking water inspectors (under s 86 of the Water Industry Act 1991). The section increases the maximum punishment for water executives – where they impede an environmental investigation through consent, connivance or neglect, or fail to assist a drinking water inspector’s investigation without reasonable excuse – to 2 years’ imprisonment.

New duties to reduce pollution

The Act also makes provision for several new duties, which will come into effect from such date as the Secretary of State will appoint by regulations.

Pollution incident reduction plans and implementation reports

Section 3 of the Act imposes a new duty on water companies to provide yearly pollution incident reduction plans, setting out ‘how the undertaker intends to reduce the occurrence of pollution incidents that are attributable to its system.’ While many water companies have been publishing such plans since 2020, this section of the Act establishes formal requirements for the making of plans, their implementation, and enforcement.

In particular, the water company will need to specify the frequency and seriousness of incidents in the past year, as well as their causes. It will also need to explain the steps taken to maintain any structure or apparatus in its system which has caused any such incidents. Finally, it will need to explain the measures it intends to take to reduce the occurrence of such incidents, the impact of such measures, and the sequence and timing for implementing them.

Alongside this plan, the company is required to produce a yearly implementation report whereby it reports the extent to which it achieved the previous year’s planned measures and, where there are failures to do so, gives reasons for the failure and actions that will be taken to avoid future failures.

The section provides for enforcement of these requirements: failure to produce plans and implementation reports is an offence, subject to the defence of the chief executive proving that they took all reasonable steps to avoid the failure. However, there is little provision for ensuring that plans are sufficiently comprehensive, or ambitious. The only provision in this regard is the requirement that water companies ‘have regard to any guidance given by the appropriate agency [Environment Agency or Natural Resources Body for Wales] about the preparation and publication of a pollution incident reduction plan.’

Emergency overflows

Under section 4 of the Act, water companies will have the duty to report information about any discharges from emergency overflows. The fact that there has been a discharge, as well as the location of the overflow and the time the discharge began, must be reported within an hour of the start of the discharge. The time of the end of the discharge must also be reported within an hour. These reports must be easily accessible to the public and written in easily comprehensible language.

This provision is important both for transparency and for gathering the technical data to aid and track improvements in the water sector.

Nature-based solutions and climate change

Section 5 adds an additional duty to those already imposed on water companies in relation to the preparation of drainage and sewerage management plans. It requires all such plans to address the use that is to be made of nature-based solutions in the drainage and sewerage system.

This section can be read alongside section 10, under which Ofwat, in performing any power or duty, ‘must also have regard to the need to contribute towards achieving compliance by the Secretary of State with the relevant environmental target duties,’ meaning the net zero emissions target under the Climate Change Act 2008 and environmental targets under the Environment Act 2021.

The incorporation of nature-based solutions and climate considerations into the regulation of the water industry is a positive acknowledgement of the interconnectedness of environmental problems and the interdependence of their solutions.

Conclusion

The Water (Special Measures) Act 2025 is an ambitious piece of legislation, and it is likely to be popular with the public. It provides a response to what has been seen as a past lack of accountability for the sewage crisis, while also introducing new duties to minimise future pollution. Moreover, although the measures set out in the Act will require significant investment, the Act ensures that part of this cost is borne by the water companies themselves. The main remaining uncertainty is when the requirements with regard to the new duties will come into effect.

Katherine Wood is a Bar student at the Inns of Court College of Advocacy and winner of the FTB Kingsland Cup and Prize Moot 2025. She intends to practise in environmental, planning and public law.

This blog post was written as part of Katherine’s 3-day mini-pupillage at FTB from 15 – 17 April 2025. Stephanie Bruce-Smith supervised Katherine for part of this mini-pupillage and provided guidance and feedback on an earlier version of this work.