A policy research briefing
Dieter Helm proposes replacing England’s entire water regulatory architecture with public Catchment Water System Operators—bodies modelled on NESO that would plan, auction, and contract-manage all water, sewerage, and flood services within river catchments, eliminating Ofwat and periodic reviews entirely. This framework offers a structurally coherent mechanism for absorbing public funding into water infrastructure because it separates the standing/infrastructure charge from variable usage charges and creates a catchment fund through which Exchequer allocations could flow directly. The model has demonstrably influenced the policy debate—the Cunliffe Commission adopted catchment-based language and single-regulator concepts—but the government’s January 2026 White Paper diluted these into a supervisory super-regulator that Helm dismisses as “the usual spin and guff.” For the Prosperity 2030 programme, Helm’s architecture provides the most detailed existing blueprint for how a £6.2 billion annual public funding stream could replace customer-funded standing charges within a competitive, catchment-based regulatory structure.
The CWSO model replaces monopoly regulation with catchment-level competitive bidding
Helm’s proposal, developed across a decade of papers from his original 2015 “Catchment Management, Abstraction and Flooding” through to “What Would It Take to Fix the Water Industry?” (February 2026), centres on creating approximately 14 public Catchment Water System Operators corresponding to England and Wales’s major river catchments. Each CWSO performs three functions: it plans infrastructure and environmental needs using open-access digital catchment maps; it auctions contracts to deliver those needs through a two-stage competitive bidding process; and it manages the resulting contracts over varying durations.
The digital catchment map is foundational. Every pipe, sewer, treatment works, flood defence, farm boundary, natural capital asset, and pollution source within a catchment is mapped, layered with real-time sensor data on water quality, river flows, and sewage discharges. These maps sit on public websites where “all and any interested parties” can simulate alternative interventions. AI enables rapid scenario modelling— comparing, for instance, a proposed concrete reservoir against upstream natural water storage by farmers and wildlife trusts. Helm draws an explicit Botley flooding example: rather than the Environment Agency building a canal, upstream landowners, conservation NGOs, and farmers could bid to hold water through natural flood management, with outcomes simulated and publicly scrutinised via the digital map.
The auction mechanism is directly analogous to the Contracts for Difference (CfD) process run by NESO in electricity. The CWSO defines outcomes from its catchment plan, publishes requirements, invites expressions of interest, then runs formal competitive bids. Crucially, anyone can bid: water companies, farmers, River Trusts, construction firms, local authorities, conservation bodies, and new market entrants. Helm states: “Out go the periodic reviews, down go the costs of meeting any specified objective as a result of competitive bidding, the monopolies of the water companies are now open to challenge.” Contracts vary in duration—short-term for operational services, longer-term for capital-intensive works—replacing the rigid five-year periodic review cycle entirely.
Why Helm argues the current financial model is structurally broken
Helm’s financial critique targets three interlocking failures: the WACC methodology, the RAB’s inflation, and the incentive structure that rewarded financial engineering over asset stewardship. The sector’s Regulated Capital Value reached £106.7 billion by 2025, with average gearing at 67.9% (Thames Water peaked at approximately 88%). Helm argues this outcome was predictable because the weighted average cost of capital, by mathematical definition, over-rewards debt and under-rewards equity— creating “a very profitable open goal” for companies to leverage up, extract dividends, and leave asset maintenance unfunded.
The numbers are stark. Since privatisation, the 16 water monopolies paid £78 billion in dividends while adding over £64 billion in net debt—despite being sold with zero borrowings. Thames Water under Macquarie ownership (2006–2017) saw debt rise 2.3 times from £4 billion to £10 billion while averaging £270 million per year in dividends. Helm’s diagnosis is that regulators compounded the problem by setting “notional gearing” levels and repeatedly overstating expected interest rates, creating arbitrage opportunities that rational profit-maximising investors exploited. His verdict: “Blaming investors for exploiting the gaping loopholes left by OFWAT is a mug’s game.”
The remedy within the CWSO framework is threefold. First, abandon the WACC entirely and separately determine the cost of debt (as a market-determined mark-up on gilts) and cost of equity (through competitive bidding). Second, require companies to split water from sewerage into separate businesses with distinct capital structures— water as a steady-state, dividend-paying quasi-bond business carrying higher gearing; sewerage as a growth-capital business funded through retained earnings. Third, create tradeable RABs: separate the accounting asset (the RAB) from operational activities, allowing pension funds and infrastructure investors to hold and trade the RAB independently while operational companies bid competitively for CWSO contracts. This “short-circuits the question of compensation that arises in the nationalisation case” because the tradeable RABs remain private assets representing legitimate debt-funded capital expenditure.
The standing charge mechanism creates a direct channel for Exchequer funding
Helm’s bill structure divides water charges into two components that map directly onto the Prosperity 2030 funding architecture. The variable charge covers operational costs, capital maintenance, and the scarcity value of water—metered in real time via smart meters, varying by volume, season, and drought conditions. The infrastructure/standing charge covers returns on the RAB—both existing legacy assets and new enhancement capital. Helm explicitly describes this as “basically a standing/capacity/use of system charge” analogous to electricity transmission and distribution charging.
This separation is significant for the £220-per-household socialisation proposal because Helm himself argues the infrastructure charge is the element most amenable to public funding. He writes that “it might even be sensible to set the infrastructure charge at zero for poorer customers” and, more broadly, that some fixed and sunk costs “are best treated as national investments, and some of them should be passed to the taxpayers—these include the legacy costs.” His capital maintenance reclassification would further shrink the standing charge element: by treating asset maintenance as an operating cost funded from current variable charges (not borrowing), the standing charge would cover only genuine enhancement RAB returns— substantially below the current ~£107 billion RCV figure.
Under the CWSO model, all monies flow through a catchment fund. Customer bills, business charges, abstraction fees, pollution charges, developer contributions, farm payments, flood defence spending, carbon offset revenues, and biodiversity net gain monies would be integrated into a single catchment funding stream managed by the CWSO. Helm argues: “It would be almost inconceivable that with this integrated funding model, more could not be achieved for less.” An Exchequer allocation of £6.2 billion annually (at £220 per household for 28 million households) could enter this catchment fund as a direct replacement for the customer-funded standing charge, with the CWSO allocating funds through its competitive auction process rather than through Ofwat’s regulatory determination.
Helm’s pro-forma balance sheet proposal would further support this transition. He argues the legitimate RAB should equal only the opening privatisation share-sale value plus genuinely unremunerated CAPEX—stripping out the financial engineering that inflated asset values. Applied across the sector, this would reveal that “the companies should have quite a lot of capacity still to fund the investment needed,” substantially reducing the quantum that the standing charge (or its Exchequer replacement) must cover.
Helm’s view of the Cunliffe Commission and the White Paper
The Independent Water Commission, chaired by Sir Jon Cunliffe, published its 464-page final report with 88 recommendations on 21 July 2025, having received over 50,000 responses to its call for evidence. Its headline proposals included abolishing Ofwat and creating a single integrated water regulator (merging Ofwat, the Drinking Water Inspectorate, and water-related functions from the Environment Agency and Natural England); establishing nine regional water planning authorities; adopting a banking-style supervisory model of economic regulation; and retaining five-year periodic reviews with enhanced 10- and 25-year planning horizons.
Helm’s critique, published as “Water after the Cunliffe Commission” on 2 September 2025, is systematic. His central charge is that the Commission “ducks” the fundamental question of whether to move away from periodic reviews, choosing instead to graft supervision on top. The supervisory model—company-specific Ofwat teams “shadowing the boards”—is “probably the worst option that could be advanced” because it maximises regulatory capture, turns supervisors into implicit decision-makers (“a bit like the probation officer whose supervisee commits a crime”), and gradually erodes board autonomy. If regulators are going to effectively run companies, Helm argues, “perhaps nationalisation would be better.” He notes the Cunliffe Commission was constrained from the outset: government ruled out nationalisation in its terms of reference, leaving the Commission trying to square the circle of “how to make sure that the private sector would keep on raising debt and equity whilst restoring public trust.” The result, in Helm’s assessment, serves Thames Water’s bondholders more than the public interest.
The Water Reform White Paper, “A New Vision for Water,” published 20 January 2026, confirmed the government would abolish Ofwat, create a single regulator with a Chief Engineer, adopt the supervisory model, double catchment partnership funding, and establish a Regional Water Planning Steering Group. But it pared back Cunliffe’s nine independent regional planning authorities to a steering group, retained the five-year price review cycle in the short term, and presented three headline measures—Chief Engineer, annual infrastructure MOT, smart metering rollout—that Helm calls trivially overdue. His response in “What Would It Take to Fix the Water Industry?” (February 2026) is withering: the White Paper “takes another step towards ‘taking back control’… ministers should recognise the obvious consequence: they are also taking back responsibility too.” In his March 2026 piece, he describes the outcome as “‘OFWAT is dead’—the political message. ‘Long live the super-OFWAT’—the reality.”
The missed opportunity, for Helm, is that the government could have announced immediately that PR29 (the next periodic review) would not happen, rolling over PR24 arrangements while building the CWSO framework. Instead, a “super-OFWAT” will attempt both the old system and the new supervision simultaneously— more bureaucracy, not less.
NESO provides the institutional template but water demands regional adaptation
The National Energy System Operator, established on 1 October 2024 after the government purchased the electricity system operator function from National Grid for £630 million, provides Helm’s primary institutional analogy. NESO is a public corporation, wholly owned by the Secretary of State, operationally independent, funded through regulated network charges (not the government budget), and operates on a not-for-profit basis. Its functions include real-time electricity system balancing, the Strategic Spatial Energy Plan, the Centralised Strategic Network Plan, grid connection management, and running CfD auctions for renewable energy procurement.
Helm draws five parallels: both CWSOs and NESO would be public bodies that plan and coordinate without owning or operating infrastructure; both develop digital spatial maps (NESO’s spatial energy maps, CWSOs’ catchment maps); both simulate scenarios against those maps; both run competitive auctions to procure services; and both take strategic planning obligations away from private utilities. The critical distinction is that NESO dispatches power stations in real time—water has no equivalent operational dispatch function. CWSOs would also be regional rather than national (approximately 14 catchment bodies versus one national energy body) and would integrate a far broader scope: water supply, sewerage, flood defence, agricultural land management, and natural capital.
Helm criticises NESO’s corporate structure—chosen to escape Civil Service salary restrictions, it resulted in “the ridiculous consequence” of being regulated by Ofgem. He argues CWSOs should avoid this trap: they should be statutory public bodies with clear duties set in a Water Act, not public corporations requiring separate regulatory oversight. The lesson from NESO is institutional, not structural: the principle that a public system operator can plan, coordinate, and procure from multiple private and public providers has been established in energy and should now be applied to water.
Abstraction reform and flood integration require splitting the Environment Agency
Helm’s catchment model fundamentally reorganises how abstraction and flooding are governed. Under the current system, abstraction rights derive from the 1963 Water Resources Act— a regime Helm calls “chronically bad from both an economic and environmental perspective.” Because water is heterogeneous by location (upstream abstraction has entirely different impacts from downstream), any crude competitive commodity approach to trading abstraction rights would be “seriously economically inefficient.” Instead, the CWSO would manage abstraction within each catchment as a system optimiser, setting location-specific prices and operating a “water bank” to balance supply and demand.
For existing abstraction rights, Helm proposes a residual abstraction asset base: buyout costs securitised through abstraction rights bonds, with interest paid net of water purchases under the new regime. If net value roughly equals total catchment abstraction, the residual cost should be “close to zero”—broadly revenue-neutral. This avoids the political minefield of compulsory purchase while establishing the CWSO’s authority over the resource.
Flood management would transfer entirely from the Environment Agency to CWSOs. The EA’s flood defence workforce would be “hived off” into an independent entity that bids for CWSO contracts alongside other providers. What remains of the EA becomes a sharp, small Environmental Protection Agency—” modelled on HMIP (420 employees, 220 inspectors) rather than the NRA (6,000+ employees)”—focused exclusively on integrated pollution control, monitoring, and prosecution. Helm argues the current EA conflates enforcement with production (building flood defences) and advisory roles, creating institutional conflicts of interest.
The at-source principle runs through every element. Storm water should be separated from sewage progressively—dealing with run-offs through pervious surfaces, cover crops, water storage, and peat bog management rather than end-of-pipe combined sewer overflows. Agricultural pollution should be addressed through buffer strips, slurry management, and a genuine polluter-pays framework rather than paying farmers not to pollute. Helm notes that farmers “are responsible for around the same amount of pollution as water company sewage spills” yet currently “expect to be paid not to pollute”— the “exact opposite of the sustainable economy.”
The transition pathway and its implications for public funding
Helm envisions a six-step evolutionary transition operational by 2030, with a shadow system running from now. The sequence: establish digital catchment mapping as an immediate no-regret measure; create Catchment Regulators/CWSOs through a Water Act (Helm proposes 2027); announce that PR29 will not proceed, rolling over PR24 arrangements; begin formal catchment planning with open-access digital maps; introduce the catchment billing process with integrated catchment charges; and progressively separate and make tradeable the existing company RABs.
For a Prosperity 2030 programme allocating £6.2 billion annually (£220 per household across 28 million households), the CWSO framework provides several structural advantages. First, the catchment fund mechanism creates a single channel through which public money can flow to multiple providers—water companies, farmers, NGOs, flood managers—through competitively determined contracts rather than regulated monopoly returns. Second, Helm’s separation of the standing/infrastructure charge from variable costs identifies precisely the bill component that Exchequer socialisation would replace. Third, competitive bidding should reduce delivery costs below current monopoly pricing, meaning public funds achieve more per pound. Fourth, the pro-forma balance sheet approach—stripping financial engineering from the RAB—would reduce the capital base requiring a return, potentially making the £6.2 billion figure more than sufficient to cover the legitimate infrastructure charge across all households.
The critical gap between Helm’s framework and government policy remains substantial. The White Paper’s Regional Water Planning Steering Group falls far short of statutory CWSOs with auction powers. The retained periodic review cycle preserves the WACC-based regulatory model Helm considers fundamentally flawed. And the supervisory approach adds bureaucratic layers rather than removing them. However, the government has explicitly adopted the language of catchment-based planning, committed to abolishing Ofwat, and doubled catchment partnership funding— creating a trajectory that Helm believes will eventually arrive at his model, whether “neatly or messily.” For policy design purposes, the CWSO architecture offers the most fully specified blueprint for mapping public funding onto a reformed water sector—even if the current legislative programme falls short of implementing it.
Conclusion
Helm’s CWSO framework is not a theoretical sketch but a detailed institutional design developed across eleven years, seven major papers, and four books. Its core innovation—replacing monopoly regulation with public system operators that auction competitively for catchment outcomes—has no equivalent in the current policy landscape. The Cunliffe Commission borrowed its language while rejecting its mechanism; the White Paper diluted even that borrowing. What makes the framework uniquely useful for the Prosperity 2030 appendix is that it already contains the plumbing for public funding: a catchment fund, a separated standing charge, a principle that legacy infrastructure costs are national investments, and a competitive procurement mechanism that ensures Exchequer money purchases outcomes rather than sustaining monopoly returns. The £6.2 billion figure maps onto Helm’s architecture as a direct replacement for the customer-funded infrastructure charge, flowing through CWSOs to competitively selected providers. Whether the UK arrives at this model before 2030 or through P2030 legislation after iterative failure of its supervisory alternative remains a political question.