Campaign update: High Court rules on lawfulness of Ofwat’s approach to customers not paying twice

Today the High Court has handed down its decision on the lawfulness of Ofwat’s approach to its policy that water company customers should ‘not pay twice’ for sewer overflow upgrades to achieve environmental compliance and reduce pollution of our waterways. Although River Action’s claim was dismissed, the case has resulted in important clarity and should result in a better regulatory approach.

Ofwat is responsible for regulating water companies and controls what they can charge customers through its five-year price reviews, with Ofwat’s Price Review 24 (PR24) exercise setting charges for the sixteen largest water companies from 2025-2030. Following investigations into water company compliance after widespread sewage discharges were revealed in 2021, Ofwat promised that customers would not pay twice for environmental improvement works that had previously been funded and should already have been delivered. 

Last year, River Action took forward this case because investigatory work by Save Windermere and Windrush Against Sewage Pollution identified potential systemic failures in how Ofwat oversees compliance across the entire water industry and how it routinely signs off funding that could allow water companies to use customers’ money to rectify their own past non-compliance. As well as ensuring customers do not pay twice, the key issue from River Action’s perspective is the significant long-term failures of water and sewerage companies to upgrade storm overflows, sewage treatment works and pumping stations to comply with environmental law because the sewage pollution that results from those infrastructure failures is causing harm to our rivers and lakes.

Internal documents that only emerged as a result of this litigation revealed significant confusion at Ofwat, indicating Ofwat may have failed to follow its ‘not paying twice’ policy because, as it admitted privately but not publicly, “some historical investment programmes now appear to fall short of what should have been required to comply”. Those documents showed that Ofwat did not know whether there was full compliance and whether customers would ultimately pay twice in some instances because Ofwat had failed to look at Urban Waste Water Treatment Regulations (UWWTR) compliance as well as environmental permit compliance. This is a major mistake that, unless monitored closely in the future, could result in billions of pounds of investment being spent on environmental improvements that should already have been delivered. 

At the hearing, River Action argued that Ofwat’s approach was flawed and unlawful because:

Ground 1: Ofwat’s approach to implementing its ‘not paying twice’ policy was unreasonable because to actually show that customers would not pay twice (1) water companies needed to demonstrate current compliance (namely the reality on the ground, not simply assuming or modelling compliance) and (2) water companies needed to demonstrate customers would not pay twice for improvements that should have already happened. Essentially, our complaint was that Ofwat had publicly said that companies would have to demonstrate compliance but then dropped that requirement without explaining why.

Ground 2: Ofwat’s ‘clawback’ mechanism is flawed and incomplete because it is limited to double funding of permit compliance and does not deal with double funding of UWWTR compliance, despite Ofwat’s internal documents revealing both are required. This means it falls short of operating to ensure that customers will not pay twice.

The High Court has today ruled that Ofwat’s approach was lawful because Ofwat’s evidence provided a ‘sufficient logical basis’ for its approach. In reaching its decision, the Court said that Ofwat has ‘significant latitude’ when looking at the legality of its decisions relating to price controls and compliance because of its role and responsibilities as a regulator.

But the Court did not fully grapple with River Action’s case, focusing on whether Ofwat’s use of modelling data was in line with its ‘not paying twice’ policy but not addressing our key argument that Ofwat’s policy also requires companies to actually show permit compliance. The Court has also not addressed the regulatory gap that exists between Ofwat and the Environment Agency when looking at permit compliance.

There was a positive outcome on the issue of the ‘clawback’ mechanism (intended to prevent double funding when water companies cannot provide evidence of promised improvements towards the end of a price review period). At the hearing, it became clear that Ofwat has yet to settle the rules that will decide whether any clawback should occur, meaning this argument was found by the Court to be ‘premature’. This was a welcome clarification and leaves the issue open so that the clawback mechanism can be fixed and used by Ofwat to make sure customers do not pay twice.

Essentially, in dismissing River Action’s claim, the Court has said that it thinks Ofwat’s approach is good enough because in theory Ofwat might be able to ‘clawback’ money that is spent in breach of Ofwat’s ‘not paying twice’ policy.

That does not mean the water regulator should not do better. It can and it must.

Our legal challenge has shone a light on problems with Ofwat’s regulatory approach and highlighted the urgent need for reform. Going forward, the regulator must not allow customers to pay twice by ensuring that water companies comply with both permit compliance and compliance under the UWWTR. Ofwat must also settle the clawback mechanism so that it works in relation to both permit schemes and UWWTR schemes.

While we waited for judgment, in December 2025, the Office for Environmental Protection (OEP) published notices and reports finding that Ofwat, the Environment Agency and Defra failed to properly enforce the law relating to sewage discharges from combined sewer overflows. The OEP’s findings show that Ofwat did not understand for decades that it had a duty to enforce environmental compliance under the Water Industry Act and the UWWTR, only recognising in June 2022 it had this important enforcement function in addition to ensuring assets comply with their permits. This supports our case that Ofwat has not required full compliance in past price reviews and was trying to play catch-up in PR24, while claiming publicly that it only needed to look at permit compliance despite knowing that was only part of the picture.

This judgment and the OEP’s findings are timely as, following the recommendations of the Independent Water Commission, this Government now looks to overhaul the water sector including by creating a new integrated regulator to replace Ofwat and bring together economic, environmental and water quality regulation. The Independent Water Commission also made recommendations relevant to regulatory gaps in holding water companies to account for the delivery of infrastructure projects and customers not paying twice.

Whatever form the future regulator takes, its approach on this fundamental issue should be clear, transparent and fully compliant. Customers must not compensate water companies for poor performance by paying twice for improvements that have not been delivered. And the regulator must hold water companies fully accountable by enforcing all relevant laws.

We will not be appealing the decision. Our focus now is on continuing to push for the major regulatory reform needed to ensure real oversight and enforcement, so water companies are properly held to account and sewage pollution is stopped for good.