Defra publishes final Strategic Policy Statement for Ofwat

Defra put protecting and enhancing the environment at the top of its priority list when it published its final strategic priorities for Ofwat last week, in the form of its Strategic Policy Statement (SPS).

The statement opened with: “Protecting and enhancing our nation’s water environment is a priority for this government…It is government’s expectation that Ofwat and the water industry will prioritise appropriate action to enhance water quality and deliver a resilient and sustainable water supply. In particular, government wants to see water and sewerage companies making progressive reductions in the adverse impacts of discharges from storm overflows.”

Defra also emphasised that the long term must be prioritised by Ofwat as it makes investment decisions in the coming five year period. It said: “The government has committed to taking a long-term approach to investment, recognising that a system that works in the enduring interests of consumers does not simply mean lower prices in the short-term at the expense of future generations. Ofwat should promote efficient investment, ensuring it is made in a way that secures long-term resilience and protects and enhances the environment, whilst delivering value for money for customers, society and the environment over the long-term.”

The SPS confirmed the four government priorities consulted on last summer:

• protect and enhance the environment;

• deliver a resilient water sector;

• serve and protect customers; and

• use markets to deliver for customers.

Protect and enhance the environment

Working with other regulators and government, Ofwat should challenge water companies to improve their day-to-day environmental performance to enhance the quality of the water environment. Ofwat should also drive water companies to be more ambitious in taking action to protect and enhance the environment, in particular by taking appropriate action to improve water quality.

Deliver a resilient water sector

Ofwat should challenge the water industry to plan, invest in, and operate its water and wastewater services to secure the needs of current and future customers, in a way which delivers value to customers, the environment and wider society over the long-term.

Serve and protect customers

Ofwat should push water companies to provide a better and fairer water service for all, by improving customer services and complaints handling. Ofwat should challenge water companies to meet the needs of vulnerable customers, including those who are ‘transiently’ vulnerable.

Use markets to deliver for customers

Where appropriate, Ofwat should consider how promoting competition in markets can drive long-term sustainable investment, providing benefits to customers and supporting government’s priorities. Ofwat should focus its efforts on the business retail market, the NAV market, ecosystem services, developer connections, major infrastructure provision, and bioresources.”

Comments from stakeholders indicated the SPS was an improvement on the previous iteration but that it continued to fall short on some aspects.

A spokesperson for Water UK welcomed the long-term direction as well as the prioritisation of nature-based solutions and the urgent need to eliminate harm from overflows. But also indicated how the priorities are operationalised in practice will be key: “Ofwat must now work with water companies to ensure that the next price review enables the sector to meet government targets by authorising investment in the right schemes such as net zero and improving river water quality.”

The Rivers Trust welcomed the priority attached to the environment, as well as the support for nature-based solutions and catchment-based partnerships. But it said the SPS fell short on aspects including clarity, governance and ambition. On storm overflows in particular, the Trust said: “The language around storm overflow reduction is clearer in this version of the SPS, however, it does not go far enough in specifically prioritising the reduction of overflows that do most harm or impact the most sensitive and highest amenity sites, which we had asked for in our response.”

Director for partnerships and communications, Christine Colvin, said: “This represents a very fundamental shift in how Ofwat will regulate the trade-offs made in the sector. It is clear that pollution, particularly from sewage, will no longer be tolerated. However, some of the language is a concern. There is too much focus on Ofwat ‘challenging’, ‘encouraging’, and ‘pushing’ the water sector for change. Ofwat is the regulator, not a cheerleader for water companies. We need more specifics on enforceable mechanisms.”

Commercial director, Amina Aboobakar, added: “It needs to be more ambitious. It fails to specify the need for transformational change, provides no direct guidance around investment gaps in failing/ageing infrastructure and how this is to be addressed through the Price Review, and for the need for water companies to drive more environmental resilience."

The SPS will come into effect after it has laid in Parliament for 40 days without objection. Ofwat must then act in accordance with the statement, and explain clearly how major decisions support the delivery of the government’s strategic priorities, such as its methodology for the upcoming price review.