Ofwat has published its draft determinations for English and Welsh water companies, allowing a spending package of £88bn over the next 5 years, £16bn less than proposed by companies in their business plans.

Ofwat’s headlines

• Investment of £10bn to tackle storm overflows with a target to reduce spills from storm overflows by 44% from levels in 2021
• Customer bills proposed to increase on average by £19 a year over the next five years – a third less than the bill increase requested by companies
• New initiative to ring fence investment funding with a claw back guarantee which will ensure money not spent on investment is returned to customers
• Companies to double support available for customers in need of a helping hand

Ofwat has today proposed allowing a spending package of £88bn by water companies.

£35bn of the expenditure reflects the investment needed to reduce pollution, improve customer service, river and bathing water quality, and deliver greater resilience to the impact of climate change. This is more than a trebling of the level of investment in the 2020 to 2025 period.

The total expenditure proposed is £16bn lower than in companies’ business plans. This reflects Ofwat’s analysis of those plans, removing or reducing costs where expenditure is insufficiently justified, inefficient or for activity for which companies have already been funded; customers will not pay twice.

The average bill increase for water and wastewater companies will be £19 a year over five years (£94 in total), excluding inflation. Companies’ business plans proposed increases averaging £144 over five years. Ofwat’s interventions have reduced the level of bill increases proposed by companies. For example, Thames Water’s proposed increase of £191 by 2030 has been reduced to £99; Severn Trent’s proposed increase of £144 has been reduced to £93.

Companies have been required to prepare for the future by setting their plans in the context of a 25-year delivery strategy. These proposals include the work of the regulators’ joint team RAPID, which is helping to accelerate the delivery of £17bn of new water assets including 6 reservoirs, some of which are part of the wider programme of major projects; in total 9 new reservoirs are proposed.

The overall investment programme will deliver improvements in the environment, strengthen the resilience of water supplies and improve day-to-day customer service.

Protecting the environment

• Reducing the number of spills from storm overflows by 44% (compared with 2021 levels) by spending £10bn and upgrading 2,500 storm overflows; this includes the 21% reduction which Ofwat has required companies to deliver by 2025 at their own expense
• Today’s announcement builds on Ofwat’s approval in 2023 of £2.2bn of accelerated investment to make an early start on delivering improvements and drive down spills from storm overflows.
• £1.4bn of investment on storm overflows to be delivered through catchment- and nature-based solutions
• Improving river water quality by investing £6bn including improvements at over 1500 wastewater treatment works – with around 880 removing more phosphorus
• 8 new performance targets for companies including reducing spills from storm overflows, reducing operational greenhouse gas emissions and improving biodiversity
• Failure to meet these performance commitment results in an automatic penalty for companies

Securing supplies

• £6bn for securing water supplies including progressing 9 new reservoirs and 7 large-scale water transfer schemes
• Requiring companies to replace around 8,000 km of water mains pipes – a 400% increase compared with the current 5-year period
• Targetting companies to reduce leakage by a further 13%
• Launching a £100m Water Efficiency Fund

Day-to-day delivery for customers

• Tougher targets on internal and external sewer flooding, reducing sewer flooding in homes by 13%
• Higher standards set for assessing companies’ customer service through comparing water companies with other sectors

The cost of this investment will initially be funded by shareholders or through borrowing, with these costs then recovered through customers’ bills in this 5-year period and beyond. Ofwat has proposed a rate of return of 3.72%. This is above the level set for 2020 to 2025, reflecting increases in the cost of finance and the need to ensure the sector can raise the finance necessary to fund such a significant programme of investment.

Companies and others have until 28 August to respond, and Ofwat will publish final determinations on 19 December.

Covered by the BBC Water bills set to rise by £19 a year from April, The Guardian Water bills to rise by £94 over next five years in England and Wales and elsewhere