Water as a £20bn growth enabler (or a £25bn dent)?

Water Resources

29 January 2025

Rachel Reeves’ speech on kickstarting economic growth today was the latest in the Government’s efforts to shift the dial of the UK’s economic fortunes into the positive.

But it may need a more concerted approach to addressing water scarcity than is currently on the table, writes Alastair Chisholm.

Environmentally, there was a mixture of disturbing and confused messages. On the one hand there is a desire to fast track clean energy infrastructure, whilst on the other, a keenness to open the climate can of worms that is a third runway at Heathrow. Yet again the bats and the newts were held up as the nemesis of timely infrastructure and housing delivery, all the while soaking up hundreds of millions of pounds in public money.

That this comes up repeatedly hints at a vein of antipathy towards environmental health, biodiversity and resilience as critical foundations for a prosperous yet sustainable economy for the long-term. Beyond low-carbon energy, the environment is increasingly clearly a blocker to the ambitions at the top of government. It can be taken far away from growth areas and the places where people will live, to be rewilded and restored (in other words, offset), funded by a new nature restoration fund.

You only need to look at the prospects for the similarly-named water restoration fund, announced by the previous government, to understand the order of things though. And after decades of moving in the wrong direction on nature health, on carbon emissions, on resilience, the rhetoric doesn’t even attempt to hide the indifference to halting the decline.

That this feels short-sighted is an understatement. It is. And just one example relates to the grand ambitions for “Europe’s Silicon Valley”, the Oxford Cambridge Growth Corridor.

Supply side constraints

Reeves pointed to this as a long-standing region for tech development, powered by two world-leading universities, to be unleashed by new road and rail connectivity, enabling the development of New Towns and sizeable new developments.

There had been too many “supply side constraints” to growth here, she said. Alongside the transport links, water infrastructure in the region had been “a major hindrance to development”. The approval of water resources management plans and Ofwat’s green light to £7.9bn investment over the next five years in beefing-up resources were cited as key enablers. Not least of which would be two new reservoirs in their planning stages, in the Fens, Cambridgeshire and in Abingdon, Oxfordshire.

The Chancellor confirmed that the Environment Agency had recently dropped its objection to 4500 new homes in Waterbeach near Cambridge, following an intervention by government to address water scarcity (the Agency has warned that the “water scarcity challenge for this area remains”).

Water scarcity realities

Whilst Reeves’ bullish announcements are intended to remove the drag-anchor of environmental and resilience constraints on development, unfortunately reality still endures.

That is, that with our water resources in a fragile state (in part because, no, we haven’t built a new reservoir in this country for over 30 years, but also for a range of wider reasons), some undisclosed government “intervention” on a major planning application and two reservoirs to come in the future won’t mean rafts of new homes built in this government’s term will definitely have enough water.

The Government has raised housing targets across the country to be able to build its promised 1.5m homes in this Parliament. The challenge is that many of these new homes are being targeted for areas where there is not, and will not, be the necessary supporting water infrastructure over the timescales in which they’ll be built.

Government and the Environment Agency leant hard on Cambridge Water to re-work its water resources management plan homework, and find more water.

A CIWEM conference last year heard we’re good at planning water resources, rather less good at delivery. The trumpeted new reservoirs are in planning – and this is being fast tracked by new government legislation and the RAPID programme – but the Fens Reservoir is due in about 2036 and Abingdon in 2039.

We have seen how fragile water supplies can be in this country, during the drought in summer 2022 when people in the south east lost water because of high demand, and London came within days of running short. The economic impacts of water restrictions are estimated in the hundreds of millions through to tens of billions of pounds.

Growth hit, growth enabler

After the Chancellor’s major growth pitch, new research undertaken by the Enabling Water Smart Communities project shows that water scarcity could indeed put a major dent in her £78 billion of growth by 2035, by costing the economy £25 billion in undelivered housing over the next five years.

Importantly, the cost is not spread evenly across the UK; it is most pronounced in the south east, where productivity is highest in England and the value of new housing is greatest. Analysis demonstrates that the most affected geographic areas are those where the housebuilding pledge is best suited to achieving growth. Many of these areas are sites of strategic importance to the UK economy, such as in Cambridge.


Areas where new housing targets pose water scarcity issues. Credit: Public First

This is where the reality of physical water availability butts up against paper plans, government “interventions”, and new reservoirs that won’t materialise until after another two general elections.

But there is a workable and comparatively quick solution, Enabling Water Smart Communities attests. It comes in the relatively simple means of reducing how much water we all use, through a combination of water efficiency measures and development or home-scale rainwater harvesting and re-use.

These measures need regulatory updates to bring them forward: updates to water quality regulations to enable rainwater captured from roofs and other hard surfaces in developments to be treated and piped directly to flush toilets. A new water efficiency labelling scheme for taps and other water-using appliances and fittings. And updates to building regulations to require the more efficient of these in new homes.

This of course, is only the story of the water used in our homes. Reeves’ economic growth will rely on major businesses in these growth areas also getting the water they need. Data centres, for example can be very water hungry. Water companies are not obliged to supply businesses, only households. It takes both homes and businesses for an economy to tango.

Water smart communities are growth enablers

Government is very clearly wedded to achieving growth, and its ambitious housing delivery targets above almost all else. Our climate and weather systems though, do not hear the Chancellor and her clarion call. They will do what they will in the coming years whether we have new reservoirs or not, and they have every ability to deliver a hammer blow to the economies of the Oxford Cambridge Growth Corridor – as we came close to seeing in summer 2022.

Enabling water smart communities – that use water efficiently and harvest the rain to flush their loos – could indeed deliver £20bn of value in unblocked new housing, which isn’t at risk of running short.

Yes, reservoirs are essential. Yes, it is understandable that government wants to see growth in the parts of the Country where this feels the most feasible. Instead of railing against the bats and newts, Rachel Reeves should be fast-tracking the updated regulations that will fill the growth area water supply gap that could be blown wide open by a drought. Whilst Chancellors delight in major infrastructure schemes, it’s the less glamorous, but smarter stuff, that needs to do the short-term heavy lifting.




Author:
CIWEM director of policy Alastair Chisholm



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