Ofwat Senior Director David Black has told the water companies the issue of innovation and productivity growth is at the heart of the current debate on the legitimacy of the sector.

Speaking at a recent workshop for water companies, Ofwat Senior Director, David Black said “the combination of focus on customers, outcomes and totex” in the forthcoming 2019 price review means “huge scope for productivity gains in the sector.”

David Black also told companies: “it is clear that the totex and outcomes framework can deliver even more in the next control period than the current period.”

Referring to the public scrutiny facing the water sector, David Black said: “water companies have a strong interest in demonstrating that they can stretch to deliver and that business plan reflects company aspirations to deliver more, deliver better and deliver more efficiently.”

The workshop was also presented with the results of an analysis conducted by KPMG and Aqua Consultants on behalf of Ofwat, to look at how totex and outcomes are helping companies become more efficient.

The analysis reveals that where companies use totex and outcomes to take alternative approaches, they typically save a third on costs compared to more traditional methods.

Looking to the next price review, evidence suggests that water companies could cut costs by between 5% and 17% by the end of the next control period.

Ofwat is inviting the water companies to comment on the results of the KPMG/Aqua Consultants analysis; the deadline is 29 March.

Click here to read the KPMG/Aqua Consultants analysis