Water supply and demand management Contents

1The overall system for managing water resources

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Environment, Food & Rural Affairs (the Department), the Environment Agency and Ofwat about the management of the supply and demand for water in England.1

2.Water shortages are an impending risk for the UK. Parts of the country face a serious risk of running out of water within the next 20 years, while neighbouring regions have surplus water.2 The Environment Agency now estimates that England will need an extra 3.6 billion litres per day by 2050 to avoid shortages.3 In the short term, the Environment Agency told us that the COVID-19 pandemic is putting a lot of pressure on the water companies. It said they are managing but will only be able to continue to manage if everybody is responsible in how they use water over the next few months.4

3.The delivery structures for managing water resources are complex but the Department for Environment, Food & Rural Affairs (the Department) has overall responsibility for setting the policy and regulatory framework in England. The Water Services Regulation Authority (known as Ofwat) regulates the water services that the water companies provide and sets performance targets for them during the five-yearly planning cycle, with the aim of ensuring consumers get value for money. The Environment Agency regulates abstraction licences to ensure water companies and other water abstractors abide by the terms of their environmental permits and licenses. These cover how much water they can take out of the environment and how they should handle and treat sewage.5

4.The gap between supply and demand can be tackled through a variety of measures. Water companies are responsible for developing and maintaining an efficient and economical system for providing secure water supplies to consumers and are required by statute to set out how they intend to balance supply and demand over the next 25 years through a water resource management plan. The companies must identify all the options available to them and show how they have decided which options to take forward. The most significant contribution between now and 2045 is expected to come from leakage management, which is due to contribute additional supply of more than one billion litres per day. Currently, nearly three billion litres of water (20% of the total supply) are lost through leakage each day.6

Balancing the need for investment with keeping prices affordable

5.The National Audit Office reported that water companies have found it difficult to determine what level of infrastructure investment the government will deem acceptable. Neither the Department nor Ofwat has an explicit policy to reduce prices, and water companies told the NAO that the government had not been clear with water companies on how they should balance the need for investment with maintaining affordable bills, particularly where they believe they have good evidence that their customers are prepared to pay more to finance infrastructure investment.7

6.We asked if the Department is giving Ofwat the right remit given that consumer bills are expected to fall by 12% in the next five years and yet water companies had put forward plans to build vital infrastructure, which would help considerably with the resilience of the water supply, but are prevented by Ofwat from doing so because of the risk of increasing prices for customers.8 Ofwat told us the Department has provided a very clear strategic policy statement, which requires it to look at the long-term resilience of the sector as well as to keep bills affordable and to put pressure on water companies to improve efficiency. Ofwat scrutinises companies’ investment proposals and accepts or rejects them based on need and whether the costs of the proposals are reasonable. Ofwat told us that £1 billion has been made available to help with water supply and resilience over the next five years.9

7.We asked if water companies could increase their charges if customers wanted this in order to finance infrastructure investment. Ofwat told us that, in setting the revenues that companies can collect from their customers over the last five years, it looked at customer research. Where customers gave strong support that was well founded and properly researched, Ofwat would allow the additional investment proposed. But Ofwat insisted that it had a responsibility to test that what is being put forward represents the right level of investment to deliver a scheme efficiently.10

Tackling leakage

8.Around 20% of the public water supply, equivalent to 3 billion litres, is lost to leakage every day. This is down from a high of over 4.5 billion litres a day in the early 1990s but higher now than it was 20 years ago.11 Following over a decade of complacency and inaction, the Department urged water companies in 2016 to make tackling leakage a much higher priority but still there has been little progress. Ofwat acknowledged that, until 2016, there was not enough attention on leakage and that “everybody took their eye off the ball”.12 We challenged the Department to tell us why it was not putting more pressure on the water companies to tackle this issue. It acknowledged that performance on reducing leakage had been flat over recent years but said there had been a huge emphasis on shifting that over the next five-year period. The Department described it as an absolute priority and a very significant part of the current set of water company plans and said that many of the water companies have committed to a 50% reduction in leakage by 2050.13

9.The NAO reported that 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.14 We asked the Department to tell us which were the best and worst performing companies. Thames Water was by far the worst, losing 22,000 litres per km of pipe each day between 2017–18 and 2019–20. This is more than double the rate of the next worst performers: Affinity Water (10,700 litres) and United Utilities (10,600 litres). The best performer was Anglian Water (4,700 litres).15

Daily volume of water lost through leakage 2017–18–2019–2016

Company

Litres lost per km of pipe

Thames

22,200

Affinity

10,700

United Utilities

10,600

South Staffs (including Cambridge Water)

10,000

Portsmouth

9,600

Yorkshire

9,100

Severn Trent

8,800

Northumbrian (including Essex and Suffolk Water)

7,500

Southern

7,400

SES Water

6,900

South West (including Bournemouth Water)

6,500

Wessex

6,500

Bristol

6,000

South East

5,900

Anglian

4,700

10.Ofwat told us that, while it had not made anywhere near enough progress, it was starting to see the worst performing companies, such as Thames Water, beginning to make improvements. Despite a poor start to the current five-year planning period, it now expects Thames Water to meet its targets for 2020, partly as a result of some tough enforcement action from Ofwat, involving returning £120 million to customers because it felt Thames Water was not paying enough attention to leakage.17 Ofwat cited the National Infrastructure Commission recommendation that leakage should be halved by 2050. It told us that the 16% target by 2025 was one milestone towards that and that water companies have agreed to a further milestone of reducing leakage by a third by 2030.18

11.We were concerned that water companies, having been pushed to be more ambitious in their leakage reduction plans, had accepted new targets that were unrealistic and that would set them up to fail.19 Ofwat assured us that new technology for detecting and fixing leaks exists, for example new materials that reduce the propensity to leak, and robots that can go through pipes, detect leaks and fix them but the NAO reported that Ofwat had acknowledged that, for some companies, achieving their targets relied on as yet unknown and untested approaches.20 Ofwat acknowledged that the targets were stretching but said that water companies had had three years to prepare for the required step-change in efforts to tackle leakage. The Department assured us that companies recognised their responsibilities with regard to leakage because their reputations are on the line and there are risks of penalties and enforcement if they do not take the action required.21 Ofwat said it had already seen some of the better performing companies in recent years making the levels of reduction it is looking for, so did not think it is unachievable.22 Ofwat was confident many water companies would develop new ways to tackle leakages, and would “surprise themselves” at what they can achieve.23

Achieving net zero carbon emissions

12.The Department told us that achieving net-zero carbon emissions by 2050 was part of everything it thinks about and everything that it is doing. It described it as the challenge of our generation and said it had no choice but to achieve it.24

13.Abstraction is the cheapest way for water companies to source water and other means to improve long-term resilience are generally energy-intensive. For example, another significant way for water companies to add to total supply is through desalination, a process that turns seawater into drinking water. Currently desalination is energy-intensive and plants are costly to build. Thames Water currently has the only desalination plant in England.25

14.The Department told us that water companies have a commitment to achieve net zero by 2030 and the Department told us it was working with Water UK, the trade association for water companies, to look at how to build the net zero ambition into the water resource planning process. In particular, it said that it was looking at the incentives for water companies to ensure that nature-based solutions were not disincentivised.26 Ofwat said that the carbon footprint and whole-life carbon emissions should be factors in how it evaluates schemes and acknowledged that it needed to do more to start getting net-zero considerations embedded in its evaluation of options in the water sector.27

15.The Environment Agency acknowledged that it pumped large volumes of water, either in drought or in flood, and poured a lot of concrete when building flood schemes. It too has committed to becoming carbon neutral by 2030 and told us it needed to learn as it goes forward and share its knowledge with the water companies as well as seeking to learn from them.28


1 C&AG’s Report, Water supply and demand management, HC 107, Session 2019–2021, 25 March 2020

2 C&AG’s Report, para 1

3 Q 18

4 Q19

5 C&AG’s Report, para 2

6 C&AG’s Report, paras 3–4

7 C&AG’s Report, para 11

8 Q 25

9 Q 26

10 Q 30

11 C&AG’s Report, para 5 and figure 6

12 Q 70

13 Q 23

14 C&AG’s Report, para 3.8

17 Q 69

18 Q 70

19 Q 74

20 Q 73; C&AG’s Report, para 19

21 Q 68

22 Q 72

23 Q 74

24 Q 88

25 C&AG’s Report, para 14

26 Q 87

27 Q 89

28 Q 89




Published: 10 July 2020