The water sector in England and Wales is failing and needs stronger regulation to better protect billpayers and the environment, according to the interim findings of a landmark review.

The independent Water Commission, led by former Bank of England deputy governor Sir Jon Cunliffe, said on Tuesday that public trust had been shaken by “pollution, financial difficulties, mismanagement [and] infrastructure failures”.

It added that there needed to be clearer direction from government, a better approach to long-term investment, and a stronger voice for local communities.

The review was set up by the government in October amid growing public concern about sewage spills and rising bills.

In launching the review, the government had ruled out nationalising the sector – arguing this would be too expensive and would not necessarily lead to improvements.

“There is no simple, single change, no matter how radical, that will deliver the fundamental reset that is needed for the water sector,” Sir Jon said.

“We have heard of deep-rooted, systemic and interlocking failures over the years – failure in government’s strategy and planning for the future, failure in regulation to protect both the billpayer and the environment and failure by some water companies and their owners to act in the public, as well as their private, interest.”

He added that new legislation would be needed.

In response to Sir Jon’s findings, Environment Secretary Steve Reed described the water system as “broken”, adding that the UK government would respond to the commission in full.

A spokesperson for the Welsh government also thanked the commission and said it was considering its findings.

Perhaps Sir Jon’s strongest words were on the role of the regulators – the Environment Agency, Natural Resources Wales and Ofwat – to make sure private water companies act “in the public interest”.

Speaking to BBC Breakfast, he said: “We’re certainly talking about the environment regulators – the Environment Agency [in England], Natural Resources in Wales – not just having more people and more resources, but also having modern technology so that they can monitor and so that they can follow up and hold companies to account.”

“On the economic regulation side [Ofwat], we really need a regulator that is close to companies, that oversees them and monitors them continuously, as we do in financial services with the banks – not just so they can intervene early… but so they can support companies to improve,” he added.

“Some of that has started but an awful lot more needs to be done.”

The Water Commission added that it was considering options for “significant streamlining and alignment of the regulators” to address these challenges.

In response, both the Environment Agency and Ofwat said they welcomed the interim findings and would continue to work with Sir Jon and his team before the final report is submitted to the government.

At just over 100 pages long, the commission’s interim findings are a precursor to the main report, which is expected be published later this summer and give final recommendations.

The government will then decide which recommendations it wants to implement.

The review considered more than 50,000 responses submitted across the water sector, from the public, environmental groups, regulators and the water industry.

“What we heard was clear: the current system is not delivering what people expect and need,” Sir Jon said in a foreword to the report.

The government asked Sir Jon to focus on reforms to the water sector as a whole, rather than individual water companies.

“The water industry is acutely aware of public dissatisfaction and the loss of trust,” Stuart Colville, deputy chief executive of industry trade association Water UK, told BBC Breakfast.

“What we are hoping for from this commission… are a set of proposals that will help us restore that trust by delivering far more and far faster in response to the public’s legitimate demands.”

Environmental campaigners welcomed the call for greater regulation, but said more focus needed to be placed on restructuring water companies themselves.

“We need to… see how we can put water companies into public benefit, put water quality first, and judge performance according to how they look after the environment and customers,” James Wallace, chief executive of River Action UK, told BBC Breakfast.

“This looks like a sales document for international investors and how to attract high-paid executives, not how to clean up our rivers,” he added.

Pressure on the water sector is increasing due to climate change, population growth and other factors – but it is also suffering from decades of underinvestment.

Increased monitoring has led to greater scrutiny into the amount of sewage being spilled into our rivers, lakes and seas. In total the spills from overflow pipes lasted more than 3.6 million hours in both 2023 and 2024.

Releasing raw sewage into rivers and the sea can be legal if spills happen during wet weather, though it can still pose risks to people and the environment.

But the BBC has previously uncovered evidence of likely spills during dry days as well.

In April, bills rose by an average of 26% in England and Wales, as regulators approved water companies’ plans for billions of pounds of investment. This is aimed at both upgrading water supplies and reducing the amount of sewage being spilled.

Responding to the Water Commission’s interim findings, shadow environment secretary Victoria Atkins said the Conservatives would scrutinise and engage with the report.

“While in government, we took action to ban bonuses for bosses of water companies that committed criminal breaches, we prosecuted water companies that illegally polluted our rivers and we delivered on our ambitious pledge to ensure 100 per cent of storm overflows are monitored,” she added.

Liberal Democrat environment spokesman Tim Farron said: “At the heart of the sewage scandal is a regulatory system which has failed.

“It’s time for Ofwat to go and the Commission must now make this plain.”