Image description: Aerial shot of water treatment centre. Image by Tom Fisk.
Unprecedented challenges facing UK water sector
A critical new report by the National Audit Office (NAO) audits the three water regulators (Ofwat, the Environment Agency, and the Drinking Water Inspectorate) and Defra, which sets policies for the water sector. It examines their effectiveness in driving operational improvements; ensuring the nation’s future water supply and attracting necessary investments to meet government targets.
The report warns that the UK water sector faces unprecedented environmental, supply and infrastructure challenges, during a time when consumer trust and confidence in water companies to act in the interest of the environment and provide a reliable service are at an all-time low. According to a Surfers Against Sewage (SAS) report just a third (33%) of English adults believe that their supplier will take the necessary action to end sewage pollution.
Rising tide of investment and water security risks
The report warns the industry must urgently attract record levels of investment to safeguard future supplies, with a projected shortfall of five billion litres of water per day by 2050. Yet, auditing the roles of Ofwat, the Environment Agency, the Drinking Water Inspectorate and the Department for Environment, Food and Rural Affairs (Defra), the report finds, the regulatory framework has failed to ensure operational improvements or secure the necessary financial resilience to meet looming needs.
Ofwat anticipates a 70% increase in infrastructure spending, totalling £47 billion in the next five years. This is part of £290 billion required to meet government targets over the next 25 years. However, the need for investment coincides with a period of weakening financial performance, declining public trust and falling investor confidence. In 2023-24, Ofwat was concerned about the financial resilience of 10 of the 16 major water companies.
However, the NAO noted that there is no coherent national plan in place, and Defra must understand the deliverability and costs of improvement actions, alongside the impact they will have on customers’ bills. Currently, 30 major water supply initiatives, including nine reservoirs, are under development at an additional estimated cost of £52 billion. However, lacking a robust system to assess the condition of water infrastructure, replacement efforts have progressed slowly — at the current rate, it would take 700 years to renew the existing network.
On storm overflows, where companies release untreated sewage into rivers and seas causing widespread environmental harm, the report said the Environment Agency and Ofwat are taking enforcement action over the sector’s management of sewage, but highlighted how there is no regulator responsible for proactively inspecting wastewater assets to prevent further environmental harm.
Water UK calls for major reform of the water system
David Henderson, CEO of industry body Water UK has told the BBC that water companies should no longer be allowed to monitor their own levels of sewage pollution: “We absolutely accept that self-monitoring is not helping to instil trust and so we would like to see an end to it, and in place of it a more robust, third-party system.”
Water UK is calling for major reform of the water system in its submission to the Independent Water Commission, chaired by Sir Jon Cunliffe. Its recommendations include sweeping changes to the current system of one-size-fits-all regulation, a fairer deal for customers, a tough new ombudsman to resolve disputes, and a national water grid to move water around the country to balance supply and demand.
The Consumer Council for Water added there will be “no hiding place” for water companies if they fail to deliver on their commitments to customers over the next five years.