Money, money, money – Ofwat’s ‘final determinations’ explained

28 February 2024

The PR24 price review sees a bumper investment of £104bn, marking a step change in political appreciation of the state of UK water infrastructure and its impact on resilience and environmental condition

However, impending legislation requirements will differ between projects, so developers should get ahead and ensure they’re clued up on which system is right for the size and nature of the projects they deliver. Local authorities will also require sufficient evidence that proposed developments will meet the current building standard when making the necessary applications for planning approval.

This will involve cost considerations around SuDS designs and fees for ongoing inspection while the development is in progress. The five-yearly ‘price review’ conducted by Ofwat very often coincides with a general election. So it was in 2024 and the elevation of water challenges – mainly sewage pollution – to a high profile political issue raised the temperature around this particular review.

It was always going to be a budget-buster. After all, water companies have been under intense scrutiny from campaigners, parliamentarians and the media in recent years, and regulators are on the back foot and trying to be seen to have a hard line on performance. Not to mention the fact that politicians of all colours are scrabbling for the moral high ground, and hoping to make good on election pitches to improve things.

On the one hand, this bumper investment – Ofwat’s ‘final determination’ settlement of £104bn is well up on its draft figure of £88bn – is hugely welcome and overdue. Water practitioners know that for one reason or another there’s been inadequate investment in water infrastructure and programmes for a long time.

On the other, customers will be hit with unpopular bill increases during uneasy economic times. To some in the sector, it feels like a lot of money will be spent on action that won’t necessarily unlock the best outcomes for the environment or do so in the most sustainable way.

The broad-brush response within the water sector feels like a combination of relief, along with mild disappointment and concern.

Investment spread

Before we delve into what all this money is going to be spent on, let’s take a minute to reflect on how HUGE a sum it is that we’re talking about. Ten years ago, it was £44bn with an accompanying average annual £20 bill reduction. PR24 puts £60bn on top of that, plus an average bill increase of £31 a year before inflation. This shift is symptomatic of nothing less than a step change in political appreciation of the state of UK water infrastructure and its impact on resilience and environmental condition.

Onto the breakdown. £24bn was agreed through the Water Industry National Environment Programme (WINEP), set out to reduce the level of harm from storm overflows, improve water body quality and biodiversity. Of that, half is to be spent on reducing storm overflow spills, driven by the Government’s Storm Overflows Discharge Reduction Plan. A quarter goes to reducing nutrient pollution through treatment works upgrades and catchment schemes, though the Environment Agency recently pulled back from allowing catchment nutrient balancing to deliver outcomes.

Next up, £5bn has been allowed for developing additional water supplies over the next five years, totalling an additional 424 million litres per day according to Ofwat. Improving interconnection of water resources through interconnectors and transfers gets £2bn. Other money will be used to advance some of the major new reservoirs and other longer-term resource schemes being driven through the RAPID (Regulators’ Alliance for Progressing Infrastructure Development) process.

Demand management is being driven through a serious leakage reduction and mains replacement programme. This sees a tripling of the rate of replacement mains (£456m) and 17 per cent reduction in leakage targeted (£720m). At the same time, the biggest smart metering programme will be rolled out, installing 10 million by 2030 (see Work smarter, not harder, also in The Environment Spring issue.

Additionally, there is a new £100m national water efficiency fund being launched by Ofwat, and its previous £200m innovation programme is being doubled to £400m.

Deliverability and sustainability questions

This increase in the scale of the delivery programme has caused nervousness in some parts over how difficult it will be to actually implement. Water UK has spoken of the need for 30,000 new employees alongside 4,000 new apprentices; indeed the environment secretary Steve Reed described it last year as something of a job creation and growth boosting programme.

But supply chain companies are far from sure that all the targets set and funded by Ofwat will be deliverable at the national scale. Whilst HS2 may be sucking fewer heavy engineering contractors out of the marketplace than previously, there are other major infrastructure programmes in train and other skills are not in abundant supply.

And then there’s the issue of how all this is delivered. When the WINEP was being scoped, there was widespread optimism that this huge sum of money might be harnessed to deliver outcomes in a multifunctional, low carbon and nature-based way at hitherto unprecedented scale.

Now we come to it, Ofwat points to £3bn being spent on some form of nature-based solution; whilst that’s undoubtedly an increase, it’s not the kind of vision set out through our A Fresh Water Future review or the SSWAN project. The desire for regulatory compliance has driven concrete and carbon-intensive solutions, blowing Water UK’s net zero 2030 route map out of the picture and forcing nature bodies to look to PR29 for real progress.

This free article first appeared in the Spring Edition of The Environment newsletter.

Author: Alastair Chisholm is director of policy at CIWEM