Expert analysis of the UK water sector
Excerpts from the latest edition of The UK Water Report.
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Playing a different tune
The Competition and Markets Authority has doubled down on its base cost models despite extensive challenge – potentially leading to further allowance cuts.
By Karma Loveday
One week before Christmas, the Competition and Markets Authority (CMA) finally published responses to its October Provisional Determinations (PDs) – over five weeks after the submission deadline of 6 November. When they appeared, they came along with a Base costs modelling working paper, which was open for consultation until 7 January.
The paper sought to address substantive, in places scathing, criticism in the responses of the base cost modelling approach the CMA had used for the PDs. Perhaps it wanted to answer its critics and respond to the many requests for a base cost relook before publishing their comments.
But the paper does not provide the answers the industry would have wanted. It leaves the companies challenging their price settlements – and the wider water sector if it were applied across the board – with lower allowances than both Ofwat’s final determinations (FDs) and the CMA’s October PDs.
The CMA said: “Our updated models produce wholesale water and wastewater allowances that are 1.5% lower sector-wide and 1.0% higher for disputing companies than those in Ofwat’s PR24 FD before applying modelled efficiency challenges. Our models do, however, result in a stronger efficiency challenge. Once this stronger efficiency challenge is applied, our models produce allowances that are 7.1% lower sector-wide and 4.8% lower for disputing companies than Ofwat’s PR24 FD.” This equates to a reduction of around £3bn at sector level.
“Our models produce allowances that are 7.1% lower sector-wide and 4.8% lower for disputing companies than Ofwat’s PR24 FD.”
Not half bad
Half year results show a solid set of achievements – but with early winners and losers from the step change into AMP8.
By Verity Mitchell
The sector’s half-year results have delivered a solid set of achievements. All companies have benefited from substantial increases in their allowed revenues for AMP8. Many have started to record cost efficiencies, driving higher operating profit growth than sales. Large capital programmes have given management teams the scope to deliver investment more efficiently. Higher inflation has created headroom in credit metrics, keeping debt stable, which will also enhance companies’ returns on regulatory equity. Those with significant levels of index-linked debt, though, also saw their financing costs increase. Despite concerns about the reputation of the water sector, the companies have attracted debt and equity to underpin their investment programmes.
Some companies that have hit the ground running in AMP8 will increase Outcome Delivery Incentive rewards. Others, though, are struggling to adapt their operations to the increased scale of improvements they have signed up to deliver. Some companies might have, in addition, been under pressure from their credit metrics to defer expenditure until equity injections had taken place.
The companies that established their supply partnerships and began investing early to address AMP8 priorities in 2024 have recorded significant progress with their leakage, sewer spill reduction and pollution incident mitigation programmes. Several are restructuring their operations for better performance.
“Some companies that have hit the ground running in AMP8 will increase Outcome Delivery Incentive rewards. Others, though. are struggling to adapt their operations to the increased scale of improvements they have signed up to deliver.”
Treading a path to reform
Stakeholders share views on delivering regulatory reform and regional system planning as they await the White Paper.
By Karma Loveday
The theme of CIWEM’s December A Fresh Water Future conference – Turning review into tangible action – will resonate with water sector stakeholders as they continue to wait for the Government’s full response to the Independent Water Commission recommendations. But those at the event, which discussed all the key themes from the Cunliffe report, will perhaps have left with some sympathy for the Government’s White Paper delay.
The issues at hand are broad, interconnected and complex. While there is a lot of agreement about high-level positions, there is far less as you get deeper into the details. Moreover, as Matthew Gill, programme director at the Institute of Government, pointed out, water policy is not being developed in isolation. The government has a broad deregulation agenda and plenty of other issues to grapple with.
So it is perhaps unsurprising that the conference had to settle for debating the theory of reform rather than being able to dissect the detail of the White Paper that was originally promised for Autumn.
While the event covered lots of ground, we focused on two main elements:
• Delivering regulatory reform – with views on leadership, engaging across sectors, implementation, culture and pace.
• Regional system planning – Cunliffe envisaged the establishment of Regional Water Authorities to undertake integrated and holistic water system planning. This would effectively plug what is oft described as the ‘missing middle’ between national plans and catchment-based approaches. But concerns were expressed in the margins of the conference that creating new Regional Water Authorities might prove a bridge too far for a government intent on reducing bureaucracy.
"Concerns were expressed in the margins of the conference that creating new Regional Water Authorities might prove a bridge too far for a government intent on reducing bureaucracy."
University challenge
Cambridge Water leaders explain how they are working to bridge the supply gap arising from the city’s world-leading growth ambitions and limited chalk aquifer resources.
By Karma Loveday
Cambridge is at the sharp end of two powerful forces: ambitious national growth plans and worsening water scarcity. Regarded by many as Europe’s unicorn hub and future science capital, and a key node in the Oxford–Cambridge corridor, the city faces accelerating demand for water at the same time as environmental protections drive down how much can be taken from local sources.
Cambridge Water’s quality and environment director Natalie Akroyd, and strategy and regulation director Caroline Cooper, explain the scale of the challenge, the measures Cambridge Water and its partners are taking, and why Cambridge is rapidly becoming a test bed for how the UK manages growth in water‑stressed regions.
“Cambridge is at the sharp end of two powerful forces: ambitious national growth plans and worsening water scarcity.”
The enigma of our bathing waters
David Lloyd Owen takes a new year plunge.
By David Lloyd Owen
During the 2025 testing season, media attention about coastal sewage spillages grew, while the actual testing season data hints towards a minor improvement.
2025 was always going to be a transitional year, between Ofwat’s ‘cheap and (environmentally) nasty’ price regimes between 2005 and 2025 and its belated catch-up in spending starting in 2025-30. Companies have spent much of 2025 recruiting and training new staff, getting projects established and preparing for more intensive activity from 2026. This time lag will be seen in many aspects of environmental performance before 2026-27.
The 2025 data show there was one less (coastal) bathing area than in 2024 (see Table 1). Inland bathing waters remained the same. Overall, the data does appear to suggest that the management of sewerage networks and sewage treatment plants (amongst other things), rather than rainfall, drives bathing water quality.
The article goes on to scrutinise coastal and inland water results from England, coastal results from Wales, compliance over time, Water Framework Directive v Bathing Water Directive parameters, European comparators, and bathing water regulations reform.
“During the 2025 testing season, media attention about costal sewage spillages grew, while the actual testing season data hints towards a minor improvement.”
Competition Watch
Jeremy Atkinson
Bob Downes
New frontiers
After 18 years of expertly running the Scottish market, CMA Scotland is pivoting to pursue ‘frontier performance’ in crucial areas like cyber security and using data as a resource.
By Karma Loveday
For almost 18 years, Scotland’s Central Market Agency (CMA) has professionally and diligently run the Scottish non-household retail market – performing settlement, maintaining central systems, improving data, managing market entry and updating the market codes. It has more than proved its competence to pioneer and sustain a world-first competitive water space.
Now, the organisation is intent on moving "beyond compliance” to deliver “frontier performance” under a new strategic plan. It is early days, but top-notch cybersecurity and management of the technology stack have emerged as an initial area of focus. Elsewhere, the plan incorporates an intent to innovate in the context of broad trends relevant for the market: artificial intelligence, data science, resilience and water resource constraints.
CMA Scotland wants to leverage its corporate history and the data it holds for the benefit of the market and the wider water sector, and to be recognised as a trusted expert in relevant fields. In the face of mounting pressures from a changing climate and economic growth, it also sees benefit in a closer relationship with the maturing English market.
Leading the charge are CMA Scotland’s long standing chief executive, Jeremy Atkinson, and new chair Bob Downes.
“CMA Scotland wants to leverage its corporate history and the data it holds for the benefit of the market and the wider water sector.”
Sophia Goring
Jo Dow
Pervasive positivity
Business Stream’s vision to Make A Positive Difference has become central to its identity. Jo Dow and Sophia Goring see competitive advantage in that, but also the opportunity to leave a positive societal legacy.
By Karma Loveday
Launched six years ago, Business Stream’s Make A Positive Difference (MAPD) vision was initially an internal initiative – a way to inspire and enable colleagues to contribute to positive environmental, social and customer-focused outcomes, aligned to the United Nations Sustainable Development Goals. The launch in itself was “a groundbreaking moment for us,” chief executive Jo Dow says – the first opportunity since the opening of the Scottish and then the English market to take the time to reflect on their wider contribution, purpose and legacy.
But the response to and impact of MAPD over time has been so beneficial that the vision has now evolved to become “really embedded in our ethos and day-to-day operations,” Dow says – to the point that it has become central to Business Stream’s identity, and the basis of a differentiated, evidence-based and future-ready proposition for the non-household water markets in Scotland and England. Sophia Goring, head of ESG, comments: “It literally impacts everything we do.”
“Making A Positive Difference literally impacts everything we do.”
Below and beyond
Baringa research finds multiple demand reduction interventions could help businesses significantly beat water use targets.
By Karma Loveday
By deploying a combination of interventions, non-household customers could be helped to save more water than specified in the Environment Act targets.
That’s according to a report from Baringa commissioned by the Strategic Panel and the Retailer Wholesaler Group’s (RWG) Water Efficiency Subgroup on how to incentivise business customers to cut demand.
Baringa identified eight strategies that need to be deployed in combination:
• Using smart meter data to identify wasteful continuous flow.
• Setting demand reduction targets for users.
• Enabling/requiring non-potable water to be used for purposes such as cooling and cleaning.
• Tariff reform.
• Introducing a usage-based surcharge on customers to fund targeted water efficiency investment.
• Limiting business usage in water-stressed zones.
• Linking access to finance to water efficiency.
• Recognition and rewards for efficient use.
Baringa found that, while no single intervention would be sufficient alone, if deployed together, demand could be cut by 14% by 2038 (beating the 9% statutory target) and by 21% by 2050 (beating the 15% statutory target). The report noted: “Exceeding the current 15% target would provide the industry with necessary headroom to supply growing sectors of the economy, such as new homes and data centres.”
"While no single intervention would be sufficient alone, if deployed together, demand could be cut by 14% by 2038 (beating the 9% statutory target) and by 21% by 2050 (beating the 15% statutory target)."
CONTENTS
This month's articles
Report
CMA PR24 appeals: base cost blues
4
Pg
Industry Comment
Innovation predictions
12
Pg
Report
Regulatory reform and regional systems planning - ahead of the White Paper
14
Pg
Report
Australian ideas on managing demand from data centres
19
Pg
News Review
Planning Bill gets Royal Assent
21
Pg
Report
Consumer Scotland calls for complaints transparency
23
Pg
Industry Comment
Biodiversity net gain for major infrastructure
25
Pg
News Review
Mixed progress on storm spill plan
30
Pg
Interview
Jo Dow and Sophia Goring, Business Stream
34
Pg
Report
Baringa finds business could beat demand reduction targets
38
Pg
Analysis
H1 results and investment implications
10
Pg
Report
Thames: where are we now?
13
Pg
Feature
Cambridge Water grapples with growth ambitions
16
Pg
Report
Drought risk lifts
20
Pg
Report
Scottish customers will need more help with higher bills
22
Pg
Report
The revised EIP
24
Pg
Analysis
Bathing water data analysis
26
Pg
Interview
Jeremy Atkinson and Bob Downes, CMA Scotland
31
Pg
News Review
Wave on looming water deficits from decarbonization demand
37
Pg