Water UK has accused Ofwat of loading water companies with a huge amount of paperwork and creating a “labyrinthine framework of intense complexity” to assess the water companies’ AMP8 Business Plans.

In new written evidence submitted by Water UK to the House of Commons Environmental Audit Committee’s Follow-up Inquiry into Water Quality and Infrastructure. Water UK said:

“Ofwat has a difficult job in assessing these plans, but.. has made this more difficult for themselves by creating a labyrinthine framework of intense complexity. Their system required companies, in total, to produce nearly 1,000 different documents across their business plans, stretching to over 53,000 pages that will take more than 14 months just to review, before any real work can even start.”

According to Water UK, the body which represents all of the water and wastewater companies in the UK, since the submission of the AMP8 plans in October 2023, Ofwat has sent an average of 20 queries each working day, with a default deadline to respond of 48 hours.

Water companies can expect “just one single 45 minute conversation to discuss billions of pounds of proposed investment”

Water UK said that the regulator had insisted on doing this as an exchange of correspondence rather than ongoing discussions. Following its draft decisions in June (now delayed until 12 July due to the General Election), the submission says that in addition to the formal opportunity to respond in writing, Ofwat has told the companies to each expect “just one single 45 minute conversation to discuss billions of pounds of proposed investment.”

Water UK commented that “whatever the benefits of this approach, it seems to exhibit some fundamental problems.”

Describing the regulatory process as “ very slow and insufficiently flexible", according to the industry body “this is why it will take seven years to get meaningful investment into overflows.”

In addition, although Ofwat should be commended for “finding ways of bringing forward relatively small investments within price review periods, the system is too cumbersome to do this well and so fails to respond to society’s priorities fast enough”, Water UK suggests.

“Much of the complexity exists to feed theoretical backward-looking models”

Water UK also flags up its concerns that “much of the complexity exists to feed theoretical backward-looking models” and concludes that the result is “underfunding of less visible areas like maintenance and asset replacement that are crucial for managing pollution and leakage.“ This has led to “the deeply unwise situation where companies are made to assume pipes will last for centuries rather than decades” with pipe replacements ten times lower than in Europe.

In Water UK’s view “the system could perhaps still work if the regulator properly weighed the balance of risk to society”, the biggest of which lies “not with the possibility that we see marginally lower efficiency gains from water companies – the framework’s current focus - but in the slow pace of improvements."

Criticisms include Ofwat “boasted about wanting to usher in “decade of falling bills”

However, the industry body goes on to level a number of serious criticisms, saying the evidence suggests that Ofwat does not consistently recognise the vital and overriding public policy imperative in investment and the conditions needed to enable it. For example, Ofwat has “boasted about wanting to usher in a “decade of falling bills” - referring to a speech in May 2017 by previous Ofwat Chair Jonson Cox in the run-up to the 2019 Price Review.

According to Water UK, while nobody wants to raise bills, the direct cost of this approach has been “less investment in our country’s infrastructure.” If bills had just been allowed to rise with inflation over the last decade, then “we would have had around £11bn more for additional investment – coincidentally, enough to have already funded the first phase of the national overflows plan and achieve spill targets five years earlier.” the trade body says.

Water UK also criticises Ofwat for having “published reviews explaining that their headline value as a public body lies in the cuts made to investment (with £6.7 billion in reduced expenditure claimed over 2020-25) and having “frustrated the government’s desire to construct the Thames Tideway Tunnel, according to then Water Minister Richard Benyon.”

"Apparently overriding focus on ensuring that bills keep falling has been very damaging"

Water UK’s submission says:

“Coming at a time of a significantly increased population and unprecedented weather events attributed to climate change, the apparently overriding focus on ensuring that bills keep falling has been very damaging.

“Ultimately, the public clearly do not think this system of econometric overengineering is delivering for them.”

The submission also sets out Water UK’s thoughts on how Ofwat can “shift its culture towards better enabling investment”, saying the regulator should not “unilaterally rule out” necessary investment projects that are supported by statutory requirements or customers and should support companies’ investment plans, ensuring they are viable and achievable.

In addition, Ofwat should also avoid setting “unrealistic or unreasonable efficiency challenges where this risks the unintended consequence of making investment projects unviable”, or applying “disproportionately exacting tests for “deliverability” where customers are already protected by getting their money back in the event of delay.

Ofwat should recognise "future is different to the past"

Water UK also says Ofwat should:

• Recognise that the future is different to the past, with a new forward-looking approach to funding areas like leakage and maintenance which recognises that the increased risks of climate change – coupled with higher standards and ambition - mean that backward-looking models based on “what worked before” often just aren’t the right approach.
• Simplify and engage more effectively on its decisions. By reducing the complexity of the regulatory process that it has created, and engaging more openly with companies, customers and other stakeholders, Ofwat can support a more collaborative approach to tackle the challenges that the sector faces and approach improvements from the perspective of “what would it take?”
• Ensure an appropriate allowed return to investors – but which is no higher than it needs to be to attract investment. This is important because around two-thirds of expenditure on sewage in the next period will be financed upfront by companies (rather than paid for directly through bills). To secure that financing, returns need to reflect the risks faced by investors in the sector,

Water UK is also calling on the Government to:

• Review the Bathing Water Regulations 2013. - the clunky and complex ‘designation’ process to create bathing areas needs modernising.
• Expand testing from the existing May - September period and include new risks.
• End the automatic right to connect to overloaded sewers - implementation of this commitment would make sustainable drainage the ‘norm’
• Assess giving water companies the right to repair defective drains on private property.
• Assess giving water companies the right to improve drainage systems on private property to reduce impermeable areas connected to the combined sewer network.
• Ban the manufacture and sale of plastic wet wipes
• Use fines to improve the environment. Money from fines has not been invested back into initiatives like creating wetlands and re-vegetating riverbanks, which would improve water quality.
• Force highways authorities to take their responsibilities seriously and finally start to tackle the significant impact on water quality from highways.
• Assess giving water companies the right to discharge clean rainwater back into water courses.
• Consult on making water companies statutory consultees on planning applications for new developments in order to ensure that the water mains, water treatment works and sewerage infrastructure all have sufficient capacity to meet the demands of the proposed development.

Government has “no full and credible overall plan” for achieving good ecological and chemical status for rivers

Water UK also criticises the Government for currently having “no full and credible overall plan” for achieving good ecological and chemical status for rivers. Saying that while Defra and regulators are “understandably focussed” on better enforcement and tackling storm overflow spills, according to Water UK “these alone will not make any substantial difference to the number of rivers in good health.”

In the industry body’s view, government and regulators need to work more systematically and quantitatively to identify the full sweep of actions required across planning, investment, enforcement and policy change to deliver good ecological and chemical status.

Water UK says that while the Government’s “Plan for Water” was a good first step, it is in isolation insufficient, and it is “therefore unsurprising that the Office for Environmental Protection has found the government to be “largely off track” in meeting its overall goals for water.”