Almost all options will be considered during the review, including reforming or getting rid of Ofwat, which regulates the industry in England and Wales.

“There are certainly very severe failures of regulation and governance that underpin the problems that we’re seeing in the water sector,” said Reed.

The government has ruled out nationalisation of the sector, which was privatised in the 1980s, as too costly and slow.

Instead, the private sector will have to provide the investment needed to upgrade pipes, sewers and reservoirs to do deal the UK’s rising population and climate change.

But in order to attract private capital into the sector, it is likely that customers will face higher bills.

Henderson said he welcomed the review: “It’s clear the system is not working. The system is very complicated, it’s very expensive and it’s far too slow.”

He said he was sorry, adding that the industry was “failing to keep up with the public’s expectations, particularly around sewage”.

Ofwat, which has been criticised for its track record in regulating the industry, also backed the new commission.

“We are ready to back record investment, the challenge for water companies is to match that investment with the changes in company culture and performance that are essential to rebuilding the trust of customers and the public,” Ofwat chief executive David Black said.