Chapter 8: Future water supply
298.Sir James Bevan, Chair of the Environment Agency, told us that every water company’s business plan contains a graph with two lines. One tracks the rise in demand for water over the next 30 years, and the other the fall in the amount of water available. He said that in 20 years, the lines cross, a “point at which, unless we intervene, we do not have enough water for the country.” It is critical that those lines do not cross.313
Water transfers
299.Water infrastructure and storage capacity varies across different parts of England and Wales, as does levels of rainfall. Water transfers use new or existing infrastructure, such as dams, pipes, reservoirs, and canals, to transfer water from areas of surplus to areas of need.
300.Jonson Cox, former Chair of Ofwat, told us that water transfer schemes have existed since the Victorian era. Municipalities “jointly invested in schemes that transferred water from one region to another”. Yet this only accounted for four per cent of water supply, a proportion which did not increase for “at least” a generation, if not considerably longer. Therefore, Ofwat recognised the need to build more water transfers.314 Mr Cox said shortly after he joined Ofwat in 2012, the regulator “started on collaborative work with companies about how to transfer water across the country”. He outlined that initially, some companies were less enthusiastic than others about transfer schemes because it would require them to “give up some headroom in its water resources for the benefit of another company.” But the establishment of the Regulators’ Alliance for Progressing Infrastructure Development (RAPID) in 2019, which brought regulators and companies together to work collaboratively on ensuring future water supply, put water transfers “on a different footing”. Within a year of the establishment of RAPID, 18 strategic resource schemes had been established.315
301.Sarah Bentley, Chief Executive of Thames Water, felt that “the strategic solutions we need” to ensure future water supply “are well set out”. She pointed to the success of RAPID, and discussed how in the South East, “The six regional companies have joined together to form [a] group … called Water Resource South East.” The group are overseeing the development of six water transfer schemes which will be finished between 2030 and 2050. Ms Bentley felt that the challenge these schemes faced was being “deemed nationally significant infrastructure projects so that they can go through the appropriate planning and accelerate through”, as this will require political will.316
302.Mr Perry acknowledged Wales is “one of the wetter parts of the UK”, and with the approval of the Welsh Government, Dŵr Cymru Welsh Water would support water transfers. However, he highlighted that water transfers are a politically and culturally sensitive issue in Wales following the Tryweryn flooding in 1965, where a rural community was flooded to create a reservoir to supply water to Liverpool and Wirral. Mr Perry said in order for Dŵr Cymru Welsh Water to support water transfers, criteria would need to be in place. This would include “no detriment to our customers or our environment” and certainty “that the commercial rate for that transfer was appropriate.”317
303.David Black, Chief Executive of Ofwat, told us that at the last Price Review (PR19), there was insufficient co-ordination across companies, and there was frustration within Ofwat at companies failing to discuss water transfers. Yet he was happy to report that he thinks “there has been substantial change” because of the establishment of RAPID. He also noted that the Environment Agency’s regional water resource management planning process and the National Framework for Water Resources foster “much better co-ordination at the regional level”—even if there are disparities between regions.318
304.Alan Lovell, Chair of the Environment Agency, said that “there are some decent examples around” of water companies working together on water transfers. This includes “water transfer arrangements in place from north Wales into the Midlands that Severn Trent Water is looking after” and a reservoir in Portsmouth Water’s district which will primarily be used by people in Southern Water’s remit.319
305.Mr Black said that costs are decided by both companies using a “bulk supply framework”. Ofwat has been working with the water sector “to make sure that the framework is fit for purpose.” There are challenging issues, for example, about sharing water resources in a drought. But Mr Black felt this “can be resolved and we are working through that with the companies.” He also said that there are environmental challenges to water transfers, such as the potential transfer of invasive species, which must be worked through. 320
306.The Regulators’ Alliance for Progressing Infrastructure Development’s plans to increase the levels of water transfer between regions are set to be very important in using existing water resources more effectively. The regulators should continue to ensure that companies work co-operatively in this area.
Reservoirs
307.Reservoirs store vast quantities of water that can be used in times of need, such as during drought conditions. Ms Bentley told us that London and the South East particularly lack enough reservoirs—London has roughly a month’s worth of raw water in storage. She said that if London had more reservoirs, the drought restrictions put in place in summer 2022 would not have been needed.321
308.Yet despite the need for reservoirs, we heard that under current plans, not a single major one will have been built in the UK between 1991 and 2029.322 In 2018, the National Infrastructure Commission published a report on preparing for a drier future, which found that in order to avoid the risk of a severe drought, more than £20bn of investment in new infrastructure such as reservoirs is needed over the next 30 years, alongside a reduction in leakages.323
309. Mr Lovell said that not building a major reservoir for 30 years was leaving the country “exposed”, but PR24 would “be critical to enable some investment by the water companies” and take a step in the right direction.324
310.Prof Barker highlighted the case of Cheddar Reservoir:
“In 2014, the Environment Agency confirmed to Bristol Water that it was happy for a proposed Cheddar reservoir to go ahead, but Ofwat then refused to fund it on the basis that the case had not been made. Subsequently, it has been recognised that Cheddar is potentially an important strategic water resource for water security in the south-west of England.”325
311.Mr Black told us that planning controls have also impeded the creation of reservoirs in the past: “the last time a major reservoir—the Abingdon reservoir—went to planning process, in 2011, it failed. It did not get planning consent on the grounds that it was not immediately needed.” He said the planning process will need to align with the needs of water resource management.326
312.The Secretary of State told us:
“I see the challenges that local farmers have, never mind water companies, for getting planning permission for reservoirs. I am hoping that you will see stuff coming in the new [National Policy Statement for Water Resources Infrastructure] that will help with clarity for the planning process.”327
313.Davide Minotti, Deputy Director for Water Services at Defra, said that 20 new large infrastructure projects are currently being considered, five of which are reservoirs.328
314.Under present plans, the UK will not have built a single new major reservoir between 1991 and 2029. The Government, regulators, and companies must work together to deliver more reservoirs to meet the UK’s future water needs. Failure to do so will result in a less resilient, secure water supply that risks leaving households without water during extreme weather conditions that are becoming more frequent due to climate change. We welcome the Government’s intention to address the planning issues impeding reservoir development in the National Policy Statement for Water Resources Infrastructure.
315.The Government should set out plans to accelerate the planning process for reservoirs, including by designating, and if necessary amending, its National Policy Statement for Water Resources Infrastructure as a matter of priority.
Changing consumer behaviour
316.Sir James stated: “Changing behaviour and ensuring that we all cherish water and treat and use it wisely will be one of the most powerful interventions we can make” in ensuring future water supply.329 The National Framework for Water Resources, established by the Environment Agency in 2020 to explore long-term water needs, outlined a potential shortage of 3,435 million litres of water per day in England by 2050 if no action is taken.330 The Consumer Council for Water said roughly “one third of this gap needs to be plugged by customer behaviour change, yet this is where the least progress is being made.”331
317.Sir James told us that each person in England uses an average of 140 to 145 litres of water a day. This compares to 80 litres a day in Denmark. 332 Alan Lovell, Chair of the Environment Agency, said that it is essential to reduce consumer demand to a maximum of 110 litres a day to ensure future supply.333
318.We heard a variety of ideas about how consumer demand might be reduced. Effective consumer messaging campaigns334 and water metering335 could encourage consumers to consciously reduce the amount of water they use—for example, by taking shorter showers. Devices such as water-efficient shower heads and toilet parts can be provided by companies to reduce demand.336
319.Water efficiency labelling may encourage consumers to make informed choices to reduce water use,337 which the Secretary of State said was one approach the Government was taking.338 The Government’s Environmental Improvement Plan sets out that over the next decade, the Government will deliver mandatory water efficiency labelling.339
320.At PR19, Ofwat set each company a target of reducing per capita consumption of water. However, no company is on target,340 and Ofwat will waive penalties until at least 2025 because of a rise in working from home, which has increased demand for water.341
321.The Secretary of State highlighted that in January 2023, Parliament approved The Environmental Targets (Water) (England) Regulations 2023.342 These regulations, which were required by the Environment Act 2021, set a target of a 20% reduction in the amount of water supplied per day per head of population in England by March 2038.343
Responsibility for changing consumer behaviour
322.Mr Lovell said that “it is primarily the role of the water companies to have dialogue with their customers” on reducing water usage.344 Mr Cox held the same view, saying water companies are best placed to persuade customers about the importance of water conservation and water efficiency—mainly because water companies can be held to their license obligations to work with customers.345
323.Ms Bentley told us that Ofwat provides companies with a “fixed revenue settlement over the five-year period irrespective of consumption for customers who are metered”, meaning that companies are “absolutely incentivised to roll out metering and reduce demand” through targets set by the regulator. She said Thames Water are working “with the Consumer Council for Water and other bodies to encourage better water consumption”.346 Lawrence Gosden, Chief Executive of Southern Water, said his company wants to support customers in reducing usage, pointing to its “You Save, We’ll Pay Scheme”. Under the scheme, small businesses that “could find ways to be water efficient” would not only “save by not paying for that water on their water meter but [Southern Water] would double the return, so we paid them the same money again.”347
324.Mr Perry said that “producing less water actually benefits [Welsh Water] in cost efficiency” which is a huge incentive for reducing demand.348 While he recognised that Dŵr Cymru Welsh Water “[has] to engage with customers to encourage them to use less,”349 he also noted the Consumer Council for Water, Ofwat, the Environment Agency, and Natural Resources Wales had begun messaging on water reduction. He suggested the Government should also be involved, as “it is about joined-up messaging from the Government to the companies through our regulators.”350 Christine McGourty, Chief Executive of Water UK, said companies are doing “a huge amount” on messaging, but “companies need help and support from policymakers.” For example, through introducing water efficiency labelling of white goods.351
325.Emma Clancy, Chief Executive of the Consumer Council for Water, told us that the Council “would definitely like to see Ofwat place far greater emphasis on reducing consumption and encouraging behavioural change as part of the price review.” She suggested “a body such as RAPID or a similar group could address [the demand reduction] side of things to help people make good decisions and begin to value water.”352
326.The Government’s Environmental Improvement Plan stated that DEFRA is “working to develop additional policy options” on the issue of demand management, including “supporting communications campaigns on the value of water and how we can use it more efficiently”.353
327.Reducing water demand is crucial to ensuring sufficient water supplies. The UK has one of the highest water usage figures per capita in Europe and while the Government has set an ambitious target to reduce consumption, clearer detail is needed on how it, regulators and companies plan to address this issue. The Regulator’s Alliance for Progressing Infrastructure Development (RAPID) has proved to be a successful model for co-operation, and given the need for co-operation to reduce consumption, a similar alliance could be used to focus on this area.
328.The Government should set out in a National Water Strategy how it envisions meeting its targets for reducing water demand. This should involve setting out new policies and setting clear expectations for regulators and companies.
329.Ofwat, the Environment Agency and water companies should work closely together, as they do with RAPID, in order to set out schemes and proposals to reduce water demand.
Water metering
330.Water meters are devices that can be fitted in people’s homes to track how much water they are using and subsequently the household’s water bill. Ms Clancy told us that around 60 per cent of people currently have water meters installed.354
331.In 2019, the University of Southampton published research which found water metering can reduce overall water consumption by 22 per cent by the time the customer receives their fourth metered bill, around two years after meter installation.355 Mr Gosden reflected that water metering had contributed to Southern Water supplying 200 million litres of water a day less than it did 30 years ago, despite population growth in this time.356 Arqiva, a smart water meter provider, estimated that “if just one million smart water meters were to be fitted in the UK each year for the next 15 years, then by the mid-2030s, savings of at least one billion litres of water a day (1,000 Mld) could be made”.357
332.Water metering is not currently mandatory. Meters are installed by companies, either at the request of the consumer or, in water-stressed parts of the country, as a matter of course. Mr Black said that some companies were doing interesting work on smart metering, but that more leadership and co-operation across the sector was needed.358 Iain Coucher, Chair of Ofwat, told us that companies “are really promoting the installation of water meters”—for example, by speaking to customers who ring up their call centres about them. He thought that companies “should be out there installing meters ahead of customers signing up for them.”.359
333.Mr Cox said: “It seems blindingly obvious that we should have all households metered.” He argued that proper meters and in-home displays can help consumers monitor their consumption and can show when there are invisible leaks. He noted one barrier to uptake may be consumer concern at companies holding their data, but this is “a perception issue utility providers have to deal with”.360 The Consumer Council for Water said combining compulsory metering “with customer engagement and the provision of information could provide additional encouragement for people to act on the information the meter provides.”361
334.Mr Lovell said he was in favour of compulsory metering where possible. However, he outlined that compulsory metering “is not quite as simple as it sounds because in some apartment blocks it is difficult to do.”362 This point was reiterated by Ms Bentley, who said Thames Water face this challenge as there are “a disproportionately higher number of [flats] in the Thames region”. However, she told us that she has “set a clear mission for [her] team to eradicate” issues with properties that cannot currently be metered.363
335.Currently, Dŵr Cymru Welsh Water install meters in all new properties, and from 2025 will use a change of occupancy as a mechanism to promote meter uptake. Mr Perry said that in making such a change, it is important to make sure “that the people who make those changes are protected from an affordability perspective”, while emphasising that metering “plays a part” in dealing with the challenges of climate change.364
336.Mr Lovell told us he believed the Environment Agency and water companies had the power to make water metering compulsory. However, Sir James differed, saying “Ultimately, I think there would need to be legislation if they were to be made compulsory.”365
337.The Secretary of State said she personally benefits from a meter, but did not believe “the Government are at a stage yet to mandate [metering] for every household across the country.” She said that without a meter, there is an element of certainty as to what water bills will be, and “people may feel that they will use a lot more water or that they will not be able to use as much water as they do now” if they were metered. She underlined that meters are automatically fitted into new developments.366
338.Metering helps to inform consumers about their water usage by providing greater visibility of the amount of water used and the costs this is placing on the consumer. Metering has also been shown to reduce water consumption and could make a valuable contribution to managing future water supplies.
339.The Government should make water metering compulsory for all households and businesses where it is possible to do so. In introducing compulsory metering, the sector should clearly communicate the benefits of metering to customers. Given the low levels of trust in water companies, the Government should proactively set out its view that the public should reduce its water consumption, both in the national interest and in order to reduce consumer bills.
Leakage
340.In March 2020, the Environment Agency launched the National Framework for Water Resources, exploring England’s long-term water needs. The Framework aims to ensure that by 2050, leakage will have been reduced by 50 per cent.367 Leaks, which are often caused by faulty pipes or faulty water storage, cause clean water to be wasted. Given the predicted scarcity of future water supply, it is essential that water loss to leakage is minimised.
341.The majority of leaks occur on pipes owned by water companies. In Ofwat’s Annual Report and Accounts 2021–2022, the regulator noted that: “After a sustained period of poor performance, the sector is making encouraging progress reducing leakage.” 13 companies (75 per cent) had achieved their 2020–21 targets.368 However, Ofwat explained that in 2020–21 in England and Wales, leakages amounted to “51 litres of water per person per day”.369 As Mr Cox summarised, “Clearly, there is further to go on leakage”.370
342.Ms Clancy highlighted that “we know that high levels of leakage, when witnessed, have a significant detrimental impact on people’s willingness to [reduce their own water consumption]. They will not have a three-minute shower if they can see evidence of water companies having big leaks.”371 Ms Bentley also recognised water companies “are not going to encourage anyone to reduce their consumption if we do not stop wasting [water].”372
343.Mr Lovell identified that leakage must be reduced, but “we are suffering from Victorian pipes”, making fixing leakage an expensive operation.373 This was echoed by the water companies. Mr Gosden said: “Soon we will get to the position where we need to need to start ramping up the replacement of [Victorian] cast-iron mains with new plastic ones that are fit for the future.” However, while “mains replacement is a really important investment need”, this need must be balanced alongside prices.374 Ms Bentley explained that London pipes are 84 years old on average, but the average life expectancy of a pipe is 80 years. Therefore, “a sustained uptick in investment” was needed, but “this can be bundled together … over a multi-regulatory-cycle period, 15 or 20 years, so that we can spread the cost.”375
344.The Secretary of State highlighted that “targets have been set for reducing leakage, some near term and some long term”, and stressed she is very keen for water companies to address their leaks.376
345.Water companies must play their part in reducing future water demand by minimising the amount of clean water wasted through leakages. Companies will find it far easier to make the case that their customers should reduce their water consumption if they can show that they have already taken similar action.
346.Ofwat must continue to set stretching targets on reducing leakage and incentivise companies to exceed these targets. Ofwat should ensure the necessary investment to reduce leakage is provided for through the Price Review process.
323 National Infrastructure Commission, Preparing for a drier future: England’s water infrastructure needs (April 2018): https://nic.org.uk/app/uploads/NIC-Preparing-for-a-Drier-Future-26-April-2018.pdf [accessed 22 December 2022]
330 Environment Agency, Meeting our future water needs: a national framework for water resources – accessible summary (March 2020): https://www.gov.uk/government/publications/meeting-our-future-water-needs-a-national-framework-for-water-resources/meeting-our-future-water-needs-a-national-framework-for-water-resources-accessible-summary [accessed 20 January 2023]
337 Q 100 (Sir James Bevan) and Q 35 (Emma Clancy)
339 Department for Environment, Food and Rural Affairs, Environmental Improvement Plan 2023 (31 January 2023): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1133967/environmental-improvement-plan-2023.pdf [accessed 31 January 2023]
341 Matt Oliver, ‘Water companies to dodge fines for missing targets because of rise in home working’, The Telegraph (14 August 2022): https://www.telegraph.co.uk/business/2022/08/14/water-companies-dodge-fines-missing-targets-rise-home-working/ [accessed 4 January 2023]
353 Department for Environment, Food and Rural Affairs, Environmental Improvement Plan 2023 (31 January 2023): https://www.gov.uk/government/publications/environmental-improvement-plan [accessed 31 January 2023]
355 Carmine Ornaghi, Micro Totin, ‘The effects of the universal metering programme on water consumption, welfare and equity’, Oxford Economic Papers, vol. 73, issue 1 (2021), pp 399–422: https://doi.org/10.1093/oep/gpz068 [accessed 5 January 2023]
357 Written evidence from Arqiva (TWW0017)
367 Environment Agency, Meeting our future water needs: a national framework for water resources (March 2020): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/872759/National_Framework_for_water_resources_main_report.pdf [accessed 5 January 2023]
368 Ofwat, Annual report and accounts 2021–22, HC 196, July 2022: https://www.ofwat.gov.uk/wp-content/uploads/2022/07/ARA-final.pdf [accessed 5 January 2023]
369 Ofwat, ‘Leakage in the water industry’ (21 November 2022): https://www.ofwat.gov.uk/leakage-in-the-water-industry/ [accessed 20 January 2023]