The government’s priorities for the water sector have been formally set with the publication of the strategic policy statement (SPS) to Ofwat.
The SPS, which will inform the 2024 price review, outlined expectations for companies to make “progressive reductions” to the impacts of combined sewer overflows (CSOs).
A draft version of the statement was published by Department for Environment, Food and Rural Affairs in July last year and, following a consultation, was laid before Parliament on Wednesday (02 February).
As in the draft, protecting and enhancing the environment came out as the top priority for the sector, its regulators and government. The statement said Ofwat should drive companies to be more ambitious on improving water quality and the water environment.
Combined sewer overflows
CSOs have made headlines in the past two years, culminating in duties being set out in the Environment Act for companies to minimise harm from CSOs and improve the transparency of reporting when a discharge occurs.
The SPS said government wants to see “far less reliance” on CSOs discharging except during exceptionally heavy rainfall. A Storm Overflow Discharge Reduction Plan will set out the outcomes expected from the sector. The SPS added water companies should explain how drainage performance will be improved, including lowering discharges, through their drainage and wastewater management plans.
Long-term investment
The draft SPS was criticised for lacking clarity around long term planning, which commentators said could make the industry less attractive to long term investors. The final version said the government is committed to a long-term approach to investment, which recognised that prices cannot be lowered now if it comes at the expense of future generations.
It called on Ofwat to challenge the industry to boost resilience through its planning, investing and operation of services.
To achieve this, the statement said Ofwat should promote “efficient investment” that secures long-term resilience, while safeguarding the environment and delivering value for customers now and in the future. Opportunities should be taken to maximise investment in the sector via co-funding with other sectors and green financing. This, it said, should be done via a shift towards long-term adaptive planning, which Ofwat should support by developing regulatory frameworks that enable cross-sector working.
Water efficiency and environmental ambition
To manage demand on resources, the statement instructed Ofwat to hold the sector to account on its efforts to cut per capita consumption (PCC) to 110l by 2050 and monitor progress against the industry-set target of halving leakage by 2050.
It told the regulator to challenge companies on how they will meet the Environment Agency’s Environmental Performance Assessment (EPA) criteria and ensure they demonstrate how they will meet zero serious pollution incidents target by 2030.
On environmental ambition, government said the sector should not only meet but exceed legislation where it represents good value for money to deliver wider benefits.
The statement said Ofwat and water companies should work with wider stakeholders to support efforts to stop nutrients such as nitrogen and phosphorus entering watercourses.
The regulator has said PR24 should feature nature-based and catchment management solutions wherever possible. The SPS backed that up and called on Ofwat, the sector and its stakeholders to find and overcome any barriers to implementing such solutions.
Customer service
The SPS said the price determination in 2024 should push the sector to take environmental ambitions further but stressed the need to make services affordable for “the generality of customers” as well as working to provide support for those facing financial hardships. One of the Water UK public interest commitments is to eradicate water poverty by 2050, which is led by Northumbrian and United Utilities.
Early reaction
Ofwat welcomed the SPS, with a spokesperson saying: “Companies need to go further to protect the environment and we welcome the clear steer, support and endorsement in pushing them to do so. We will continue to allow significant investment in the environment, take action on companies that fall short on their performance and drive them to be more transparent on their delivery and impact on rivers.”
On behalf of the sector, a Water UK spokesperson said: “Water companies have long stressed the need for regulation to take a long-term view of the sector and allow increased investment to help address the acute challenges posed by climate change and population growth.
They said the sector agrees on the need to get the basics right as well as the prioritisation of nature-based solutions and the urgent need to eliminate harm from overflows: “Ofwat must now work with water companies to ensure that the next price review enables the sector to meet government targets by authorising investment in the right schemes such as net zero and improving river water quality.”
Last month a damning report by the Environmental Audit Committee highlighted a series of failings by water companies, regulators and other sectors that have led to poor river water quality across England. Many of the suggestions made by the EAC have been incorporated into the SPS, which the EAC chair Philip Dunne welcomed. He said the transparency measures will “shine a light into hitherto dark tunnels” and mark the “beginning of the end of regulators and water companies simply turning a blind eye to the pollution”.
Dunne said: “But we must not be complacent: upgrading and making a Victorian sewerage system fit for the 21st Century will take a significant amount of work and investment. This effort will require a whole of system approach: not just action being taken by water companies. Our committee looks forward to the government’s substantive response to our report and further guidance from the government on the use of storm overflows by water companies.”