Beyond the headlines: The Cunliffe Report’s quiet revolution in UK water regulation

London, 21 July 2025 – While headlines focus on the abolition of regulators and water company profits, the newly published Cunliffe Report signals a far deeper transformation of the UK water sector. With 88 recommendations, the report proposes a “total reset” of regulation, ownership, planning, and investment – marking the most ambitious overhaul since privatisation.

Leading London law firm Sharpe Pritchard LLP has welcomed the publication of the Cunliffe Report as a defining moment for the future of the water sector, calling it “a genuine reset, but not yet a solution.”

What sets Cunliffe apart is not just its scale, but its nuanced approach to systemic reform. Legal experts at Sharpe Pritchard LLP have analysed the report and identified several under-the-radar shifts that could reshape the sector’s legal and commercial landscape.

CMA to set cross-sector WACC: A double-edged sword

The proposal to centralise the cost of capital methodology under the Competition and Markets Authority (CMA) aims to standardise returns across water, energy, and telecoms. While this could enhance investor confidence and reduce regulatory volatility, it risks eroding sector-specific flexibility. Water’s unique environmental and financial risks may not be fully captured by a one-size-fits-all formula.

Ownership scrutiny: Powers on paper or real reform?

The report recommends giving regulators powers to block ownership changes, direct parent companies, and embed public benefit duties into licences. While these tools mirror financial services regulation and could enhance accountability, their effectiveness hinges on institutional capacity and legal clarity.

Regional system planners: Integration or fragmentation?

The creation of Regional Water System Planners promises holistic, hydrologically-based strategies. But it also introduces complex governance challenges, including potential regulatory overlap and unclear accountability when planning is separated from delivery.

Competitive delivery: DPC and SIPR under review

Cunliffe supports continued use of Direct Procurement for Customers (DPC) and Specified Infrastructure Projects Regulations (SIPR) but calls for clearer frameworks and a five-year review. Investors will welcome standardised contracts and risk allocation, though the report misses an opportunity to address the sector’s infrastructure delivery skills gap.

Integrated regulator: Independence with teeth?

The proposed merger of Ofwat, the Drinking Water Inspectorate, and environmental regulators into a single “Integrated Regulator” could streamline oversight. However, preserving the independence of economic regulation within this body is essential to avoid politicisation and ensure investor confidence.

In a joint statement, Steve Gummer and Allen Owen, Partners at Sharpe Pritchard, said: “Cunliffe marks a genuine reset, but it’s not a solution in itself. The report lays out a vision, but the real challenge is delivering change in a sector where expectations are rising, resources are stretched, and the regulatory model is being completely reimagined.

“The next 12 months will define whether this reset becomes reform, or just rhetoric. Cunliffe has to be made real by tough choices. It needs to be more than pretence on paper. But rather reform in practice.

“Water companies, customers and regulators all want this. Blame can be apportioned, but the question is, how do we fix what we have and make it work? Finger-pointing is possible, but the better option is to rescue all industry participants trapped in a failing system.”

Sharpe Pritchard is already working with clients in the infrastructure, utilities and ESG finance sectors to help them get to grips with what Cunliffe means in practice, from tougher ownership rules and new planning bodies to the shift towards year-round regulatory oversight. With a major Water Reform Bill likely on the way, the firm is urging companies and investors to get ahead of the curve, review their structures, and prepare for a much more hands-on regulatory environment.

For more information, please call 020 7405 4600 or email enquiries@sharpepritchard.co.uk.