The watchdog’s report, Environmental regulation, concludes that while regulators and Defra share clear objectives to protect the environment and minimise unnecessary burdens on business, weaknesses in data, skills, digital capability and strategic coordination are limiting their ability to regulate consistently and at scale.
The findings are particularly relevant to the UK water and wastewater industry, which remains one of the most heavily regulated sectors and faces mounting scrutiny over pollution incidents, storm overflows and environmental performance.
Pressure on regulators
The NAO examined how Defra and its main regulators, including the Environment Agency and Natural England, carry out their environmental regulatory functions. It found that regulators are operating within a complex and, in some cases, outdated legal framework, while dealing with long-standing resource and skills shortages.
According to the report, regulators often lack the high-quality data and modern IT systems needed to target the greatest environmental risks. This limits their ability to take a truly risk-based approach to regulation, increasing the likelihood that serious harms go undetected while compliant operators face unnecessary administrative burdens.
Relevance to water and wastewater companies
The report comes at a time of intense political and public focus on water company performance, particularly in relation to sewage pollution and river health. While recent reforms have strengthened enforcement powers and increased monitoring requirements, the NAO cautions that regulation must be supported by a coherent long-term strategy and sufficient regulatory capacity.
The NAO highlights that regulators’ limited resources can lead to inconsistent enforcement and delays, creating uncertainty for regulated industries. In the water and wastewater sector, this can affect investment planning, delivery of environmental improvements and the ability to meet tightening permit conditions.
The report also notes that a risk-averse culture within government and regulators has slowed innovation. For water companies investing in new treatment technologies, nature-based solutions or digital monitoring, this can act as a barrier to faster adoption of more effective approaches.
Need for strategic reform
The NAO concludes that Defra has not yet set out a sufficiently clear, integrated strategy for reforming environmental regulation. Instead, multiple overlapping initiatives and reviews risk creating fragmentation rather than coherence.
The watchdog argues that improving regulation will require better use of data, clearer prioritisation of environmental risks and investment in digital systems and skills. Without these changes, the NAO warns that regulators may struggle to deliver value for money or achieve the environmental outcomes expected by Parliament and the public.
The report makes several recommendations, advising Defra to do the following:
Work with the regulators to set a plan for how existing change programmes and
new reforms – including digital change – will link together, so that they prioritise
changes that can unlock the greatest gains and are planned and delivered in a
coherent way. This should set out dependencies between actions, milestones
for delivery, resource requirements and governance arrangements.
Determine how it will make the most of whatever Parliamentary time is
available for legislative change, and what alternative methods it can use
to make improvements.
Update funding and performance mechanisms to place greater emphasis on
the extent to which the work of the regulators addresses environmental harm,
rather than what activities they are doing.
Investigate new approaches to sharing data including, for example, using open
data and licensing models or trialling projects for data sharing between
regulators that cover the same sectors.
Pilot joint working for smaller projects or planning applications, based on
learnings from the ‘lead environmental regulator’ approach currently being
developed for major infrastructure projects.
Define its risk appetite and the support it will provide to regulators if risks
materialise, to support a culture of change and innovation.