Water companies could be let off fines for polluting the environment under changes announced in the government’s new white paper.

The environment secretary, Emma Reynolds, hailed the changes as “once-in-a-generation reforms” featuring “tough oversight, real accountability and no more excuses”.

Campaigners called the proposed move to soften the approach to fines “desperate”, and said the government was letting companies off the hook.

Under the plans, there would be a new turnaround regime to force companies that are failing, either financially or in terms of sewage pollution and water outages, to fix their problems faster. The government said this would “give stability to investors”.

The Guardian understands the white paper, which will be published on Tuesday and was not made available to journalists in advance, will include provisions for the regulator to step in and “manage” fines so a company does not collapse. This could include deferring penalties, or letting the company off certain payments. A source at the Department for Environment, Food and Rural Affairs said the “aim is for every water company to eventually pay their fines”.

Creditors have asked for Thames Water to be let off future fines as the company staves off financial collapse. In May 2025, it was fined over £120m for environmental breaches involving sewage spills, after failing to operate and manage its treatment works and wastewater networks effectively.

“We are fixing the problems and getting the companies to a stance where customers are not paying for their failures,” a Defra source said.

Richard Benwell, CEO of Wildlife and Countryside Link, said: “If a company is fined because it’s done something wrong. It should either make restitution or the polluter should pay.”

He added: “It sounds like a desperate play to be off the hook at the last minute, and companies should think about that when they are engaging in unlawful actions and failing in their public environmental interest duties. If a business hasn’t managed itself well enough to deal with the consequences of its shortcomings then it needs to deal with those consequences.”

Industry sources said the possibility of a turnaround regime would be welcome, although they acknowledged that companies would have to accept restrictions on payouts to executives and investors if fines were reduced or deferred.

A new “MOT for water companies” will be announced as part of the measures, which ministers say will force the firms to disclose the state of their infrastructure.

This would prevent water outages such as those recently faced by tens of thousands of people in Kent and Sussex, government sources said. This is because old pipes and a badly maintained water treatment centre were blamed for the shortages.

Thousands of homes in south-east England were recently affected by water outages. Photograph: Anadolu/Getty Images

The UK’s pipes are largely Victorian, no major reservoir has been built for more than 30 years. Many water treatment centres were built decades ago and have not been updated.

Other changes include:

Dedicated supervisory teams for each water company.

“No notice” inspection powers for the new regulator.

A new chief engineer inside Ofwat to oversee hands-on checks to water infrastructure.

The overhaul, due to be enshrined in law in the water reform bill, is part of the government’s response to a wide-ranging report on the water sector by Jon Cunliffe, a former Bank of England official. He made 88 recommendations to improve the sector, some of which – such as the supervisory model – have been accepted.

There will be no change to the ownership structures of water companies, and Cunliffe was banned by the government from considering nationalising the industry in his report. England and Wales are the only countries in the world with a fully privatised water system.

Feargal Sharkey, the water campaigner and former singer of the Undertones, said: “This is just a rearrangement of the deckchairs. After 35 years of privatisations we have two hospitals, a kidney treatment centre, 15 schools, 19 care homes and 29 nurseries in Tunbridge Wells left without water for two weeks. The government is terrified of dealing with privatisation and has sacrificed water quality on the altar of shareholders and private equity.

“No 10 is operating under paralysis of doing anything which might slightly spook the bond markets. Ministers have failed to grasp the underlying issue which is corporate greed. The only people who will be paying for this are customers and billpayers.”

Feargal Sharkey has likened the government’s changes to a ‘rearrangement of the deckchairs’. Photograph: Krisztián Elek/SOPA Images/REX/Shutterstock

The government previously announced it would abolish Ofwat, as recommended by Cunliffe, and combine its powers with those of other water watchdogs under a new “super-regulator”. It remains unclear whether the new regulator will be in place in time to oversee the next price review in 2029, which will set household bills and company spending plans until 2035. The government is expected to set out its timeline for the new regulator in March.

Cunliffe recommended allowing companies to be let off the hook for fines under a turnaround regime.

In his report, he said: “A turnaround regime could provide the water regulator with additional discretion over enforcement in defined circumstances, allowing them to defer or waive fines and penalties where it is in the broader interest of customers. This may include, for example, circumstances where additional fines are likely to hinder the ability of the company to invest in infrastructure improvement.”