Briefing for Event 3: Governance

1. Introduction

This is the third of four public meetings organised by the People’s Commission on the water sector. This session explores what the best systems of water governance do, and particularly how they include key stakeholders: staff, and service-users, and the public in general. What should ownership, regulation and public accountability look like in a wealthy, developed country like the UK, to ensure resilient and clean water?

Governance is the process by which decisions are made about direction and how resources are allocated (politically, socially, and administratively) including the boundaries, rules and practices for those decisions. Governance determines who has authority for decisions and who is accountable for those decisions and to who. 

The five key areas of governance for the water system are:

1. Strategy - how is strategy set and by whom? What stake has the public in the future strategy for water? How does the public have a ‘say’ in how this country conserves and protects water, and how water is managed efficiently. 

2. Strategy implementation (prioritisation and planning). What role do stakeholders have in determining local priorities, and what stake does the public have in these decisions?

3. Ownership models - how should the water sector be organised and what role does the public have in this - should they be seen as stakeholders, as members, or merely as passive recipients of services? 

4. Organisational delivery - how the organisations providing water services are run legally, ethically and sustainably and for whose benefit. .

5. Regulation - how are regulators (if any) accountable to the public? Who appoints them? How can they deliver their role effectively?

2. The Context for Governance of Water Strategy

Our discussions in the two previous events have set out the need for a water strategy which has at its heart a water conscious society. The recommendations include the need for full public participation in decisions about the future for water and the priorities within that strategy, with clear accountability to the public for implementation. There needs to be democratisation of both the approach to a Strategy for Water and its implementation, with expert advice and clear leadership. 

3. Governance and Ownership

3.1 Organisational Form 

The main alternatives in terms of organisational form and ownership are usually characterised as:

• Private, For Profit Corporations - these are companies limited by shares, and aim to generate a profit, organised under the Companies Act 2006. 

• Not for Profit companies - these are normally organised as companies limited by guarantee (as in Welsh Water), and typically have a constitution requiring them to pursue public goals. For example most social housing is run by Housing Associations. 

• In between models eg Employee Ownership- One of the UK’s best known non-shareholder organisations, John Lewis plc, is a company limited by shares, but shares are all held by a trust, owned by employees (White 2025).

• Public sector bodies (nationalisation or municipal ownership) - these are usually organised as companies, either under the Companies Act 2006 or a special Act of Parliament, and typically have a constitution requiring them to pursue public goals. For instance, NHS Foundation Trusts, which run hospitals, are companies created by the NHS Act 2006. 

• Mixed models of delivery where ownership can be public but delivery can be private, for example in France where the municipalities retain ownership of the infrastructure but provide 3-5 year contracts to delivery organisations which can be public, or private.

Governance is separate from organisational form (i.e. a company, partnership, mutual association, or trust) and from ownership (private, non-profit, or public). In private companies, non-profits, or public bodies alike there can be requirements for employees and community representatives to have voice and influence. For example, employees at John Lewis ultimately elect the board of directors, and in NHS Foundation Trusts, the board of governors has representatives from staff, local councils and universities. 

3.2 The Context for Governance of Service Delivery

The UK has a different system of water governance, based on ownership and regulation in England, Wales, Scotland and Northern Ireland, yet none of them give representation to staff or service-users. Nor do they involve the public in strategy, planning or service delivery decisions, despite the public being the main funder. 

Public participation in water services governance  is common in systems around Europe where there is cleaner water, and often lower prices. 

Beyond these basic blocks there are many other ways to improve democratic participation in governance.

3.2.1 England 

In England, there are 11 large water and sewage companies (plus another 6 smaller water-only companies). They were privatised after the Water Act 1989. Since then, they have been owned and controlled by asset managers and banks, that hold shares or secured debt. Following the standard structure in the Companies Act 2006, and the UK Corporate Governance Code, this means:

• each company has a board of directors, which manages the company’s affairs day to day;

• each company has a general meeting, where only shareholders are members, and have voting rights;

• the general meeting has the power to remove the board of directors with a 50% vote, and give specific instructions to the board with a 75% vote;

• a ‘nominations committee’ of the board of directors appoints future board members, although shareholders with a majority of votes may intervene;

• a ‘remuneration committee’ of the board of directors determine directors’ pay and bonuses (that is, directors set each others’ pay) and shareholders rarely intervene.

This means that there is no voice in the current model of for-profit water monopolies in England for staff who know most about how water systems work, or the public who bear the consequences of mis-management, such as environmental pollution.

Under the new Water (Special Measures) Act 2025 section 1, Ofwat has new powers to write rules on water companies’ remuneration practices and ‘their governance’. This means Ofwat can change arrangements such as:

• who is on the board of directors of water companies, for instance requiring staff or regional and local council representatives;

• who is a member of, and has votes in, general meetings of water companies, for instance ensuring that staff and bill-payers have member rights to speak and vote;

• the pay package levels of directors, for instance by requiring pay ratios between average members of staff and the CEO.

 3.2.2.Wales, Scotland and Northern Ireland

In contrast to England, Wales acted early on the failures of privatisation, and opted for a ‘non-profit’ model, albeit one that did not do much to alter governance. Dŵr Cymru, Welsh Water, does not have shareholders that aim to make a profit, but instead is a company limited by guarantee, where a group of ‘guarantors’ would theoretically pay contributions if the company went insolvent. However its board of directors still appoints future members of the board, without representation for staff or trade unions, service-users or local councils.

In Scotland, privatisation was resisted, and so Scottish Water is a company incorporated through the Water Industry (Scotland) Act 2002. It does not have shares, and is controlled according to the Act, by the Scottish government. It has a board of directors (numbering between 8 and 13), but all of these directors are appointed by the Scottish ministers, without representation for staff or service-users (Schedule 3). There is a customer forum for water in Scotland, now run by ‘Consumer Scotland’ which may make representations, but can be ignored.

In Northern Ireland, water was also kept in public ownership, but like Scotland its board of directors is controlled by Northern Ireland executive, without staff or service-user representatives.

3.2.3 Rest of Europe

In the rest of Europe, like the rest of the world, it is normal that water  is in public ownership. The following table, from Eur Eau (2021), shows the types of ownership structure. It can be seen that the UK, and specifically England, is an extreme outlier in the degree of privatisation. Countries with red have privatised parts of their water. Most countries have national or local public ownership, in blue. Other forms of delegated management or public private partnerships enable public oversight, such as the need to renew licences to operate, whereas England does not.

As you can see from this chart, the UK is the only country which is predominantly privatised (red). Most countries have predominantly public ownership (blue), and some countries have a small amount of privatised delivery. 

The membership of boards in these governance systems vary between countries, regions and cities. To give three examples,

• in Berliner Wasserbetriebe (brought back into public ownership in 2013) there is a 16 person supervisory board of directors, with 8 chosen by the Berlin council, and 8 elected by staff.

• in Eau de Paris (in public ownership again since 2009) there is a board of directors with 13 chosen from local councillors, 2 by staff, 3 from consumer/environment groups (and 2 non-voting city-appointed experts).

• in Groningen Waterbedrijf, in the Netherlands, there is a 6 person board of directors, with 2 chosen by the workers’ council, 4 by the local council.

3.3 Governance and Ownership of the Assets

The National Audit Office report (2025) found that “ The regulators do not have a good understanding on the condition of infrastructure assets, as they do now have a set of metrics to assess their condition”. Ofwat is currently reviewing its approach to regulating asset health. 

Those that deliver water services do not necessarily also have to own the assets. In the case of France for example, we heard that even where the service provider is a private company, the infrastructure remains in public ownership, with delivery contracted through shorter term contracts than those awarded to UK water companies, which secured more temporal accountability, and more flexibility to change operators if they are not performing.

3.3 Failing Water Companies - changing ownership

Failing water companies can be either put into Special Administration with the options of returning to private owners, or public ownership or nationalism, or the government can choose direct renationalisation. 

When water companies are insolvent, or have broken licence or statutory duties in a serious way, the board of directors and owners can be removed from power in a procedure called ‘special administration’. These rules are in the Water Industry Act 1991 sections 23-24, yet noUK  government has used them to make failing companies lose their licences. 

Special administration differs to typical administrations because secured creditors (i.e. banks) do not need to be repaid market value for loans - merely “appropriate value”. This is an important rule to prevent our reservoirs and infrastructure being held to ransom. The process is that if a company is insolvent, or has breached its duties seriously enough for its licence to be revoked, then the Secretary of State or Ofwat (with the minister’s permission) applies to court for approval of its choice of administrator to take over a company. If a company has polluted a great deal, and its shareholders and bondholders have already taken excessive profits, a government is under no obligation to propose an administration which would result to extra money going to shareholders or banks. In summary, the process would be as follows: 

(1) Minister applies to court to remove company’s licence for serious poor performance, or insolvency

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(2) Water company, on confirmation by High Court, enters ‘special administration’

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(3) Administrator sells water company assets to new publicly owned entity for £0

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(4) Ex-water company shareholders and bondholders receive £0, as ‘appropriate value’

The government, however, has been lobbied with conflicting advice. A prominent paper by the Social Market Foundation (2018) argued that nationalising England’s water companies would cost £90 billion. Subsequently Defra has argues that the cost would be over £100billion. This figure grossly inflates the cost if an Act of Parliament were to nationalise water companies, because it uses “regulatory capital values” that are between twice and five times market values, and the relevant case law merely requires that a “fair balance is struck” in paying compensation (if any), and this “may call for less than reimbursement of the full market value”: Lithgow v United Kingdom [1986] ECHR 8, [120]-[121]. We have set out more detail on this in our Mid Point Summary report.[LINK]

Special administration, however, is not the same as nationalisation with an Act of Parliament, since the law requiring “appropriate value” (not market value) is paid is already in place. The UK has not yet passed a law to make shareholders and bondholders pay in money to fix damage that they have caused - known as a “bail in” provision. This has been done in some cases under the Banking Act 2009. 

4. The Context for Governance of Regulation

The Ofwat and Environment Agency criminal investigations of illegal water company pollution was instigated by Peter Hammond (Hammond et al 2021). Public campaigners have been instrumental in exposing water company failure and the extent of pollution of our rivers, lakes and seas for many years. 

“It appears that it has often been individuals and organisations that have brought pollution issues and the abuse of storm overflow permits to public attention.” (Industry and regulators Committee 2022-23) with multiple calls for the regulators to go much further to hold water companies to account for pollution.

There has been a fundamental failure by the regulators to protect the environment and the bill-payer (National Audit Office, Office for Environment Protection). Not only are regulators ignoring the law, they don’t know the basic state of the assets (Financial Times April 2024), and are approving schemes that appear to cost much more than  the equivalent in Europe. As a result of another public expose (Windrush Against Sewage Pollution), Ofwat is now investigating the comparative costs of infrastructure projects. Clearly regulation is not working to the standards the public expects. 

Whilst regulators cite funding cuts (Guardian 2024) as a reason for lack of effectiveness, the governance of the regulators must be scrutinised.