The National Audit Office (NAO) is warning that the government must take more concerted action now to prevent parts of southern England running out of water within 20 years.

The warning comes in a new report by the NAO published today - Water supply and demand management highlights serious failings in current water resource policies, their impacts on key points in the water sector and the scale of the challenges that need to be tackled.

Key findings set out in the report include:

1. The government is not yet able to reliably forecast total water demand as water resource management plans only cover the public water supply.

Water companies’ current supply and demand forecasts only give a partial picture of overall water resources as nearly half (49%) of freshwater abstraction is outside the public water supply, mainly water abstracted directly for use in the power sector, agriculture, and by industry.

2. Defra does not provide guidance for water companies on the different types of intervention available to improve the resilience of the water supply.

3. There is a risk that the fixed-term five-year planning cycle could delay potential improvements in water companies’ performance.

The report says that Ofwat had told the NAO that it was “not aware of evidence that imposing revised performance commitments in the middle of a planning cycle would have resulted in meaningful gains sufficient to outweigh the potential destabilising impact of doing so.”

However, the report says the regulator is considering whether to take some performance issues out of the price review cycle, either to develop longer-term processes where appropriate, or to facilitate more rapid action where there are “acute performance issues or more urgent policy imperatives.”

4. Water companies have found it difficult to determine what level of infrastructure investment the government will deem acceptable.

The report says that water companies had told the NAO that the government had “not provided a sufficient steer on how to balance the need for investment with maintaining affordable bills, particularly where they have evidence that their customers are prepared to pay more to finance infrastructure investment.”

5. Bulk water transfers are a major part of water companies’ plans but the government is only now starting to address barriers to progress.

The country’s total water supply is forecast to drop by 7% by 2045 because of climate change and the limits of sustainable abstraction. Even at current levels of average rainfall, a reduction of 480 million litres per day of water consumption is needed nationally within 25 years to restore abstraction to sustainable levels. Drier weather is forecast to further reduce water supplies by 600 million litres per day.

The NAO says that taken together, water sourced through abstraction nationally each day is due to decline by over a billion litres over the next 25 years. This means that, without action, some parts of the country – particularly the South East – will run out of water.

“Water companies - little or no progress in reducing water consumption and cutting leakage”

Notwithstanding that reducing demand is essential to prevent water shortages, the report says that over the last five years, water companies have made little or no progress in reducing water consumption and cutting leakage.

Despite the fact that water companies have signed up to reduce leakage by 15% or more by 2025, the NAO is warning of the risk that they may not meet these targets and government should monitor progress to ensure that water companies have contingency plans.

The report says that efforts to reduce water consumption with the public and businesses have not been successful and highlights the fact that although the government committed to announcing a personal water consumption target by the end of 2018, it has not yet done so, commenting:

"It has relied on water companies to get its message across about the importance of reducing water consumption, but there is no evidence this has had any impact on consumer behaviour and average consumption continues to rise. Government attempts to reduce non-household water consumption through increased competition have also not succeeded.”

The NAO is calling for water companies to work together across geographical boundaries to improve the resilience of the water supply. It acknowledges that the government has taken positive steps to encourage this by publishing a national planning framework which aims to bring together industry, regulators and government to develop regional plans by the end of 2021. However, the report says that so far there has been only limited collaboration , with most companies continuing to develop solutions largely within their own geographical area.

The report concludes that Defra should promote a more coherent and credible message about water efficiency and develop a plan to evaluate its impact. The NAO says the government should also lead on getting the message across that consumers need to save water. Other recommendations include:

• Defra should identify opportunities to work with other government departments to reduce water consumption by large public sector users, like hospitals and schools.
• Defra should also better understand how willing customers are to pay more to improve water infrastructure. This involves reviewing water companies’ customer research and commissioning its own, if necessary.
• Defra, the regulator Ofwat and the Environment Agency should regularly review water companies’ progress on reducing consumption and leakage.

Gareth Davies, head of the NAO commented:

“The government has made limited progress on reducing water consumption, tackling leakage and sharing water resources between regions in the last five years, but rapid progress is now vital for the government to deliver its objective of a resilient water supply. Defra needs to provide stronger leadership to water companies, regulators and consumers.”

Click here to download the full report Water supply and demand management