Water companies urge Ofwat to reconsider investment cut

• Independent analysis shows universal concern among investors with urgent environmental improvements put at risk.
• Water companies had set out plans to invest a record £105 billion. Ofwat has proposed cutting this by £17 billion.
• Water companies urge Ofwat to back company plans and ensure the right conditions for investment are put in place.

Water companies are today warning Ofwat, the water regulator, that its draft decision to cut proposed investment puts urgent improvements at risk.  

In its submission to the regulator’s consultation on draft determinations, Water UK urges Ofwat to back company plans in full and ensure the right conditions are in place to allow investment.

Ofwat wants to cut a record £17 billion from water companies’ £105 billion investment proposals, meaning more housing will be blocked, the recovery of rivers will be slower, and we will fail to deal with the water shortages we know are coming.

Analysis commissioned by Water UK and carried out by economic consultancy Oxera shows that, of 30 water industry investors interviewed, all had severe concerns about Ofwat’s approach and the level of risk versus the proposed return.  The report shows that, investors – who are being asked to contribute billions in new equity to support investment programmes – have nothing like the confidence needed to provide that much of their own finance.

David Henderson, Water UK Chief Executive, said:  

“Water companies want to invest £105 billion to support economic growth, build more homes, secure our water supplies and end sewage entering our rivers. Ofwat wants to cut that investment by £17 billion – a record amount.  

“Ofwat has a difficult job, but investors are telling us that they need Ofwat to change its approach.  Unless the right conditions to invest are put in place, our environment and our economy will pay the price.  We cannot delay upgrading and expanding vital infrastructure any longer and need Ofwat to reconsider its approach.”

You can read Water UK’s full submission and supporting documentation here.

Examples of proposed investments cut by Ofwat include:

• £1.3bn (15%) cut from the nutrients programme. Nutrients remain the biggest single biggest scourge of waters in England and Wales.  
• £2.1bn (18%) cut from the storm overflow programme. Some regions of England have seen their overflows programme cut by over 40%. If the cuts stand, some companies are likely to need to make cuts elsewhere to balance the books, such as (for example) cancelling upgrades to improve water quality at beaches where companies had previously proposed to go faster than Government targets (and which we know is important for customers).  
• More than £513m (8%) cut from the water supply-demand balance. The water resources side of Water Framework Directive was cut by £282m (46%). Water scarcity is a growing issue in large parts of the country.  
• Net Zero investment has been cut by £619m (66%). The investment programme as a whole is also likely to be carbon-intensive given the low uptake of nature-based solutions.  
• Chemicals removals have been cut by £114m (27%). This will undermine efforts to achieve good chemical status.  
• Investigation budgets has been cut by £250m (33%). Investigations are key part of understanding the water environment and planning for future investments and targeting action where it is needed.  
• £92m has been cut from the biodiversity programme, representing a 41% reduction.  
• Ofwat have cut companies’ proposals on protecting sources of drinking water by £44m, or over 27%. Working with landowners to reduce nitrate pollution into drinking water sources is one the sector’s most mature forms of catchment management.    
• £261 million has been cut from reservoir safety programmes, representing a 63% reduction.
• Cyber security has been cut by £184m (43%). Water infrastructure like reservoirs is increasingly coming under attack from cyber criminals and even foreign states.  

*Ends*