The water industry must bear some of the responsibility for where we are today, according to James Heath, Chief Executive of the National Infrastructure Commission. And while investment has increased since privatisation, it has not increased enough.

Speaking at the Water Industry Forum's annual dinner in Leeds yesterday, he told his audience that the sector needs to address three problems simultaneously:

I. Too much water– with currently about 5 million properties in England at risk of flooding, including around 325,000 properties at high risk of surface water flooding;

ii. Too little water– with currently a 1 in 4 chance that large numbers of households will have their water supply cut off for an extended period because of a severe drought in the next 30 years;

iii, Too dirty water - while there has been progress over recent decades in improving water quality, pollution remains at an unacceptable level. There is growing public concern about the frequency of sewer discharges, while the number of serious pollution incidents caused by water and sewerage companies in 2021 was the highest since 2013.

The NIC Chief acknowledged that the three problems are big, complex and inter-linked, and none of them are entirely within the control of the water industry. He went on to point out that pressure on the water environment is driven by structural forces: climate change and population growth, as well as by human behaviour with urban creep and an open sewer approach to waste disposal. Farming practices are also a key source of water pollution.

"Short-term solutions and tinkering at the edges won’t solve the fundamental challenges facing the sector”

However, he went on to say that the water industry must bear some of the responsibility for where we are today, commenting:

“I know there are differing views about how far regulation has contributed – with some claiming that the controls on pollution and leakage levels, for example, have been too lax. While investment has increased since privatisation, it has not increased enough - with serious questions being asked about financial resilience, shareholder returns and the level of debt loaded onto many companies’ balance sheets.”

“Whatever the merits or demerits of past decisions by different parts of the system, one thing that I hope we can all agree on this evening is that short-term solutions and tinkering at the edges won’t solve the fundamental challenges facing the sector.”

Addressing the trio of challenges would take a new approach and the water sector would need to do different things, not just do the same things “a bit better or a bit cheaper.”

According to James Heath, a long-term plan is required that is clear on what our water and wastewater needs will be over the next 30 years which maps out how to get from here to there, starting with defining what good looks like.

However, he warned:

“While the Government is tackling pollution from untreated wastewater through the plan to reduce storm overflows from combined sewage networks, getting from here to there would require major infrastructure changes and we need to beware of unintended consequences.

“Progress must be made quickly but through solutions that represent best value – it would surely be a missed opportunity if we were to tackle discharges from storm overflows by just pouring more concrete underground and investing in end-of-pipe solutions rather than deciding to treat rainwater differently.”

The second thing that was needed is long-term, strategic planning to meet the goals set. In his view, the mature system of water resource management planning which is now in place and now extended through cross-boundary regional plans, would if implemented “take large strides” towards addressing the water supply deficit.

In contrast, planning for wastewater, however, is less advanced. While the drainage and wastewater management plans published in draft form in the summer are the right tool, they do not reveal the pivot to a widespread use of catchment and nature based solutions that many had hoped for. In addition, they were not properly integrated with local authority planning to manage surface water.

"Ofwat has indicated publicly that investment levels for PR24 are anticipated to be two to three times greater than in the current period"

On the level of funding needed to solve the trio of problems, James Heath said this would require large-scale investment in water and wastewater infrastructure over a sustained period, commenting:

“Base costs plus the cumulative costs of cleaning up our water bodies as well as enhancing water supply will add up to a big number. Ofwat has indicated publicly that investment levels for PR24 are anticipated to be two to three times greater than in the current period.”

He suggested that squaring the circle of increasing investment with the public’s ability to pay for it would require:

• Water bills – that have been falling in real terms over the last decade - will almost definitely have to increase in future
• Shareholder returns must be limited to reflect the true level of risk
• The quid pro quo for any bill increases must be discernible, together with speedy improvements in performance.

He told his audience:

“It is right for Ofwat to enforce a clear link between dividends and environmental performance, among other goals. If we get this wrong, the cost of living crisis may become an infrastructure crisis in water.”

Examples of how the sector must work out how to deliver major changes in a more efficient and effective way included:

• In some areas, the vast majority of the volume in treatment works is rainwater, not sewage. We need to accelerate the move to upstream solutions to manage water flows, where viable.
• Using the sustainable drainage solutions set out in policy and guidance documents
• We need to manage water more holistically, in a place-based way with an emphasis on blue/green infrastructure.

According to James Heath, the challenge is to move from pilot projects reliant on one-off funding to a fundamentally different approach which would require long-term pipelines of work to build the supply chains and skills capacity that are needed.

“Plans like Thames Water’s to spongify large parts of London will only happen through a phased, long-term programme dependent on new partnerships and funding models”, he explained.

Water use needs a different approach and "pricing that more closely reflects consumption"

With regard to water consumption, he pointed out that the UK’s average consumption of 140 litres per person per day is much higher than in many other European countries which meant we are spending a large amount on water treatment as a result.

Questioning the use of drinking-quality water to hosepipe gardens and wash cars rather than storing and recycling rainwater for these tasks, he suggested this came down to incentives, commenting:

“Many of us can access unlimited supplies of drinking water and do not know how much water we are using - because we are not metered and do not pay by volume.”

“Here again, we need a different approach – pricing that more closely reflects consumption and places greater efficiency requirements on buildings and appliances. We have made some progress with metering, there have been steps forward in other areas, but we’re not going far enough, fast enough to reduce demand.”

“The Commission has called for water use to be universally smart metered. We know this works - the average consumption for metered customers is over 20% less than those without meters. Volume-related charges could also encourage people to store and recycle grey water for non-essential tasks.”

‘Technology puzzle’ - as an outside observer, the water industry looks “remarkably analogue, with a reactive approach to asset management”

James Heath also highlighted what he called the ‘technology puzzle’, saying that as an outside observer, the water industry looks “remarkably analogue, with a reactive approach to asset management.”

In his view, this was despite knowing that digitising water and wastewater networks could improve services and lead to efficiency gains. He went on to ask;

“So why are smart solutions not more widely deployed across the sector? Is it culture, leadership and skills that are getting in the way? Is there a problem with incentives and regulation? We need to identify and remove the barriers.”

In terms of how the Commission could help address the challenges, he referred to the long-term policy frameworks developed by the NIC for both drought resilience and surface water flooding.

James Heath emphasised that more infrastructure was needed to increase water supply, pointing out that no new public water reservoirs had been built since privatisation, and that water could not be moved around the country effectively enough to cope with water stress. He commented:

“The Commission has called for at least £20 billion of investment in new infrastructure over the next 30 years to fix this situation. It has been encouraging to see collaboration between companies on regional water resource plans, as well as milestones like the engineering contracts being awarded for the Havant Thicket reservoir a few weeks ago.

“We must fund and accelerate the delivery of more schemes like this. The most important thing government can do to is to publish the final National Policy Statement for water resources infrastructure…...

“Given the scale of the challenge, significant new infrastructure will be required. Water and sewerage companies should be encouraged to deliver above ground solutions, with regulation creating a level playing field with below ground solutions.”

He concluded his speech by saying:

“Too much, too little and too dirty water are undoubtedly big and complex challenges. But they are challenges that must be addressed if the water industry is to retain public confidence and support the environment and sustainable growth.”