Water sector regulator Ofwat has today proposed allowing a total spending package of £88 billion by water companies in England and Wales – a reduction of £16 billion from the water companies’ proposals.
£35 billion 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 £16 billion 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.
The companies have been required to prepare for the future by setting their plans in the context of a 25-year delivery strategy. The proposals include the work of the regulators' joint team RAPID, which is helping to accelerate the delivery of £17 billion 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 £2.2 billion of accelerated investment to make an early start on delivering improvements and drive down spills from storm overflows.
• £1.4 billion 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
• £6 billion 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 the 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.
David Black, Chief Executive, Ofwat said:
"Customers want to see radical change in the way water companies care for the environment.
"Our draft decisions on company plans approve a tripling of investment to make sustained improvement to customer service and the environment at a fair price for customers.
"These proposals aim to deliver a 44% reduction in spills from storm overflows compared to levels in 2021. We expect all companies to embrace innovation and go further and faster to reduce spills wherever possible.
"Today's announcement also increases the resilience of our water supplies to the impact of climate change and will reduce how much water is taken from rivers by enabling a range of long-term water supply projects, which includes plans for 9 reservoirs.
“Let me be very clear to water companies. We will be closely scrutinising the delivery of their plans and will hold them to account to deliver real improvements to the environment and for customers and on their investment programmes.”
Click here to download Ofwat's Draft Determinations Sector Summary
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