Ofwat has unveiled a draft determination allowing £88bn investment over the next five years.
- The proposed funding is £16bn less than water companies initially requested.
- Significant investment aims to enhance pollution control, water quality, and climate resilience.
- Bill increase proposals by companies have been substantially reduced through regulation.
- The draft decisions are open for consultation, with a final determination expected in December.
The Water Services Regulation Authority, known as Ofwat, has announced a draft framework for water companies, covering the regulatory period from April 2025 to March 2030. This announcement outlines an investment plan totalling £88 billion, a figure notably £16 billion lower than the initial requests made by these companies. The adjustment reflects Ofwat’s comprehensive analysis that identified expenditures deemed unjustified or inefficient, leading to their reduction or removal.
A significant portion of this investment, £35 billion, is earmarked for improving pollution management, customer services, and water quality in both rivers and bathing areas, with the goal of bolstering resilience against climate change impacts. This demonstrates a colossal increase in spending from the previous period of 2020 to 2025, more than tripling the investment levels. The reduced investment targets reflect the regulator’s emphasis on cost-effectiveness and accountability.
Despite initial requests to hike customer bills by an average of £144 across the five-year plan, Ofwat’s regulatory oversight has tempered these increases to a more modest £94, excluding inflation, with specific reductions highlighted for companies like Thames Water and Severn Trent. These decisions underscore a commitment to fair pricing while still allowing for necessary infrastructure development and environmental improvements.
Furthermore, the planned investments include £10 billion allocated specifically to cut down storm overflow discharges by 44% compared to 2021 statistics. This initiative is part of a broader strategy to upgrade 2,500 storm overflows, ensuring compliance with targets set for 2025. An additional £6 billion is dedicated to securing water supplies, which includes advancing plans for nine new reservoirs and several large-scale water transfer schemes.
The proposal also necessitates the replacement of approximately 8,000 km of water mains, marking a 400% increase from the current programme. These enhancements are designed to future-proof water infrastructure, reinforcing the sector’s ability to meet long-term challenges efficiently. These draft recommendations remain open for consultation, inviting input from consumers, stakeholders, and the water companies themselves, with a deadline set for the end of August 2024.
This consultative process reflects Ofwat’s proactive approach, intending to finalise its decisions by December 2024. Should disagreements arise, companies are afforded a two-month window post-publication to appeal the decisions with the Competition & Markets Authority. The regulator, led by CEO David Black, emphasizes the importance of accountability and innovation in achieving a meaningful reduction in environmental impacts.
In conjunction with these developments, the Environment Secretary, Steve Reed, has mandated strict guidelines to ensure infrastructure funds are exclusively channelled towards customer and environmental benefits. He further stipulates that unspent investment funds be returned to customers, safeguarding against the diversion of these funds for bonuses or salaries. This underscores a governmental push to reinforce transparency and integrity in water management.
Ofwat’s £88bn proposal marks a pivotal effort towards sustainable water management, balancing environmental aspirations with economic feasibility.
