Water UK calls on Ofwat to revisit its Draft Determinations, citing a bleak outlook for finance and delivery

The economy and environment will pay the price of record cuts to planned investment, and inward investment to the UK will be at risk as well as financing for the water sector specifically, if Ofwat’s PR24 position stands. 

That was the warning from Water UK as it responded on behalf of the industry to the Draft Determinations (DDs) last week. Among the issues highlighted by the trade body were: 

• Investors “have nothing like the confidence needed” to bankroll the billions of investment needed to finance capital programmes. Research commissioned from Oxera showed all 30 investors interviewed had “severe concerns” about the DD and its risk/return balance. An unchanged DD would likely make it “impossible for the water sector to attract the level of investment that it needs and will reduce the UK’s attractiveness to international investment”.

  
  

• Slashing £17bn from the £105bn total proposed spend will jeopardise growth, river health improvements, chalk stream habitats and security of supply, meaning the economy, environment and society will pay the price. Key cuts are:

○ £1.3bn (15%) from the nutrients programme.

○ £2.1bn (18%) from the storm overflow programme, with cuts of over 40% in some regions. 

○ £513m (8%) from the water supply-demand balance.

○ £619m (66%) cut from net zero investment.

○ £92m (41%) cut from the biodiversity programme.

○ £44m (27%) cut from drinking water source protection.  

○ £184m (43%) cut from cyber security.

• Performance targets in the DDs are both the most demanding in history, and potentially the most punitive. This will layer pressure on companies already subject to spending cuts, and set them up to fail. 

  
  

Water UK called on Ofwat to: 

• Provide enough funding to meet obligations and future challenges.

• Hold the sector to account effectively, including by reforming targets and risk protections.

• Ensure the sector can attract the investment it needs.

  
  

Such is the urgency for a thorough re-examination of the proposals, that companies endorsed a delay to the FDs. In a letter to Ofwat chief executive David Black, Water UK chief executive David Henderson said: “The level of concern among industry is now such that the sector would be willing to work with Ofwat on an unprecedented delay of final determinations to late January 2025 if that would allow you to enter into more meaningful engagement and arrive at a better settlement for customers and the environment.” 

DD representations are now available from all water companies and other stakeholders.