Regulators on Trial: Can Ofwat and Defra Be Trusted to Fix a Broken System?

Across the United Kingdom, frustration with the state of the water industry has been growing for years. From sewage spills in rivers to eye-watering executive pay at privatised companies, the public mood has shifted from unease to outright anger. Now, with a major public commission calling for structural reform, the spotlight has turned to the two regulators charged with safeguarding the system: Ofwat and the Department for Environment, Food and Rural Affairs (Defra). Are they capable of fixing a failing regime, or are they too entangled in its decline to lead the necessary change?

A System Designed to Be Watched

Ofwat was created in 1989 to regulate the newly privatised water industry in England and Wales. Its primary duty was to ensure that water companies delivered good service and maintained infrastructure, all while keeping prices fair for consumers. Defra, meanwhile, holds overarching responsibility for water policy and environmental protection, working with the Environment Agency and Natural England.

Yet over three decades later, the record of both organisations is under intense scrutiny. River pollution levels have soared, with raw sewage released into waterways more than 370,000 times in 2023. Customer bills have risen by 40 per cent in real terms since privatisation. At the same time, water companies have accrued massive debts and paid out over £85 billion in dividends.

Critics argue that regulators have not only failed to prevent this deterioration but have helped to enable it. Ofwat has approved financial engineering that allowed firms to take on excessive debt. Defra has been accused of political timidity, dragging its feet on stronger enforcement and underfunding key agencies.

Shifting the Blame

When confronted, both regulators often point to each other or to legislative constraints. Ofwat insists that it operates within the framework set by Parliament and cannot police pollution, leaving that role to the Environment Agency, which answers to Defra. Defra, in turn, highlights budget pressures and the need to balance environmental ambition with affordability and business confidence.

This mutual deflection has created what campaigners call a "regulatory Bermuda Triangle", where responsibility vanishes. The Commission on Water Governance, a coalition of legal experts, former regulators and civil society organisations, has labelled the system “fragmented, opaque and dangerously weak”. Their interim report, published in June 2025, concludes that the structure of regulation is no longer fit for purpose.

Resistance to Reform

Perhaps the most damning critique is not what Ofwat and Defra have done, but what they have resisted. Repeated calls to mandate investment in green infrastructure, penalise companies for excessive leakage, or cap executive pay have been watered down or ignored.

In 2023, Ofwat was given new powers to block dividends when a company’s financial resilience is at risk. Yet in practice, it has rarely used these tools. Even Thames Water, burdened with over £14 billion in debt and on the brink of collapse, continued to operate with minimal regulatory intervention until public pressure forced action.

Meanwhile, Defra has been slow to embrace more radical solutions. While Scotland and Wales have increasingly turned to public ownership and integrated catchment management, England’s regulators have clung to market principles. The government’s Plan for Water, launched in 2023, promised to “reform and refocus” the system. In reality, it delivered little beyond vague targets and recycled announcements.

The Politics of Oversight

The lack of regulatory bite has wider political implications. Both Ofwat and Defra are bound by ministers’ priorities and Treasury orthodoxy. Under recent governments, environmental regulation has often been portrayed as a “burden” on business. Funding for the Environment Agency fell by more than 60 per cent in real terms between 2010 and 2020, according to analysis by the National Audit Office.

In a 2022 Public Accounts Committee hearing, MPs criticised Defra’s performance. They noted that it had “no clear plan” to reduce pollution and that enforcement had been “seriously undermined” by budget cuts and weak leadership. The Committee also warned that “Defra’s oversight of the water sector has lacked urgency and ambition”, with regulatory culture described as “too accommodating” to industry interests.

This erosion of independence and accountability is central to the public’s loss of trust. A 2024 YouGov survey found that only 18 per cent of respondents believed regulators were doing a good job protecting the environment. Nearly half believed the system needed a complete overhaul.

Can They Redeem Themselves?

Not all is lost. Recent months have seen signs of shifting momentum. The Commission’s report has galvanised debate, while a new cohort of MPs, elected in the 2025 general election, has pledged to make water reform a priority. A parliamentary inquiry is also examining the feasibility of creating a single, independent water regulator with stronger enforcement powers and clearer lines of accountability.

Both Ofwat and Defra say they are listening. Ofwat’s new chief executive has promised a “reset” in approach, with greater emphasis on long-term resilience, nature-based solutions and customer engagement. Defra, under new ministerial leadership, has signalled openness to structural changes, including giving regulators greater independence from government.

Yet scepticism remains. Reforming not just the structure but the culture of regulation will require more than new language. It will demand real consequences for failure, transparency in decision-making, and a break with the ideological assumptions that have shaped the last three decades of water governance.

A Watershed Moment

The question is no longer whether the regulatory system needs to change. It is whether those currently in charge are capable of delivering that change. Ofwat and Defra now face a stark choice: embrace bold reform and restore credibility, or risk being sidelined in a system they helped undermine.

The public is watching. So are the communities whose rivers, coasts and bills reflect the cost of weak oversight. In the end, trust must be earned, not assumed. And right now, it is in perilously short supply.