Water UK commissioned Oxera to support its response to the Call for Evidence by the Independent Water Commission (‘the Commission’). In this report, we focus on two interrelated areas:

1. issues with the current performance framework, and how these could be addressed as part of a broader package of regulatory reform;
2. the possibility of adopting a supervisory approach to water sector regulation, including the extent to which such an approach might facilitate better solutions to issues around company performance, as well as price control design and calibration.

We show that the current regulatory framework needs to change to ensure that companies deliver the right outcomes, that long-term infrastructure investment is funded, and that investors see the sector as attractive for investment. We consider three options for reform and asses them based on their ability to address the root causes of existing issues with water regulation. We recommend that the Commission considers implementing an ‘assessor’ model for the water sector in England and Wales, notwithstanding that this would represent a significant change relative to existing arrangements.