Water (Special Measures) Act 2025

Remuneration, governance and financial transparency

Rules about remuneration and governance

1

• (1) The Water Industry Act 1991 is amended as follows.

• (2) For the italic heading before section 35A substitute “Remuneration and governance”.

• (3) After section 35A insert—

(35B) (1) The Authority may issue rules about the arrangements made by relevant undertakers for— (a) the remuneration of their directors and other persons, and (b) their governance. (2) The Authority must exercise its power under subsection (1) to issue rules which achieve the following effects— (a) prohibiting a relevant undertaker from giving to persons holding senior roles performance-related pay in respect of any financial year in which the undertaker has failed to meet specified standards; (b) requiring a relevant undertaker— (i) to appoint persons to hold senior roles only if they meet specified standards as to fitness and propriety or in respect of other matters, and (ii) to prevent persons from continuing to hold senior roles if they fail to meet such standards; (c) requiring a relevant undertaker to have arrangements in place for involving consumers in decisions of the undertaker that are likely to have a material impact on consumer matters. (3) Rules made for the purposes of imposing the prohibition mentioned in subsection (2)(a) (“the pay prohibition”)— (a) must include standards that relate to— (i) consumer matters, (ii) the environment, (iii) the financial resilience of undertakers, and (iv) the criminal liability of undertakers; (b) may include standards in relation to any other matters that the Authority considers appropriate; (c) may make provision designed to secure that performance-related pay that, if given by a relevant undertaker, would contravene the pay prohibition on the part of the undertaker, is not given by another person; (d) may provide that any provision of an agreement (whether made before or after the issuing of the rules) is void to the extent that it contravenes the pay prohibition; (e) may provide for a relevant undertaker to recover any payment made, or other property transferred, in breach of the pay prohibition. (4) For the purposes of subsection (2)(a)— (a) “performance-related pay” means any payment, consideration or other benefit (including pension benefit) the giving of which results from the meeting of any targets or performance standards on the part of the relevant undertaker or the person to whom such payment, consideration or benefit is given; (b) the reference to giving performance-related pay to a person holding a senior role includes— (i) giving such pay in respect of the person, and (ii) giving such pay in respect of services provided by the person other than in that role. (5) A person holds a “senior role” with a relevant undertaker for the purposes of subsection (2)(a) and (b) if the person— (a) is a chief executive of the undertaker, (b) is a director of the undertaker, or (c) holds such other description of role with the undertaker as may be specified. (6) Rules made for the purposes of subsection (2)(c) may include a requirement for persons representing the views of consumers to be members of a board, committee or panel of a relevant undertaker. (7) If the Authority considers that a relevant undertaker is contravening the rules, the Authority may give the undertaker a direction to do, or not to do, a particular thing specified in the direction. (8) It is the duty of a relevant undertaker to comply with a direction given under subsection (7), and this duty is enforceable by the Authority under section 18. (9) Rules under this section may— (a) make different provision for different relevant undertakers or descriptions of undertakers; (b) make different provision for different purposes; (c) make provision subject to exceptions. (10) The Authority may from time to time— (a) revise rules issued under this section, and (b) issue the revised rules. (11) Rules issued under this section (including as revised under subsection (10)) may apply to agreements made before the rules (or revised rules) come into effect. (12) Nothing in subsection (2) limits other kinds of provision about remuneration and governance arrangements that may be contained in rules issued under subsection (1). (13) In this section— - “chief executive”, in relation to a relevant undertaker, means an employee of the undertaker who, alone or jointly with one or more others, is responsible under the immediate authority of the board of directors for the conduct of the whole of the business of the undertaker; - “specified” means specified in rules under this section. (35C) (1) Before issuing rules under section 35B, the Authority must— (a) prepare a draft of the proposed rules, and (b) consult the relevant persons about the draft. (2) The relevant persons are— (a) the Secretary of State; (b) the Welsh Ministers; (c) the Council; (d) each relevant undertaker likely to be materially affected by the rules; (e) a person whose functions are or include representing relevant undertakers in respect of interests of the undertakers that are likely to be materially affected by the rules; (f) such other persons as the Authority considers appropriate. (3) The Authority must specify the period within which relevant persons may make representations about the proposed rules. (4) This section is subject to section 35D. (35D) (1) This section applies if the Authority proposes to issue revised rules under section 35B and, in the view of the Authority, the revision or each of the revisions proposed to be made is— (a) a revision for which consultation is unnecessary, or (b) a revision that it is necessary or desirable to make without delay. (2) Section 35C does not apply to the proposed revised rules. (3) Once the Authority has issued the revised rules, it must give notice as soon as reasonably practicable of— (a) the issuing of the revised rules, and (b) as regards each revision contained in them, whether in the view of the Authority the revision falls within paragraph (a) or (b) of subsection (1). (4) Notice under subsection (3) is to be given to the relevant persons mentioned in section 35C(2). (5) Unless the Authority gives notice that a revision in revised rules is in the view of the Authority a revision falling within subsection (1)(a), the revision ceases to have effect at the end of the period of six months beginning with the day after that on which the revised rules are issued.

• (4) Rules issued for the purposes of section 35B(2)(a) of the Water Industry Act 1991 (as inserted by subsection (3)) may make provision about performance-related pay in respect of the financial year beginning 1 April 2024 (and subsequent financial years).

• (5) The first rules under section 35B of the Water Industry Act 1991 (inserted by subsection (3)) may not be issued unless—

• (a) the rules have been provided in draft to the Secretary of State, and

• (b) the period of 7 days beginning with the day on which the draft was provided has elapsed.

Financial transparency requirements

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In the Water Industry Act 1991, after section 35D (inserted by section 1) insert—

(35E) (1) The purpose of this section is that members of the public should have easy access to a concise, intelligible and up-to-date overview of the financial position of each relevant undertaker. (2) A relevant undertaker’s “financial position” includes the amount and essential characteristics of the share capital and debt used to fund the operations of the undertaker. (3) The overview should include significant changes that— (a) took place in the period of 12 months before the publication of the overview, or (b) are expected to take place in the period of 12 months following that publication, provided that the changes have been publicly announced. (4) The Authority must from time to time decide— (a) what information should be included in the overview, and (b) in what format it should be published, in order to fulfil the purpose set out in subsection (1) (as read with subsection (3)). (5) The Authority must secure that each relevant undertaker is required to publish at least once every year, in a prominent place on its website, an up-to-date overview that accords with what the Authority has decided under subsection (4). (6) It must do so by— (a) exercising its appointment powers, or (b) issuing rules under this section. (7) The Authority’s “appointment powers” are— (a) its powers to impose and modify conditions of appointments under this Chapter, and (b) anything it may do by virtue of such conditions with the result that a relevant undertaker is required to act in a certain way. (8) Sections 35B(7) to (10), 35C and 35D apply in relation to rules under this section as they apply in relation to rules under section 35B.

Duties in respect of sewerage and water supply systems

Pollution incident reduction plans

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After section 205 of the Water Industry Act 1991 insert—

(205A) (1) Each relevant undertaker must, before 1 April in each calendar year, prepare and publish a pollution incident reduction plan. (2) A pollution incident reduction plan is a plan for how the undertaker intends to reduce the occurrence of pollution incidents that are attributable to its system. (3) For the purposes of this section, references to pollution incidents that are attributable to the system of an undertaker— (a) are references to discharges from any structure or apparatus comprised in that system of any content which may be harmful to health or the quality of the environment, but (b) do not include references to discharges of treated effluent in accordance with an environmental permit (including any conditions to which it is subject). (4) A pollution incident reduction plan must address in particular— (a) the frequency with which pollution incidents have occurred during the preceding calendar year, (b) the seriousness of those incidents and their causes, (c) the steps the undertaker has taken to maintain any structure or apparatus comprised in its system which has been the cause of any such incidents, (d) the measures the undertaker intends to take or continue for the purpose of reducing the occurrence of pollution incidents, (e) the impact that the undertaker considers the measures will have in furthering that purpose, (f) the likely sequence and timing for implementing those measures, and (g) any other matters specified by the Minister in directions. (5) The Minister must consult the appropriate agency before giving directions under subsection (4)(g). (6) A relevant undertaker must have regard to any guidance given by the appropriate agency about the preparation and publication of a pollution incident reduction plan. (7) The appropriate agency must consult the Authority and the Minister before giving guidance of the kind mentioned in subsection (6). (8) A pollution incident reduction plan must include, or be published with, a statement by the chief executive of the undertaker that the chief executive has personally approved the plan. (9) The first pollution incident reduction plan required by this section must be published by a relevant undertaker before 1 April in the calendar year after the one in which this section comes into force. (10) In this section— - “appropriate agency” means— the Environment Agency, in relation to relevant undertakers whose areas are wholly or mainly in England, and the NRBW, in relation to relevant undertakers whose areas are wholly or mainly in Wales; - “chief executive”, in relation to an undertaker, means an employee of the undertaker who, alone or jointly with one or more others, is responsible under the immediate authority of the board of directors for the conduct of the whole of the business of the undertaker; - “environmental permit” means a permit granted under Chapter 2 of Part 2 of the Environmental Permitting (England and Wales) Regulations 2016; - “the Minister” means— the Secretary of State, in relation to relevant undertakers whose areas are wholly or mainly in England, and the Welsh Ministers, in relation to relevant undertakers whose areas are wholly or mainly in Wales; - “system”, in relation to a relevant undertaker, means— in the case of a water undertaker, its supply system within the meaning of Chapter 1A of Part 2 (see section 17B); in the case of a sewerage undertaker, its sewerage system within the meaning of that Chapter (see section 17BA(7)). (11) In the case of a relevant undertaker that is both a water undertaker and a sewerage undertaker, the duty in subsection (1) is to be discharged in respect of both of its systems in a single plan. (205B) (1) A relevant undertaker must, together with each pollution incident reduction plan that it publishes (except the first), publish an implementation report. (2) An implementation report is a report containing the undertaker’s assessment of— (a) the extent to which it succeeded in implementing the planned measures during the preceding calendar year, and (b) to the extent that it failed to implement those measures during that year— (i) the reasons for that failure, and (ii) how the undertaker intends to avoid repeating that failure in respect of any measures in its current plan that are the same as, or similar to, those in respect of which the failure occurred. (3) In subsection (2), “the planned measures”, in relation to an undertaker and a calendar year, means the measures set out in its previous pollution incident reduction plans so far as they were (according to those plans) likely to be implemented in that year. (4) Subsections (6), (7) and (8) of section 205A apply in relation to implementation reports as they apply in relation to pollution incident reduction plans. (205C) (1) The duties of a relevant undertaker under sections 205A(1) and 205B(1) are enforceable by the appropriate agency. (2) If a relevant undertaker fails to comply with its duty under section 205A(1) or 205B(1)— (a) the undertaker commits an offence, and (b) the chief executive of the undertaker commits an offence, subject to subsection (3). (3) It is a defence for the chief executive to prove that they took all reasonable steps to avoid the failure. (4) A person who commits an offence under this section is liable, on summary conviction or conviction on indictment, to a fine. (5) An offence under this section is to be treated as a relevant offence in relation to the appropriate agency for the purposes of Part 3 of the Regulatory Enforcement and Sanctions Act 2008 (civil sanctions). (6) Where, in deciding how to exercise its functions in relation to a relevant undertaker, the appropriate agency has regard to the record of the undertaker in complying with its legal obligations concerning pollution, it must also have regard to the record of the undertaker in implementing measures set out in its pollution incident reduction plans. (7) In this section, “appropriate agency” and “chief executive” have the meanings given by section 205A(10).

Emergency overflows

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• (1) The Water Industry Act 1991 is amended as follows.

• (2) In Part 4 (sewerage services), after Chapter 4 (storm overflows) insert—