1.Government has failed to be clear with water companies on how they should balance investment in infrastructure with reducing customer bills. The government recognises the need for investment in strategic infrastructure projects and water companies are responsible for considering the options available to them and putting their investment proposals to Ofwat based on these considerations. Ofwat scrutinises companies’ investment proposals and accepts or rejects them on the basis of the evidence of need, and whether the costs of the proposal are reasonable. Water companies have had little help from government in how they resolve the tension they face in balancing their plans for investment with the need to keep bills affordable, especially where they feel they have good evidence on their customers’ willingness to pay for long-term resilience. We recognise that infrastructure improvements cannot be achieved overnight, but the rate of progress has been far too ponderous.
Recommendation: The Department should provide more guidance to water companies on the level of investment needed to ensure resilience by 2050 and how they should balance this in their business plans with pressure to reduce consumer bills. The Department should write to us by 31 December 2020 to update us on progress in this regard and how they plan to accelerate the pace of infrastructure improvement.
2.It is wholly unacceptable that over 3 billion litres are wasted every day through leakage, with no improvement in the last 20 years. From a high of over 4.5 billion litres a day in the early 1990s, daily losses through leakage fell to around 3 billion at the turn of the century. However, this reduction was followed by over a decade of complacency and inaction, which has meant water leakage is now a hugely pressing problem. No one organisation has got a thorough grip on dealing with this issue and driving the change necessary. The Department urged water companies in 2016 to make tackling leakage a much higher priority. However, there has still been little progress. The Department has belatedly set annual targets for water companies and longer-term targets to reduce leakage by a third by 2030 and by half by 2050. Ofwat assures us that companies are exposed to substantial penalties if they do not meet their targets over the next five years and is confident that the worst performing companies are now starting to get their act together. Ofwat now expects leakage to fall by 16% between 2020 and 2025, which would result in 561 million litres of water a day being saved. However, meeting the targets relies on unknown and untested approaches. We are unconvinced by Ofwat’s hope that water companies will “surprise themselves” at what they can achieve, and call on the Department and Ofwat to be more proactive in ensuring companies meet leakage targets.
Recommendation: The Department should hold water companies to account by publishing annual league tables showing their performance on tackling leakage against the targets set. Annual published league tables should be introduced by 31 December 2020.
3.Government has failed to develop a national message to consumers on the need to reduce water consumption and how to do so. Government relies on water companies to promote the importance of reducing water consumption. But with each company adopting different approaches there is no coherent or coordinated national message. As a result, awareness of the need for water efficiency is very low compared to that of saving energy. There is no evidence of the impact on consumer awareness or behaviour of what water companies are doing. This demonstrates that industry action has been insufficient and has failed, and that government now needs to substantially step up its efforts to coordinate increased awareness of the need to reduce water consumption. In July 2019 a group of organisations including the Environment Agency launched the ‘Love Water’ campaign, but the campaign has no central funding and relies on voluntary contributions from water companies, none of which has yet been secured. To date there is very little to show for the campaign besides a Twitter feed with fewer than 1,000 followers, and the Environment Agency accepts that a lot more needs to be done. For the non-domestic market, including the public estate such as hospitals and schools, the government has attempted to improve water efficiency by introducing competition to allow customers to choose alternative retailers. But the rate of switching has so far been pitiful, and the retailers that are operating in the market are generally failing to offer water efficiency advice and services.
The Department should urgently develop a plan, with adequate funding, to increase public awareness of the need to save water. The Department should write to us by 31 December 2020 to update us on progress in this regard.
The Department should publish annual league tables showing water companies’ and retailers’ performance on reducing consumption. Annual published league tables should be introduced by 31 December 2020.
4.We are not convinced that achieving the net zero target is sufficiently embedded in the oversight and regulation of the water industry. The process of building the new infrastructure needed is energy-intensive. Each of the different types of infrastructure water companies can invest in will have differing carbon costs as well as financial costs. The Department has a major part to play in achieving net zero by 2050 and described it as the challenge of our generation. We are told that both water companies and the Environment Agency have committed to net zero by 2030 but it is not clear how this will be achieved or how carbon footprints are taken into account in the planning process and in Ofwat’s methods for assessing options. The Department says that it is working with Water UK, the trade association for water companies, to look at how to embed this in the water resource planning process.
Recommendation: Ofwat should write to us within three months setting out how it will ensure water companies take full account of carbon emissions in appraising the options available to them.
5.The Department has not demonstrated sufficient leadership to drive forward the implementation of product labelling, changes to building regulations and other measures that can make a major contribution to improving water efficiency. Water companies and other industry stakeholders have been calling for mandatory water efficiency labelling on domestic products such as washing machines and dishwashers in the UK for some time. An efficiency standard that all new homes must be built to a standard water usage of 125 litres of water per person per day was added to the building regulations in 2015. The government’s 2019 Spring Statement made a commitment to future-proofing new-build homes with low-carbon heating and world-leading levels of energy efficiency. However, no pledges were made on water efficiency, which demonstrates the lack of importance government has attached to this issue, and government’s inability to mobilise and coordinate cross-departmental efforts to meet water efficiency objectives. In July 2019, the Department ran a consultation on further measures to reduce personal water consumption, which included questions covering water efficiency labelling. The Department tells us that it will respond to the consultation soon but will not commit to any specific date. We acknowledge that the Department needs to work with other departments on these policy areas but it clearly needs to be more influential in ensuring that water efficiency is a priority across government in the same way as energy efficiency.
Recommendation: The Department should write to us within four months, setting out a timetable for when it expects to implement product labelling and any other changes, including to building regulations, designed to improve water efficiency.
6.Abstracting too much water from rivers and other sources, including chalk streams, can damage the environment, and there are particular risks associated with HS2. Around 85% of the world’s chalk streams are in the UK and the aquifers (underground layers of rock that hold groundwater) that feed them are also used for the public water supply. The Environment Agency must balance the need to preserve the environment by maintaining flows with meeting the demand for water. On top of the threat of drying up caused by over-abstraction, chalk steams have also faced damage from sewage being discharged into them by water companies. The Environment Agency has prosecuted Thames Water on a number of occasions for breaching the conditions of its permits and allowing sewage to enter rivers from its treatment plants. Major infrastructure programmes also pose a threat. For example, in the Chilterns Area of Outstanding Natural Beauty, the HS2 programme needs up to 10 million litres per day to facilitate tunnelling. The Environment Agency says that it will not grant approval for HS2’s plans unless the project has both identified and then set out mitigation for impacts to groundwater sources. The Department told us that partnership grants to the value of £882,000 were provided to charities and stakeholder groups in 2020–21 specifically for the improvement of chalk streams and chalk habitat. The Department needs to consider whether this is enough to deal with what the Environment Agency described as a “clear and present danger”.
Recommendation: The Environment Agency should write to us within three months setting out clear objectives, and its planned mitigation actions and associated timescales for eliminating environmental damage from over-abstraction and sewage outflow.
Published: 10 July 2020