Water UK says Ofwat's governance code could need 58 more independent directors, at a cost of £23m

Water UK has published its response to Ofwat's consultation on a new Water Governance Code. The code would replace Ofwat's existing Board Leadership, Transparency and Governance Principles. The industry body argues that the proposals go further than the UK Corporate Governance Code and would add cost at the worst possible time. Ofwat expects the code to take effect in April 2028, with full public reporting from July 2029 (The Water Report).

£23.2m

Source: Water UK via Water Magazine ↗

What we know

• What Ofwat wants: at least half of each board, excluding the chair, made up of "demonstrably independent" non-executives. It also wants no independent directors or chairs sitting on both the regulated company and its parent, and dedicated audit, remuneration and nomination committees at regulated-company level.
• Water UK's numbers: Water UK says one of Ofwat's scenarios could require 58 additional independent directors. At £80,000 a year each, that is £23.2m over five years. Meeting the majority-independence requirement without Ofwat's extra restrictions would need nine appointments, costing £3.6m (Water Magazine).
• Water UK's ask: align with the UK Corporate Governance Code and use "comply or explain" rather than "apply and explain". It also wants a formal statutory consultation under Section 35C of the Water Industry Act 1991.
• Investor appeal: Water UK argues the proposals could make the sector less attractive to the private capital it needs.

Jeevan Jones, Water UK's director of regulation, said the proposals "go well beyond the gold standard of the UK Corporate Governance Code". He said they would force a "wave of board recruitment", with costs passed to customers during a major investment programme (Sky News via Coast FM). Ofwat's Helen Campbell has described the proposals as "meaningful governance reform".

What others are reporting

Sky News broke the story on 2 November. It reported that some executives doubt there are enough qualified candidates to fill the new seats. It also set the response against a politically charged backdrop: the Prime Minister's interest in public control, Thames Water's finances, a summer of drought, and the expected abolition of Ofwat itself following the Cunliffe review.

Background

Ofwat opened the consultation on 23 July, and it closed on 10 September. It uses powers over governance and remuneration granted by the Water (Special Measures) Act 2025 (Ofwat). It is the fourth rule under that Act, following rules on performance-related pay, consumer involvement and fit and proper tests (The Water Report).

The draft is more nuanced than "apply and explain" throughout. WaterBriefing reported that it splits independence tests into two tiers. Automatic disqualifiers include sitting on another group board, representing a shareholder, or directly holding shares. Comply-or-explain factors include cross-directorships, extra pay, and more than nine years' service. Ofwat's stated rationale is conflict of interest: dual group roles "can compromise the robustness of board decision-making". The draft would also bar future share awards to independent directors and chairs, and require public justification of any decision taken at group rather than company level.

What we don't know yet

Ofwat has not published its own cost estimate or said how many companies currently fall short of majority independence. It is also unclear whether a code finalised now would survive the move to a single regulator unchanged.

What to watch

• Ofwat's outcome document and final rule, and whether the parent-board ban or the dedicated-committee requirement is softened.
• Whether Ofwat runs a further statutory consultation, as Water UK requests.
• How the code is carried into the new regulator under the forthcoming Water Bill.