The Government has stated that it will scrap Ofwat and create a "new, single, powerful" regulator in the biggest overhaul of the UK water industry since privatisation, that will aim to cut water pollution in England’s rivers, lakes and seas.

The decision comes as part of a review by the Government, which aimed to fix what the environment secretary, Steve Reed, described as a "broken" water industry.

The Government stated that Ofwat has failed customers by allowing water companies to mismanage billions of pounds of customer money while paying out huge dividends and bonuses.

The new regulator will be responsible for the entire water sector and will "stand on the side" of customers, investors and the environment to prevent water pollution.

The Government said that it will also combine the current fragmented approach of four separate regulators, which split up economic, environmental and drinking water regulation and has led to what it described as contradictory and competing priorities.

It comes after the regulator fined Thames Water £122.7m in May, following breaches to its wastewater operations and dividend payouts.

During the transition to the new regulator, Ofwat will remain in place and the Government is set to work with the regulators and unions for a smooth transition.

Investment director at AJ Bell, Russ Mould, said that the status quo in the water industry has "not worked for any party", including shareholders, the Government or customers, adding that the overhaul of the regulatory set up is "not a major surprise".

He concluded: "The modest gains in the share prices of the listed water utilities on the news may reflect some relief that nationalisation does not get a mention in the report. However, taking these assets back into public ownership is certainly part of the political debate around the industry.

"After a period where the sector’s reputation has been in the mud, water companies may welcome the opportunity for a fresh start – although proposed ‘minimum capital’ requirements might impact their ability to return funds to investors and take on large debt to fund investment."

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