Regulator knocks £16bn off water investment plans

Ofwat has cut water companies’ plans to upgrade critical infrastructure by £16bn amid public scrutiny over firms’ performance.

Last October, water companies proposed £96bn of infrastructure works to Ofwat for the 2025 to 2030 investment period. Some companies resubmitted their business plans in March, increasing the costs to £100bn. Planned water connections for housing schemes, which developers would fund, brought the final total to £104bn.

But the regulator has brought the spending package down to £88bn in a draft determination published today (11 July), which would still represent the largest-ever investment into the UK’s water infrastructure. As spending plans are linked to proposed bill increases, a lower combined spending package would likely also mean a smaller increase in household water bills.

Ofwat said it had reduced the proposed spending where costs had not been justified or were inefficient. It said it would reconsider the proposals in its final decision if water companies could provide more evidence to support them.

Ofwat chief executive David Black said: “Let me be very clear to water companies. We will be closely scrutinising the delivery of their plans and will hold them to account to deliver real improvements to the environment and for customers and on their investment programmes.”

If approved, £35bn of the investment would go towards projects aiming to reduce pollution and mitigate the impact of climate change. This includes £10bn on upgrading 2,500 storm overflows and £6bn on improvements at more than 1,500 wastewaster treatment works.

Ofwat intends to publish its final decision on 19 December, although water companies will then be able to appeal to the Competition and Markets Authority.

The regulator indicated a new efficiency-focused approach for major projects worth more than £100m, which it will apply to 21 schemes within the proposed programme.

It also set out a new delivery model for projects over £200m in its five-to-15-year pipeline, comprising 18 schemes worth £26bn in total. Companies will compete to design, build and sometimes operate and maintain the projects, an approach modelled on commissioning for Thames Tideway.

Water companies are gearing up the search for contractors to carry out the ambitious package of works.

Northumbrian Water has already brought on Costain, Bam Nuttall and Farrans to help support its programme over the next five years, while South West Water tapped up Clancy, Tilbury Douglas and Mott MacDonald Bentley. North West water company United Utilities has signed up contractors including Kier, Murphy and Costain.

Newly-instated environment secretary Steve Reed has asked Ofwat to ensure infrastructure funding is ringfenced, ensuring it is not spent on executive pay. He will meet with water company chief executives this afternoon to set out his plans to attract investment and jobs into the sector.

He said: “We will never look the other way while water companies pump sewage into our rivers, lakes and seas.

“This unacceptable destruction of our waterways should never have been allowed, but change has now begun so it can never happen again.”

Water companies have come under intense public scrutiny in recent month following sewage overflows linked to its ageing infrastructure. In April, Environment Agency chief executive Philip Duffy criticised some water companies for “unprecedented” delays to the previous five-year capital programme.

The draft decisions are now out for consultation until 28 August. Stakeholders will be able to question Ofwat executives on the draft decisions at two online meetings on 23 and 24 July.