Water Industry News

Ofwat Unveils £88 Billion Investment Programme To Improve Water Sector

Water industry regulator Ofwat has unveiled a proposed investment programme by water companies of £88 billion, with the aim being to protect the environment, improve customer service and strengthen the resilience of the nation’s water supply.


Some £35 billion of this package will go towards reducing pollution and improving river and bathing water quality, as well as prioritising customer service and tackling the impacts of climate change.


The goal is to reduce the number of storm overflow spills by 44 per cent compared to 2021 levels, with £10 billion spent on upgrading some 2,500 combined sewer overflows.


Furthermore, £1.4 billion of investments on overflows will be delivered through nature and catchment-based solutions, while £6 billion will go towards improving river quality by focusing on improving over 1,500 wastewater treatment works, as well as working on removing more phosphorus.


The watchdog has also set eight new performance targets for water suppliers, including reducing operational emissions, improving biodiversity and reducing storm overflow discharges. Companies that fail to meet these performance commitments will be hit with automatic penalties.


The investment wave will also be put towards making the UK’s water supply more resilient to the pressures posed by climate change and rising global temperatures. Some £6 billion will be spent on progressing nine new reservoirs and seven water transfer schemes, with companies expected to replace approximately 8,000km of pipework.


Water leak detection and repair will also be prioritised to help prevent wastage, with companies set targets to drive down leaks by an additional 13 per cent.


And a £100 million Water Efficiency Fund is due to be launched in 2025 to deliver a measurable, sustained and transformative reduction in water demand across England and Wales. This will become increasingly necessary as time goes on, given predictions that an additional four billion litres of water a day will be needed by 2050 in order to meet demand.


As for improving customer service, the funding wave will see tougher targets implemented on internal and external sewer flooding, with the aim being to reduce flooding in homes by 13 per cent. Additionally, higher standards will be set for assessing customer service provisions through comparisons with other sectors.


David Black, chief executive of Ofwat, said: “Customers want to see radical change in the way water companies care for the environment. Our draft decisions on company plans approve a tripling of investment to make sustained improvement to customer service and the environment at a fair price for customers.


“These proposals aim to deliver a 44 per cent reduction in spills from storm overflows compared to levels in 2021. We expect all companies to embrace innovation and go further and faster to reduce spills wherever possible.


“Today’s announcement also increases the resilience of our water supplies to the impact of climate change and will reduce how much water is taken from rivers by enabling a range of long-term water supply projects, which includes plans for nine reservoirs.


“Let me be very clear to water companies. We will be closely scrutinising the delivery of their plans and will hold them to account to deliver real improvements to the environment and for customers and on their investment programmes.”


Bill increases


While the initial costs of this £88 billion investment will either be funded by shareholders or through borrowing, the full amount will be recovered through customer bill increases in the future, with a proposed rate of return of 3.72 per cent.


The average bill increase for the five years from April 1st 2025 is £94, which is approximately £19 per year.


The biggest permitted bill increase is from Southern Water, climbing £183 to peak at £603. Thames Water, which has been struggling under a mounting pile of debt over the last few years, will be allowed to increase bills by 22 per cent over the next five years.


All water customers across England and Wales will see bill increases of some kind, except for those supplied by Wessex Water and Sutton and East Surrey Water.


The fact that bill hikes are even being considered has drawn criticism from many quarters. Tim Farron, environmental spokesman for the Liberal Democrats, for example, told the Guardian: “Any insulting price hikes by water companies must be blocked.


“It is a national scandal that these disgraced firms are demanding more money from families and pensioners in a cost of living crisis, all while dumping raw sewage into our rivers.”


Another cause for concern is, of course, the amount of taxpayer money that’s paid out in dividends to water supplier shareholders, despite a lack of investment in infrastructure, an increase in illegal sewage discharges around the country and rising customer bills.


Research from the University of Greenwich, reported on by the BBC back in May, found that tens of billions of pounds have been taken out by shareholders of some of the biggest water companies, but essential investments haven’t happened.


As such, it is perhaps unsurprising that there is a rumble of discontent about bill increases and passing the costs of the necessary upgrades and improvements on to bill payers, upgrades that suppliers should arguably be making as part of their business model in any case.