The Environment Agency has today confirmed it will seek to recover the full annual costs of its enforcement activities through the proposed water industry enforcement levy it first sought views on via public consultation in April 2025.

The new charges will come into effect from 1^st April next year.

The Water (Special Measures) Act 2025 (WSMA) has enabled the Agency to directly recover costs associated with regulatory enforcement activity of the water industry. Historically, the EA only had powers to recover costs linked to permit compliance.

Due to a lack of legal powers to charge the water industry, enforcement costs associated with both permitted and unpermitted assets have to date been funded by government. The proposed water industry enforcement levy will only impact the water industry; it will not impact other sectors.

The EA’s formal reponse to in the consultation outcome published today states:

“We have modernised and expanded our approach to regulation to address continued poor performance from the water industry. This included adding over 400 new specialised staff last year to carry out a significant increase in inspections of permitted activities. As we complete more inspections we expect to find more issues, leading to increased enforcement action.

“We have designed the proposed levy to fully recover the costs, upfront, of providing sustainable and consistent enforcement under our enforcement and sanctions policy. This will support our wider water industry regulatory work and help drive better performance from water companies. Where we can already recover costs reactively from parties found liable, such as through a successful prosecution, we may continue to do so. For example, by claiming additional costs in court for work not covered by the proposed levy.”

The consultation proposed the introduction of a levy based on organisations holding permitted discharges using unit charges based on the number, type, and volume of permitted discharges operated by each sewerage undertaker to calculate the total annual levy due.

The proposed levy will also apply to new appointments and variations (NAVs) appointed by Ofwat that provide sewerage services, if they hold relevant permits with the Environment Agency.

As an outcome of the consultation process, the Agency will apply a 40% reduction to the total levy charged to water companies for 2025 to 2026. This corresponds with the period during which the EA transitioning to its full enforcement operating model - the reduction ensures the levy aligns with its expected costs for the current financial year.

Potential impacts of levy on customer bills

How the proposed levy would affect customers was among a number of concerns raised in the responses to the consultation.

The EA said it had received responses from water companies and others explaining that the introduction of a new levy would cause a downstream impact on customers’ bills and disproportionately impact poorer households. It was also highlighted that cost and revenue allowances are set by Ofwat through the price review process, which ultimately determines customer bills.

Respondents said the proposed cost of the levy was not budgeted for in water company AMP8 business plans and that cumulative customer impacts from the recent cost-of-service charges consultation had not been considered. Examples of the comments shared by respondents include:

“At the end of the day this will be paid by water companies’ customers in the form of higher bills. We already pay enough taxes to fund the EA.”

“We need earlier sight of any further cost increases as early as possible to allow appropriate budgeting and or funding.”

“EA suggest that reviews will increase and we have already seen some of this. This will have a significant impact on cost and resource.”

EA -”We acknowledge the proposed levy is an additional cost to water companies”

In response, the Agency comments:

“We acknowledge the proposed levy is an additional cost to water companies, and any new cost puts financial pressure on them. However, our consultation was launched to address the scale of offending and meet the public’s demand for an improved water environment at a time when we need to reduce our reliance on government funding.”

According to the EA, its affordability assessment focussed specifically on the likely impacts to water companies using different metrics including annual revenue, operating costs, operating profit, cash generated from operations, and revenue from households.

While the Agency had concluded that the impact to companies would be minimal, it also acknowledged that the high debt-to-equity ratio may make it difficult for companies to absorb additional costs from the proposed levy.

However, it pointed out that processes relating to changes in costs are internal business decisions that each company will perform differently depending on a complex range of other factors they must consider, such as the number of permits a company holds for different activities, and the level of operating profit the business is running with.

The EA also acknowledged that the proposed levy and increases to annual permit charges from its recent cost-of-service charge increases was not budgeted for in water company AMP8 business plans, commenting:

“Our cost recovery power only allows us to recover costs from water companies and does not mandate these costs are passed directly onto customer bills.”

It went on to suggest that all water and sewerage companies could consider engaging with Ofwat, to explore if costs that were unknown at the time of price controls being set could be addressed in line with Ofwat processes and guidance.

“Responses did not provide sufficient additional information in feedback to alter our analysis and conclusions”

Concluding its response to suggestions of a potential impact from the levy on customer bills, the EA said:

“Fines or penalties resulting from enforcement action are separate from the levy and, under current Ofwat guidance, are not to be pass on to customers.

“Responses did not provide sufficient additional information in feedback to alter our analysis and conclusions.

“Between 2025 and 2030, the water industry is set to make investment to support long-term environmental improvements, with substantial funding already allocated through Ofwat’s price review process. In comparison to this wider investment context, the costs arising from increased environmental scrutiny and regulation are relatively small.”

Click here to read the Environment Agency’s detailed response to the consultation in full

Click here to download the latest version of The Environment Agency (Environmental Permitting and Abstraction Licensing) (England) Charging Scheme 2022 updated up to 18 August 2025