Anti-sewage campaigners have warned of “extreme anger” if the Labour government does not radically reform the water regulator. Sources at the Environment Agency (EA) and in the Labour party have told the Guardian that while Labour had spent time considering reforms of the EA and Ofwat in order to fix the sewage crisis, some stricter options that had been proposed were now off the table. Campaigners say the watchdog, Ofwat, has been too lax on the water companies and prioritised low bills over spending on improving sewer systems. Last year there was a 105% rise in raw sewage spills into England’s rivers and seas – it was discharged for more than 3.6m hours and this made 2023 the worst year for storm water pollution. Options sources say have been discussed with campaigners, the EA and other stakeholders included merging Ofwat and the EA, giving Ofwat more powers and a policy prioritising environmental benefits over costs to consumers, and giving the regulators more independence from government. At the moment, for example, the EA shares a press office with Defra and its communications are directed by ministers, which makes it difficult to take long-term actions that the government could think too politically damaging, or to hold the government to account. The EA faced steep funding cuts under Conservative government austerity which has made it difficult for the regulator to enforce environmental laws. Proposals to increase its funding will not be taken forward, the Guardian has been told. Now policies that campaigners say are less ambitious have emerged and include working with the EA to stop water company self-monitoring for sewage spills – an initiative that was already happening under the Conservative government – and writing to Ofwat to ask them to make sure funding for vital infrastructure investment is ringfenced and can only be spent on upgrades benefiting customers and the environment. The environment secretary, Steve Reed, has asked Ofwat to ensure that when money for investment is not spent, companies refund customers, with money never allowed to be diverted for bonuses, dividends or salary increases. Charles Watson, the founder of River Action, said the government had promised regulatory reform of the water companies, adding: “Fixing the nation’s failed environmental regulatory system was rightly a central part of Labour’s environmental campaigning promises during the general election. “A root cause of the extensive pollution of our waterways is the combination of Ofwat’s allowing of the water companies to pay out too much to shareholders at the expense of infrastructure investment and the Environment Agency’s failure to enforce existing regulations – thus enabling polluters to be able to act freely with impunity. “[Failing to address these problems] will be met with extreme disappointment and anger by the huge numbers of the public who voted on 4 July to clean up our waterways.” Water campaigner and former Undertones frontman Feargal Sharkey, who toured the country to campaign for Labour during the general election, said: “What we need right now is drive, determination and ambition to conduct a complete radical reform, a root and branch restructuring of a failed industry and a failed system of regulation. We really need leadership, which is currently somewhat sadly lacking.” In the months running up to the election campaign, Reed spoke in parliament blaming weak and underfunded regulators for the sewage scandal. During one debate he said: “The Conservative government cut the EA’s resources in half. That led to a dramatic reduction in monitoring, enforcement and prosecutions, leaving illegal sewage spills to double between 2016 and 2021.” He also referred to Ofwat as a “broken regulator”, and said: “If [water companies] downgrade and cover up sewage spills, they are rewarded with permission to increase their customers’ bills, which boosts their profits. Fewer reported spills – not actual, but reported – and more profits mean bigger bonuses for the water bosses.” Doug Parr, the policy director for Greenpeace UK, said: “The government is as acutely aware as anyone that the current water and sewage system has failed, and that the regulators bear some of the responsibility for that failure. It has been the reckless prioritisation of dividends – while gaming the regulations – that is responsible for a significant amount of our current woes. Blocking this entirely should focus the industry on keeping pollution out of a revitalised water system, rather than just extracting cash from our dying one.” The Green party MP for North Herefordshire, Ellie Chowns, added: “Refusing to strengthen regulation with the excuse we can’t afford to sets a dangerous precedent for our public services. The Environment Agency has already had its funding cut to the bone. The Labour government needs to reverse these Conservative cuts and give the agency the funding and teeth it needs to protect our natural environment. “It demonstrates that Labour still don’t understand that restoring and defending our environment isn’t just an optional nice-to-have benefit but is fundamental to our wellbeing and economic prosperity.” A Defra spokesperson said: “The new government will never look the other way while water companies pump record levels of sewage into our rivers, lakes and seas. We were elected on a mandate to strengthen regulation, crack down on water companies and begin the work of cleaning up Britain’s rivers, lakes and seas. That is exactly what we will do. The water (special measures) bill will deliver on our commitments, giving regulators new powers to ban the payment of bonuses for polluting water bosses and bring criminal charges against persistent lawbreakers.”