Explained: Ofwat water company performance report

The water regulator Ofwat has published its annual report on water company performance. The report ranks all water and water sewerage companies on their performance in 12 areas. The regulator then gives each company a grade (leading, average and lagging) based on this performance.

If a company meets or exceeds its target the company is ‘rewarded’ by being given more money to invest. If a company misses its target the regulator requires them to refund money to their customers through reduced bills.

What does it all mean?

First, it’s important to note that water company performance is not where it should be and we recognise that there is work to do. Last year we apologised for not acting quickly enough on sewage spills and agree that aspects of the system are not working as they should be.

But dig beneath the surface and water companies have made progress in nearly every performance measure since 2019-20. Leakage is at its lowest level in recorded history, unplanned outages at treatment works have been cut by nearly two-thirds and sewer flooding incidents are down by 10%.

In fact, over the last five years water company performance has improved on nine of the eleven targets. (The 12^th category ‘customer satisfaction’ is judged in a different way to the other categories).

How can things be getting better if companies are missing targets?

Ofwat set water companies different targets based on its assessment of their individual circumstances and the funding it has allowed. These targets are tough – very tough. Ofwat does this deliberately to push companies to go further. As a result, if a company misses its target, it does not necessarily mean things have got worse. Companies can improve their performance but still miss the targets set by Ofwat.

Take leakage for example. A water company may be set a very stretching target to reduce leakage from their pipes by a set amount. That company may fall short of that target but may still have reduced leakage overall. In fact, this year 13 of the 17 companies reduced leakage but only six out of 17 met their leakage target.

What’s the solution?

In a word, investment. Water companies have put forward proposals for £105 billion investment to support economic growth, build more homes, secure our water supplies and end sewage entering our rivers. 

Under its current plans, announced in July 2024, Ofwat has cut this investment by £17 billion. This approach means new homes could be blocked, the recovery of our rivers will be slower, and we will fail to deal with the water shortages we know are coming.

This isn’t the first time Ofwat has done this. They stripped £6.7 billion of investment over the last five years meaning water companies had less to spend on vital upgrades and maintenance.

We cannot delay upgrading and expanding vital infrastructure any longer and need Ofwat to fully approve water companies’ investment plans so that they can get on with it.