Fitch Ratings' Head of UK Utilities, Yeshvir Singh is warning that the Prime Minister’s strengthened Water Bill announcement does not alter sector risk - and that the resolution of Thames Water’s restructuring remains a major risk.

Head of UK Utilities, Yeshvir Singh : The UK Water Reform Bill’s removal of limits on government ownership of shares in major water and sewerage companies in England (excluding water-only companies) will not trigger revisions to sector risk. The Bill was announced on September 29 and will also govern the increase in public control on delivery standards.

Our base case remains that sector reforms will deliver a clearer and better-coordinated framework. If developments align with our base case, we expect to review the regulatory environment at the start of the next regulatory period AMP9. However, any major concern about the independence of the regulator and possibility of political interference in the tariff-setting mechanism may trigger a negative review of sector risk on any evidence of increasing risks.

Many proposed measures could be moderately positive

Under our base case, the reform should leave the central setting (under the Water Services Regulation Authority (Ofwat or its successor) of allowances and price controls intact, while statutory and financeability protections remain. Many proposed measures could be moderately positive, including the definition of a single integrated water regulator for England (merging Ofwat with the Drinking Water Inspectorate and parts of the Environment Agency and Natural England, with a similar body for Wales) and the streamlining of planning documents covering the water environment and water supply, supported by a system planning framework and a chief engineer. Enhanced supervision, engineering expertise and more effective long-term planning support infrastructure resilience and underpin investment certainty.

Removing the limit to public ownership of UK water companies does not signify an intention to interfere with the regulation. New local powers and increasing public control of delivery standards are coupled with a recognition that securing the long-term future of England’s water continues to rely on private sector investment and rebuilding public trust.

The power of local leaders to have a say over investment and strategy would align with the Cunliffe report, which called for nine independent regional water authorities in England. There is a caveat: if the use of these powers for enforcement or bill suppression conflicts with the regulator’s view, this would reduce revenue visibility, create regional differences and materially affect the assessment of the regulatory framework (and, therefore, sector debt capacity).

Resolution of Thames Water’s restructuring remains a major risk

The Greater Manchester Combined Authority offers a precedent, integrating housing, transport and utility infrastructure planning, and developing a coordinated water plan with United Utilities. We expect local engagement to follow this model rather than allow interference on tariff-setting.

Clarity is needed on the state framework and implementation timeline, as uncertainty could affect the cost of funding and long-term planning. We expect the Bill to be published alongside the UK’s Transition Plan and Strategic Policy Statement, after the 10-Year infrastructure strategy. We will provide updates on these developments.

The resolution of Thames Water’s restructuring remains a major risk, with the final outcome for lenders presenting a precedent for recovery considerations and an input for funding conditions, especially for poorer performing companies.