Waves in the Water Industry: Water (Special Measures) Act 2025 Makes a Splash

On 24 February, the Water (Special Measures) Act 2025 (the “Act”) received Royal Assent. The Act extends to England and Wales and attempts to tackle a broad spectrum of perceived issues within the UK’s water industry. 

A number of hot topics make an appearance in the Act, including rules on remuneration and governance, monitoring of sewage outlets, and the use of nature-based solutions.  

Below, we explore a few key changes.

Risk of Imprisonment for Obstruction

Prior to the Act, under the Water Industry Act 1991 and the Environment Act 1995, water companies were required to assist regulators in their investigations. Non-compliance or intentional obstruction of the regulators could constitute an offence risking fines or, in some cases up to 2 years imprisonment. Despite these provisions, according to the Government’s policy paper, some regulators have experienced obstruction which has prevented the collection of evidence in investigations. Accordingly, once the Act is in force, more of the aforementioned offences will carry a maximum penalty of two years’ imprisonment.

A further change is introduced by section 6 (1) (d) of the Act. This provision introduces a clause into the Environment Act 1995 which will hold executives and directors of a corporate body personally liable for offences committed with their consent, connivance, or due to their neglect. For clarity, the Water Industry Act 1991 already contains a clause holding executives / directors personally liable for certain offences.

Fines

To be able to use the fixed and variable monetary penalties which form part of the regulatory armoury, regulators previously had to meet the criminal standard of proof, which means they had to prove their case “beyond reasonable doubt”.  

For certain existing offences, the Act will change the standard of proof for fixed and variable monetary penalties to the civil standard, which means the case must be proven by the regulator “on the balance of probabilities”; an easier threshold for the regulator to meet. The Government is going to consult on the offences for which the civil standard of proof may be used, and secondary legislation will be passed before any changes are made.

For the more serious regulatory avenues of prosecution and unlimited variable monetary penalties, the regulator must continue to apply the criminal standard of proof.

The Act also introduces automatic penalties for certain offences. Under section 8 of the Act, there is a new duty on regulators to impose fixed monetary penalties on a water company where it has the power to do so. This will be for specified offences to be set out in secondary legislation; however, any such offences will have to fall within the remit of section 7(3) of the Act, which relates to pollution control, abstraction, impounding, and droughts.

Pollution Incident Reduction Plans

A pollution incident reduction plan (“PIRP”) is a plan to reduce the occurrence of pollution incidents attributable to a system. Currently, certain water companies in England that provide sewerage services produce PIRPs, but the content and style of these vary significantly across the sector. 

Section 3 of the Act introduces a new legal requirement for all water companies in England and Wales to publish publicly available annual PIRPs. Further, water companies will have to publish implementation reports which evaluate the success of the planned measures during the preceding calendar year. The Act outlines some of the elements that the PIRPs will have to cover, but we await further legislation to fully understand what must be included. Both the company and the chief executive (in their personal capacity) will be liable for ensuring that a compliant PIRP and implementation report are published each year.

Nature-Based Solutions for Sewerage Undertakers

Sewerage undertakers are already required to prepare, publish, and maintain a drainage and sewerage management plan (“DSMP”). The Water Industry Act 1991 outlines what the DSMPs must address.

The Government’s policy statement for the Act states, “Nature-based solutions, such as sustainable drainage systems (SuDS), are considered a key mechanism to deliver improvements to drainage and sewerage systems whilst also improving our natural environment, helping decarbonise the economy, and restoring ecosystems and biodiversity.” Accordingly, section 5 of the Act inserts a provision into the Water Industry Act 1991 that will require sewerage undertakers to explain in their DSMPs the use that is to be made of nature-based solutions, technologies, and facilities within their drainage and sewerage systems. We await further legislation to bring section 5 into force.

A key issue for sewerage undertakers will be whether they will be entitled to make money by selling associated nature credits to developers for offsetting or whether this will be considered unacceptable on the basis that the works undertaken to produce these credits will not be “additional” to the sewerage undertaker’s legal duty. Our reading is that, since section 5 is a reporting duty rather than an absolute duty to provide nature-based solutions, sewerage undertakers should be able to demonstrate additionality and therefore sell credits.

Looking Forward

The Independent Water Commission is currently conducting the largest review of the water industry since privatisation. On 27 February 2025, the Independent Water Commission opened a call for evidence, which will run for 8 weeks and close on 24 April 2025. In a Financial Times article, Jon Cunliffe, the chair of the commission, stated, “Aside from nationalisation, which governments have ruled out, everything is on the table.” The policy paper for the Act confirms that the Act is not the full extent of the Government’s ambition; as such, we are expecting further changes for the industry. We also know that regulators intend to consult on how they intend to use their new powers provided by the Act and update relevant guidance.

Those in the industry need to keep a close eye on further legislation, consultation responses and new guidance, in this time of great change.