Britain’s water sector stands at a breaking point. The collapse of a planned £4 billion investment deal intended to rescue Thames Water, the country’s largest water utility, has fallen through. On the same day, a much-anticipated interim report from the Independent Water Commission laid bare “deep-rooted, systemic” failings across companies, regulators and government. Taken together, these developments underscore a clear reality: this is a moment for decisive, structural reform of the UK water industry. The urgency of the situation cannot be overstated, because what’s at stake is nothing less than the long-term resilience of an essential public service.

KKR’s Withdrawal – A Symptom of Deeper Faults

KKR’s decision to pull out of its Thames Water equity deal has reignited fears that the utility may require temporary nationalisation to avert financial collapse. Thames Water had been pushed to the brink by an £18 billion debt pile and was banking on KKR’s £4 billion cash injection to stabilise its finances. That a seasoned investor walked away after months of due diligence is telling: it speaks to an unappealing risk profile shaped by years of mismanagement and underinvestment. Indeed, the government had already put itself on standby in case it needed to take Thames Water into public administration, a contingency that speaks volumes about the fragility of the current model.

An Industry Under Review: “Fundamental Reset” Needed

The interim report released by Sir Jon Cunliffe’s Independent Water Commission could not have been more timely. Commissioned by the government in response to mounting scandals, the review finds that the problems in England and Wales’s water industry are “deep-rooted, systemic” and span every level of the system. Crucially, the report concludes there is “no simple, single change, no matter how radical, that will deliver the fundamental reset that is needed for the water sector”. In other words, patchwork fixes or one-off rescues won’t suffice, comprehensive change is required. The Cunliffe review makes clear that all issues are interconnected, and all must be addressed to pull the sector out of its tailspin.

One striking aspect of the review is its candid assessment that everyone shares in the blame. It cites failures by water companies (and their owners) to act in the public interest, failures in government strategy and planning, and failures of regulators to protect customers and the environment. The report also nods towards localised, catchment-based governance , a potentially radical shift that raises questions about feasibility. For a utility the size of Thames Water, how realistic is it to make operational decisions at such a granular level? Serving London is a vastly different proposition to managing services for a ten-person village, and this push for localisation could mark the first step towards a long-term structural breakup of the frameworks.

Notably, the interim report stops short of advocating full-scale public ownership of water companies, a solution the government explicitly excluded from the Commission’s remit. Instead, Cunliffe points to the need for a new regulatory framework that can attract a different breed of investor: those willing to accept steadier, “low-risk, low-return” stakes over the long term.

As campaigners have noted, the interim review, while a start, may not yet be bold enough for the scale of the crisis. Critics argue that it reads “more like a sales pitch to international investors and overpaid CEOs than the urgent restructuring” needed. Murray McIntosh agrees with this statement.

"KKRs proposed acquisition is something as a positive development, so their decision to withdraw is disappointing. That said, the leadership team at thames have recently been placed in the spotlight and this will raise questions not only to the quality of this process but also they're decision making around this. I'm conscious that have only seen an interim version of the Cunliffe review, and we are waiting on the final report. At face value, the review opts for incremental industry tweaks rather than the wholesale change the sector requires, and so i would naturally question whether we are laying the groundwork that will truly allow the water industry to evolve in the way it needs to."

Adam Cave - Managing Director and Founder at Murray McIntosh

There is a growing chorus, from environmental groups to some politicians, calling for more radical action, including possibly overhauling or replacing Ofwat itself, given that “at the heart of the sewage scandal is a regulatory system which has failed”. What comes next must be nothing short of a fundamental reset of how the water sector is owned, financed, and regulated.

No More Quick Fixes

If there is one lesson from the twin headlines of KKR’s pull-out and the Commission’s report, it’s that the era of quick fixes in the water industry must end. The sector has a history of muddling through crises with last-minute injections of cash, temporary management shake-ups, or public relations campaigns promising change. These have proven woefully insufficient. Each short-term rescue has merely kicked the can down the road, allowing systemic issues to fester beneath the surface.

This time, the confluence of events has created an inflection point. The failed Thames Water deal has laid bare the market’s lack of confidence in the sector’s current structure. Meanwhile, the Independent Water Commission has provided a blueprint – or at least the rough outlines of one – for sweeping reform. Now is the moment for bold action. What might that look like in practice? It means embracing measures that once seemed unthinkable: for example, revisiting how price controls and investment requirements are set so that companies cannot neglect infrastructure for dividends. It means equipping regulators (or whatever new supervisory bodies might replace the current ones) with the teeth to intervene early, before a utility is on the brink of collapse or a river is biologically dead from sewage discharges. It could even mean structural change such as consolidating regulators or imposing new duties on company boards to serve the public interest, not just shareholders.

Crucially, this is not about a single company. Thames Water’s troubles are simply the most visible. Other water companies have high leverage, aging assets, and checkered performance records. Propping up one company with emergency funds or a one-off equity deal won’t solve industry-wide problems. Without structural changes, another Thames Water-style crisis could erupt elsewhere. The government’s reluctance to consider re-nationalisation (even as a backstop) underscores the political sensitivity – but also highlights that if the private model is to survive, it must be fundamentally reformed to work for the public. The focus now should be on long-term sustainability: ensuring these utilities can finance infrastructure upgrades, meet environmental standards, and handle future challenges like climate change, without lurching from one near-collapse to the next.

Resilience Requires People: Workforce and Skills at the Core

Workforce capability is a critical, yet sometimes overlooked, pillar of the water sector’s future resilience. Even before this financial crisis came to a head, the industry was facing a serious talent crunch. Our recent 2025 water industry labour report revealed a startling statistic: 70% of engineers in the water industry are considering moving to other sectors in the next two years. More than a quarter of these engineers say that hiring and skills shortages are the single biggest issue facing the industry. This points to a potential exodus of expertise that could cripple the sector’s ability to deliver on improvement plans and infrastructure projects already deemed essential.

The reasons behind this looming “engineer exodus” are multifaceted, an ageing workforce nearing retirement, competition from booming sectors like renewable energy and nuclear, and frustration with working conditions and development opportunities in water. Nearly half of water professionals say they lack access to the training and innovation opportunities needed to keep them engaged and advancing in their role. In other words, while pipes and pumps are rusting, so is the career pipeline for the engineers who maintain them. No reform plan will succeed if it doesn’t address this human factor. If skilled employees continue to drain away, even the best regulatory overhaul will falter for lack of competent hands on the ground.

Therefore, any true “rethink” of the water sector must include a strategy for rebuilding and sustaining workforce capability. Part of this will involve retention and upskilling, giving engineers reasons to stay and thrive in the industry. But equally, it’s about modernising the approach to recruitment and employment. The water sector has traditionally defaulted to a permanent, in-house hiring model that no longer fits the times. Major capital programmes like AMP7 and AMP8 come with peaks and troughs of work that demand flexibility and rapid mobilisation of skills. This is where embracing contingent labour becomes critical. As one industry analysis put it, relying solely on permanent hires “simply doesn’t fit the rhythm or scale of AMP cycles” – project peaks require an agile workforce that can be scaled up quickly.

Instead of viewing short-term contract engineers and specialists as a stopgap, companies should treat them as a strategic asset. Contingent hiring, done right, allows the sector to bring in experienced talent for specific projects or surge periods, without overextending payroll during lulls. It also appeals to many modern engineers who prefer the flexibility, competitive pay, and diverse experience of project-based work over a single long-term employer. By reforming outdated hiring practices – including revisiting IR35 tax rules and other barriers that make engaging contractors cumbersome, the industry can expand its talent pool and ensure it has the right skills at the right time. In sum, shoring up the water sector’s future isn’t just a financial or regulatory challenge; it’s a people challenge. A resilient water industry will be built by empowered teams of engineers, project managers, and technicians who have the skills, support, and adaptability to meet whatever crises or opportunities come next.

Conclusion: No More Half Measures

Murray McIntosh’s view is clear: the current crisis in UK water is a culmination of long-running issues, and meeting this moment requires nothing less than bold, structural transformation. The collapse of the KKR deal has shattered any illusion that fresh private capital alone will save the day, not when the fundamentals are so weak. The Independent Water Commission’s interim findings, for all their sobering clarity, must serve as a springboard for action. It is the time to rethink how we manage and safeguard the most essential of services.

The path forward will undoubtedly be complex. It will demand political will and collaboration: government must rewrite the rules of the game, regulators must reinvent themselves to regain trust and authority, and water companies must accept a new normal of accountability and long-term stewardship. These changes, however difficult, are necessary to address the root causes of the crisis rather than its symptoms. And as we have underscored, those root causes are as much about people as about pipes. Investing in modern governance and infrastructure goes hand in hand with investing in the workforce that delivers them.

The coming months will reveal whether leaders in Westminster, Ofwat, and the boardrooms of water firms have grasped the full magnitude of this breaking point. Will they pursue yet another patch-up bailout, or will they seize the opportunity for a fundamental course correction? History will judge them by how they respond now. One thing is certain: the water sector needs a rethink. That rethink must be bold and comprehensive, grounded in stronger regulation, sustainable financing, and a renewed commitment to developing the talent that keeps our water flowing. Anything less will only postpone the inevitable and deepen the eventual cost. The water industry’s moment of truth has arrived, and with it comes a chance to set things right for the long term. It’s a chance we cannot afford to waste.

If you haven't yet, download The 2025 Water Industry Labour Report here