What the Final Report tells us

The Final Report is 464 pages long, with 88 recommendations and a 67-page summary. It is structured around seven themes:

1: Strategic direction for the water system

2: Planning

3: Legislative framework

4: Regulator reform

5: Regulation reform

6: Company structures, ownership, governance and management

7: Infrastructure and asset health

An eighth chapter considers their implementation. Inevitably, reading the summary means missing some of the most salient points, especially in terms of their context, along with the revelatory supporting data.

Despite the inevitable complaints that its remit did not extend to the ownership of the utilities themselves, it is immediately evident that the Final Report is far from a consensual cop-out. Indeed, it proposes a much-changed landscape with a great deal of change for the better.

Having read the relevant material, here are my initial thoughts on the first two themes.

1: Strategic direction for the water system

This covers how strategies have developed over the past decades. Some context does helps. The Commission has analysed the impact of various activities on compliance with data from the third cycle of the Water Framework Directive (WFD) in 2019. This looks at the causes for non-compliance with the WFD.

Percentage of water bodies impacted by activities

	England	Wales
Agriculture	45%	23%
Water industry	44%	16%
Urban and transport	18%	11%
Local and central government	14%	1%
Domestic general public	8%	2%
Industry	6%	5%
Mining and quarrying	3%	7%

This comes from data supplied to the Commission by the Environment Agency and Natural Resources Wales

In comparative terms, agriculture and mining have a greater impact in Wales, as well as on the government and the public in England. Such differences will also apply in the regions across England. This demonstrates that there is a great deal more regional complexity than the current regulatory settlement allows for.

It is evident that a long-term national strategy for water is needed, one with at least a 25-year horizon, which incorporates all aspects of water management, including recreation and flood risk. In turn, these need to connect with national infrastructure, Net Zero and Environmental Improvement strategies. Objectives and outcomes can then be ranked within these, as well as addressing current and potential resource use conflicts. Reviews and updates to the strategy ought to be synchronised with the five-yearly price reviews to improve regulatory coherence and their effective delivery, which also needs a statutory basis. Stakeholder engagement is also needed, and this can be delivered through the proposed Regional Water Authorities.

The Strategy Policy Statements (SPS) introduced in the Water Act 2014 address issues which are short-term in nature and address individual concerns without reference to water management as a whole. A Ministerial Statement of Water Industry Priorities should replace the SPS, outlining priorities and, again on a five-yearly basis, setting out overall priorities to the regulator, avoiding the current silo-based approach. This needs to incorporate cost-benefit analysis and a duty for the regulator to point out if any Statement has undeliverable aims.

2: Planning

This concerns the process behind developing plans for the sector, ranging from the five-yearly Asset Management Plans for Ofwat to the six-yearly Water Framework Directive plans. One of the greatest shortcomings of the current settlement is that it effectively ignores the regional aspects of water management. Given the existential differences between the various regions and indeed those at a more local level, these need to be considered. It is also evident that the various planning processes are over-complicated and inconsistent, with fragmented consultations. System planners could address this.

The shortcomings of five-yearly asset management plans (AMPs) are well known, especially in their lack of flexibility for longer-term projects such as reservoirs and how they generate a ‘feast or famine’ spending profile within each AMP cycle as projects are planned, then delivered and wound down. This harms staff recruitment and retention and is not good for manufacturers who need predictable product demand. These five-year windows need to be made more flexible.

By having five, 10 and 25-year planning horizons, the focus can ease from immediate delivery to longer-term outcomes as appropriate. This would give greater flexibility to address demographic and climate change as they evolve. Scottish Water has adopted this with a subsequent smoothing out of their (six-year) spending cycles.

The piecemeal development of planning processes over the past 35 years needs to be consolidated and integrated for more coherent delivery. This also means considering the entire water cycle and ancillary elements (consumer behaviour, for example) that affect outcomes. As a result, system planners are needed to integrate and assess these elements at the company level and relate them to outcomes such as the WFD’s six-yearly River Basin Management Plans. System planners should also seek to leverage private funding from other sectors where water plans affect them.

The proposed Regional Water Authorities (RWA) for England and a national one for Wales is a positive development, in effect devolving national planning guidance so that it can focus on necessary regional concerns. This provides an effective platform for involving the various stakeholder groups beyond the water sector who are implicit in delivering improved ecological quality. It is also necessary to factor in population growth and housing, and other infrastructure needs, along with all aspects of flood planning and management. The RWAs ought to have a central role in fostering and locally supporting catchment partnerships. This is particularly important in Wales, where such partnerships are thinner on the ground. There will also need to be effective coordination at the national level of what emerges from the RWAs.

Monitoring of the delivery of plans needs to be stepped up so that regulators can be alerted about any shortfalls and for these to be communicated to companies effectively and proportionately.

One area which will have to be considered with care is the implications of devolving regulation to Wales, as at present Dŵr Cymru and Severn Trent’s activities in south and mid Wales overlap, although Severn Trent’s activities in northern Wales are operated by their Hafren Dyfrdwy subsidiary.

Eight RWAs in England are proposed, along with one for Wales. Those for the North West (United Utilities), Thames, South East (Southern) and Northumbria are more or less those covered by their respective water companies. South West would encompass Pennon and Wessex, while there would be some flexibility for Severn Trent (in England), Anglian and Yorkshire. Stakeholders need to include local catchment groups (such as River Trusts), local authorities, water resources, agriculture, drainage (notably the Highways Agency) and wildlife conservation. Political sensibilities may also occur, such as the desires of urban and rural constituencies. These desires, in turn, should be a tool for focusing on areas of concern such as highway run-off and non-compliant farms.

Given the potential importance of system planners, each will need an independent Chair, selected on the basis of technical or professional competence, while a Deputy Chair could be political. Each board needs to reflect local knowledge and technical expertise and concerns, such as consumers, public health, the environment, agriculture, transport and engineering. Each regional system planner would also have 20-50 staff, which implies extra costs, although many of these people are already in place. The savings a well-managed systems planner could achieve would be of a higher order of magnitude. System managers and regulators will need a flexible approach to ensure that when their understandings do not match, there are ways in which these can be reconciled.

Should the systems managers be within the regulators or independent of them? There is a case for independence, as this may offer a more effective platform for engaging with stakeholders outside the water sector. Unfortunately, the current government opposes the setting up of new public bodies. Either way, the ‘constrained discretion’ of the systems planner would give a silo-busting flexibility that has hitherto not been in place.

The suggestion that there are two core planning frameworks, ‘water environment’ and ‘water supply’ is sensible. Currently, there are nine frameworks, some of which have an arbitrary nature. The proposed two are separate, while interconnected, and all other activities which impact them can be effectively factored in. This would allow operational spending and ongoing maintenance to be left outside these frameworks, as they can be effectively managed outside them. All three streams feed into each company’s delivery plan.

3: Legislative framework

The fragmented and incremental nature of water-related legislation since 1989 has had a compounding effect on the sector’s ability to deliver necessary and effective changes when they are needed. It is also focused on old-established approaches when more beneficial and cost-effective outcomes have evolved, such as nature and catchment-based approaches. Recent legislation is seen as being too narrowly focused to account for broader water ecosystem health. This means that the relevant legislation, as it stands, needs to be rationalised and brought up to date. This will not be a simple exercise, especially when it comes to ironing out an accretion of inconsistencies.

One of the (precious few) benefits of Brexit may be the opportunity to revise the WFD so that it reflects progress within water quality below at least ‘good ecological status’. For example, a move from ‘bad’ or ‘poor’ to ‘moderate’ ought to have some form of recognition. In theory (with the adoption of more pragmatic standards for certain chemicals), 77% of water bodies in England and 94% in Wales can achieve the WFD’s good status. In 2019, 16% in England and 40% in Wales met the current standards. Part of this shortfall comes from the poor implementation of the WFD, along with inadequate capital and operating spending and monitoring. The WFD, as it stands, does not consider public health, which is only covered in designated bathing or shellfish areas. In contrast, the good chemical status includes standards for ubiquitous, persistent, bioaccumulative and toxic substances (uPBTs) which cannot currently be removed. Without uPBTs, 94% of water bodies would have achieved good chemical status in 2019, and in Wales, 94% would have had at least good chemical status and 63% would have had high chemical status in 2021.

Systems planning could replace the WFD’s river basin management plans as this would improve the coherence of overall regulation and would ideally have a common set of five-year timelines. This would also allow for new challenges to be addressed and bring public health into its objectives. Regional priorities need to be reflected in setting targets, such as in areas that are more sensitive to phosphorus.

Drought could be taken more seriously, for example, considering the need to address a one-in-500-year drought eventuality. That might appear indulgent, until you consider how one in 100-year droughts and floods have become increasingly commonplace in the last two or three decades.

The Commission rightly observes that the current concern about combined sewage overflows (CSOs) only emerged when the hitherto unrecorded data was released from 2000 with the roll-out of event duration monitors. It also notes that the current framework for addressing these concerns is based on end-of-pipe works at individual discharge points, although nature-based solutions (NBS) and sustainable urban drainage systems (SUDS) may be more affordable and effective. 

Climate change was not part of the 1989 regulatory settlement, nor was population growth.

There is no current mechanism to enforce sustainable urban drainage systems in new developments, despite their ability to divert significant rainwater flows away from combined sewer systems. Given that £10.2 billion has been allocated to storm overflows in AMP8 (2025-30), it is a matter of urgency that this money is spent effectively. As just 5% of this is forecast to be spent by April 2027, there is some flexibility here.

Consumers need to be made aware of the consequences of their actions. 24% of all sewer-related pollution incidents are caused by the flushing of wet wipes, which is inexcusable. Banning plastic wet wipes (which is already the case in Wales) would be a start. Addressing all wet wipes which are not truly flushable is the next priority, and it is evident that targeted consumer campaigns can help reduce their impact.

It is noted that the 2024 update of the UWWTD places Extended Producer Responsibility on manufacturers of pharmaceuticals and cosmetics so that they are responsible for at least 80% of the costs for quaternary (advanced) sewage treatment in order to remove micropollutants. Post Brexit, the revised UWTTD does not apply to the UK.

The need to consider PFAS (also known as forever chemicals) and micropollutants into account in sewage treatment has been highlighted. A first step would be monitoring their presence at wastewater treatment works. The World Health Organisation is considering guidelines for these in drinking water, which will in turn be adopted by the DWI. 

One challenge will be how resilient legislation and regulatory frameworks can be in times of political change. The Reform Party, in particular, take the view that climate change is a chimaera and so a populist move could be to do away with climate resilience (amongst other things) with the bait of lower customer bills.

Meanwhile, the Welsh Government’s The Well-being of Future Generations (Wales) Act of 2015 is a splendid set of well-meant intentions. It is also a brutal reminder of how thin devolution is in Wales, compared with Northern Ireland, let alone Scotland. Desire is one thing; the ability to finance and deliver is quite another.

The observation that continuous water quality monitors upstream and downstream from discharges at sensitive sites are expensive and of limited use is debatable. There is an upfront cost, after which a service is delivered at a comparatively low cost. Monitors are already available which can be upgraded in terms of the parameters monitored and their software remotely upgraded. Monitoring discharges for their actual impact is decidedly cheaper than end-of-pipe projects at discharges which turn out to have a minimal impact. Recording upstream and downstream data also allows agricultural pollution to be compared with sewage loadings in rural areas.

Regulators need some flexibility in deciding the most appropriate and cost-effective ways of achieving statutory outcomes. For example, new reservoirs are currently expected to meet good ecological status, which may incur excessive treatment costs. This overlooks the benefits reservoirs deliver in lowering overall abstraction in sensitive areas; it may also make desalination comparatively cheaper despite its environmental costs. Statutory targets for phosphorus reductions from wastewater treatment plants may be more economically and effectively achieved through catchment-based approaches. Inflexible and risk-adverse attitudes by regulators can be costly, for example, the delays involved when seeking to develop the necessary water and wastewater infrastructure for new housing. This has also inhibited the development and deployment of nature-based solutions. Regulators and water systems planners should have ‘constrained discretion’ in their decision-making if it meets the relevant legal standards and meets long-term objectives. This also allows more scope for innovation by appreciating that innovations do carry a risk of failing. In Wales, a broad level of regulatory discretion already exists, and this can be enhanced.

4: Regulator reform

The change in England’s regulatory environment is probably the most dramatic element of the Final Report. The fundamental regrouping of the regulators in England into a single body and the subsequent abolishing of Ofwat was not widely anticipated and reflect the considerable dissatisfaction the Commission came across regarding the current regulatory settlement.

The duplication of reporting is wasteful and costly. It also means that the same data is being presented in various ways. For example, combined sewer overflow data is sent in over 30 different reports to various regulators, each with their own set of templates. This also means that the data is interpreted differently by each regulator, resulting in poor overall information sharing. Each of the regulators have their own performance assessments, leading to contradictory assessments as to how different companies are doing. Overlaps occur in various areas, for example, both Ofwat and the Environment Agency can penalise companies for the same infringements (double jeopardy), using different criteria.

The fragmentation of regulatory responsibilities between the regulators also means there is no overall regulation, and this leads to gaps in regulatory oversight. While Ofwat sets targets for companies to achieve, it does not inspect individual projects to see how they are, in fact, being delivered. While the EA and NRW can act on compliance failures, they cannot act before these failures occur.

The need to have projects going ahead in each Asset Management Period to meet discrete targets has resulted in a lack of long-term, best-value options. In 2025-30, £15 billion of projects (2022-23 prices) were given the go-ahead despite not being properly assessed for their costs, benefits and environmental outcomes.

As a result, the Government has agreed that Ofwat, the Environment Agency, Natural England and the Drinking Water Inspectorate will be merged into a single regulator. A systems planner would help to ensure that ‘a joined-up and holistic approach’ can be delivered. Combining regulatory and compliance teams would see a more coherent approach and would ease the burden of duplication.

The sharing of resources and expertise ought to improve the monitoring of company performance, along with a better and timelier appraisal of the economic and environmental benefits of individual plans. At the same time, the functional independence of the DWI needs to be maintained to ensure that drinking water quality remains constant. To recruit and retain the quality of staff needed, the regulator ought to become a non-departmental body, which is not subject to civil service pay scales.

In the past, Ofwat’s perception has been damaged by perceived regulatory capture as directors and senior executives of water companies have joined Ofwat and vice versa. This ought to be restricted to exceptional cases where they can be specifically justified.

Some areas will need to be reconsidered. For example, the EA’s current responsibilities for air quality and waste management, along with flood control.

Many do not appreciate Ofwat’s effective functional dominance of the regulatory process, as its setting of price and spending limits between 2005 and 2025 gave it the final say in emphasising cost over environmental objectives, which are now having to be addressed. Ofwat does not enjoy the support of either the water companies or their investors.

In Wales, Ofwat can either be combined with Natural Resources Wales or take the Scottish model as a stand-alone body. The importance here is that Ofwat has taken an ‘English’ approach to Welsh standards and legislation, irrespective of their differences. Economic regulation within Wales will allow it to reflect these national circumstances and distinctions. By being part of NRW, it should offer the regulatory coherence that is being sought in England. Either way, staff capacity will need to be developed, as all this work currently takes place in England. Given the effective independence of the DWI, it ought to continue to cover both England and Wales. This also reflects the general satisfaction with the DWI’s performance.

It is hoped that the new regulator would have a greater degree of independence from Defra, given Defra’s relationship with agriculture, which can conflict with that of the EA’s aims and objectives.

5: Regulation reform

Economic regulation

There has been much concern about Ofwat’s emphasis on economic modelling and benchmarking. The economic modelling approach reflects the fact that Ofwat is very much an economic regulator with little practical experience in environmental management or engineering. The benchmarking (which I once referred to as ‘the cult of the comparator’ to Ofwat’s evident dismay) does not fully reflect the fact that each company has quite distinct operating conditions. Are Dŵr Cymru and Thames Water directly comparable?

Ofwat’s data demands have been growing over the decades. In the 2024 Price Review, each of the water and sewerage companies had to submit up to 80 documents, along with 12 table commentaries. Even the water-only companies had to submit 50 documents. The entire exercise is estimated to have cost the companies £250 million. A lot of environmental benefits can be delivered for £250 million.

There is a perception that Ofwat’s emphasis on low bills over service delivery between 2010 and 2025 (bills falling by 15% in real terms) appears to have discouraged companies from submitting business plans that reflect their actual capital spending needs.

A particular concern about benchmarking with ODI (outcome delivery incentives) is that the companies that perform weakly are penalised, and therefore, it becomes even more difficult for them to catch up with the sector leaders. Only the upper-quartile companies benefit from this arrangement. The accumulated penalties from poor performance can have a severe impact on financial performance, or a ‘doom loop’. This, along with double jeopardy (fines from both Ofwat and the EA for the same offence), in turn has made investor returns more volatile, which makes them less attractive and drives up the cost of attracting new investment.

An overemphasis on cost efficiency and a lack of assessments of asset quality means that allowable maintenance spending is not adequate, and that historic maintenance underspending is carried forward. This is likely to have been a significant driver for the gradual deterioration in environmental performance in the past five to ten years. Ofwat has argued that where allowances fail to cover maintenance costs, they could be covered by issuing debt. That is equivalent to saying companies ought to run these activities at an operating loss. The move from operating spending (opex) and capital spending (capex) to total spending also discourages maintenance since companies get a return on developing new assets (enhancement).  

Companies that want to challenge their Ofwat price determination can go to the Competition and Markets Authority (CMA). This process has become more complex and costly over time, and the CMA admits they do not have the resources to undertake the redetermination process needed for water.

Ofwat’s emphasis on data and economic models has been exacerbated by government interventions to scale back its monitoring of the sector’s infrastructure health, project delivery and financial management. While this has been reversed to some extent in recent years, it is likely that this has seen a weakening in environmental performance and in some cases, a severe decline in company financial health.

There needs to be a shift from benchmarking towards a more ‘supervisory approach’ whereby sector specialists examine each company’s performance, risks and prospects, one which would be forward-looking and regularly updated. Where risks are seen to be higher, the degree of regulatory engagement would be greater. This approach would benefit from the united input of all the regulators. It needs to be carried out in a consistent manner across the teams covering each company using a set of best practice standards. This approach still leaves companies responsible for the companies to comply with all their relevant legal obligations.      

In the past, there was evidence of companies gaming certain aspects of this regulation, especially with ODIs, where targets were seen in terms of the financial outcomes they can deliver rather than for their actual environmental performance. It is necessary for Ofwat and the companies to engage with each other in a more open and professional manner and to build trust. This could in time, ease some regulatory burdens and would be assisted by shifting from reviewing information to a continual and consistent supervision of companies.

A return to specific spending allowances is necessary. Currently, there is an implicit understanding that money spent on asset enhancements will translate into a higher Regulatory Asset Value (RCV), which companies can enjoy a greater return on. In other words, the more money spent on RCV means more returns at the expense of other spending. This change would mean explicit targets for base capital spending (replacing current assets), base operating spending (maintenance and management costs) and enhancement expenditure (new or upgraded assets). Operating spending on new or upgraded assets would be incorporated into base opex. This would prevent money which should be going on opex from being diverted to capex at the expense of infrastructure asset health.

Asset condition and life need to be effectively assessed and related to funding assessments to ensure that asset renewal is adequately funded. This will depend on companies no longer being obligated to develop business plans that meet Ofwat’s efficiency expectations, rather towards what they need to maintain their assets. The supervisory approach could be a key in bringing this about.

Performance commitments should be simplified and rationalised. While some do appear to drive improved performance, others are counterproductive because of their complexity. They also need to be aligned towards outcomes which matter to stakeholders.

All privatised utilities in the UK, along with National Rail and Heathrow Airport, have a Weighted Average Cost of Capital (WACC). The water sector’s WACC has consistently been amongst the lowest of these. A common WACC methodology for these regulated activities in England and Wales is needed. It is suggested that the CMA become responsible for this, as it takes this out of the hands of the regulators and can be handled by a standard procedure for appeals, which are simpler than redeterminations. It would also make UK infrastructure projects more attractive to investors.

Environmental regulation

There are four main aspects to environmental regulation in England and Wales. For wastewater treatment works, operator self-monitoring (OSM) depends on independent certification and auditing, along with on-site inspections by the EA. All storm overflows (wastewater treatment works and CSOs) in England and 99% of those in Wales now have event duration monitors. 25% of storm overflows and wastewater treatment works in England will have Continuous Water Quality Monitors by 2030. In Wales, this remains a work in progress. Sewage sludge is self-regulated, with each company reporting on the composition and quantity of its sludge applied to farmland each year.

After being effectively defunded in 2010, the Environment Agency is starting to increase the number of inspections it carries out, and as a result, criminal investigations are rising. Even so, there is little confidence that the EA and NRW are currently ensuring environmental compliance. This is going to take some time.

Likewise, while there appears to be little confidence in OSM in many quarters, it is widely used internationally. What matters is the auditing of this data and its external scrutiny through unannounced site visits. Irrespective of how OSM works in practice, it has become discredited. A replacement needs to be based on real-time water quality monitoring at all applicable wastewater treatment works, independent accreditation and a removal of the current exemptions from site inspections. This data needs to be easily accessible by the public to restore confidence.

There appear to be some reservations about Continuous Water Quality Monitoring (CWQM) owing to cost concerns and the proposed technology being already outdated. There are also worries about its applicability for monitoring agricultural and highway runoffs. This suggests that the current CWQM planning needs to be revised to consider recent technological advances. The Commission does recognise the potential for AI and machine learning to improve CWQM performance and acknowledges that there is scope for innovation to improve the cost-effectiveness of monitors.

The 2025-30 allowance for CWQM is £651 million to cover 25% of outflows. This is an immediate concern. I have been advising a company producing state-of-the-art CWQM hardware, which is designed to monitor all these specific pollution loadings at £3,500 per unit before installation. At this cost, 40,000 units (one upstream and one downstream for some 20,000 CSOs, wastewater treatment works and designated bathing and shellfish areas in England and Wales) would cost £140 million before installation costs. The current plans assume that (at 25% coverage) each unit would cost £65,000 including installation. It appears that Ofwat is depending on outdated information and understandings here. This is important, due to the potential for CWQM technologies to establish the appropriate interventions at each discharge site, which could potentially save tens of billions of pounds; avoiding unnecessary spending while achieving better environmental outcomes.

Currently, the only limits for sludge application on land are for heavy metals. At some point, PFAFS, pharmaceuticals and microplastics need to be monitored. It is likely that demand for sludge from farmers is going to reduce. Either improved sludge treatment will be needed, or new disposal routes will be explored. With an average self-storage capacity of three months, this is of active concern. There needs to be a long-term sludge management strategy to encourage new treatment approaches.

In England, there appears to be a bias towards penalties for non-compliance rather than addressing each shortfall. This is driven by the Government’s Regulators Code and Statutory Growth Duty. This is constrained by the delays both in the time taken by the EA to take cases to court and the lack of capacity to bring cases to trial. In Wales, the emphasis is towards remediating non-compliance. NRW also seeks to have greater enforcement powers. These can be assisted by the EA and NRW using civil penalties, which have a lower burden of proof to achieve more rapid and effective action.

While the recent understaffing of the EA is starting to be addressed, there remains a significant shortfall in digital systems. This limits the EA and NRW’s ability to utilise data streams such as real-time monitoring of storm overflows and wastewater treatment works. Their monitoring capacity needs to be further increased along with their ability to benefit from real-time monitoring, which ought to come from cost recovery from industry to guard against possible cuts in the future.

Drinking water regulation

The Drinking Water Inspectorate stands out as a success story. In 1990, public water supply compliance was 98.9%, in 2023, it was 99.97% in England and 99.96% in Wales. Globally, the UK is seen as one of the world's leaders in drinking water quality.

Even so, the DWI faces challenges: The emergence of new risks, including PFAS; the impact of sewage-related incidents may impair public confidence in drinking water by association; and a gap in the updating of drinking water standards to include current threats and best practices worldwide. Meanwhile, the DWI cannot impose civil penalties, limiting its scope for delivering timely responses. In addition, there are currently no laboratories in the UK that test products relating to drinking water which has inhibited innovation. A replacement laboratory is needed.

The challenge for the DWI is to maintain and ideally to enhance the high quality of drinking water in England and Wales. This means updating all relevant standards, and that these are regularly reviewed. They need the power to inspect third-party companies involved in drinking water provision and to be able to impose financial penalties for non-compliance.

Water resources

Water companies must each have a 25-year water resources management plan, which is updated every five years. Population growth and climate change have highlighted the need for action to ensure adequate resources in 2025, without compromising good ecological status. This requires both supply and demand management. £8 billion is being committed to a series of supply management schemes in 2025-30. In England, it is up to local authorities to set water efficiency standards, which can be 125 litres per person per day (lcd) or 110 lcd in water-stressed areas. In Wales, the 110 lcd limit applies to all new homes. In 2023-24, 50% of households had manual read meters and 13% had smart meters. In England, 51% of households will have smart meters in 2030. Non-household customers (30% of total water use) usually have manual meters, with a push towards 55% smart metering by 2030. Leakage reduction has stalled in recent years. From 1993, there has been a 41% fall in leakage in England, 32% in 1993-01 and 9% in 2001-24. Leakage remains comparatively high at 19% for a developed economy.

Getting planning permission for new assets and delivering them is often problematic. Why have no reservoirs been built since 1992? This is due to planning obstructions. There needs to be a monitoring of the development of these assets, so that when projects are delayed, demand management (leakage reduction and smart meter deployment) can be geared up to maintain overall progress.

By moving abstraction regulation to the Environmental Permitting Regime (EPR), all abstraction permits can be reviewed by the EA and NRW rather than reviewing individual licences. It would also enable them to concentrate on those which need the most attention, as well as having the flexibility to deal with new sources of water demand, such as small nuclear power stations and data centres as early as possible.

Smart water metering needs to become the norm as soon as feasible, rather than in future decades. This has been the case for electricity meters. Mechanisms will be needed to ensure affordability for large, low-income households. Opportunities to encourage further consumer demand reduction through a better understanding of customer behaviour will emerge.  

Bulk water provision to non-domestic customers needs to be reconsidered, so that tariffs are structured to incentivise water efficiency, for example, through internal water re-use and moving away from lowered block tariffs. This is particularly important for larger customers. The water use efficiency (WUE, the amount of revenue generated from each cubic meter of water consumed) metric could be of use here.

Affordability and consumer protection

‘Water poverty’ is defined as households paying over 5% of their net income (after housing costs) on water and sewerage services. In England and Wales, this covered 1.5 million households in 2020, and 22% in Wales. In 2023-24, 1.6 million households received an average of £156 in support through social tariffs.

Companies should be incentivised to consider customer satisfaction through Ofwat’s performance mechanisms, for example, by measuring the relative number of customer complaints. Restoring customer confidence in their water services is essential. 

There is a marked lack of public awareness about the Consumers Council for Water (CCW) and its role in consumer protection. In turn, the CCW has limited powers to compel water companies to act on its concerns or Ofwat to respond to these. Meanwhile, customer complaints both to companies and the CCW have been rising. Affordability needs to be considered through national social tariffs for England and Wales, considering regional water costs and investment needs. The simpler these schemes are, the more people will be able to engage with them.

It is suggested that the Consumer Council for Water become a Mandatory Ombudsman. This would enable it to effectively address complaints which could not previously have been concluded. This would ensure a consistent level of customer protection and, in turn, customer confidence. By linking up with Citizens Advice, which enjoys a high degree of public awareness and trust, this body would be a well-understood course for resource.