The water companies are calling for greater clarity on the government’s overall priorities and targets for the water sector – according to Water UK, “without more clarity on the specific goals the government wants delivered, there is a high likelihood that vital investment will be deferred in favour of short-term pressures.”
The water companies are calling for greater clarity on the government’s overall priorities and targets for the water sector – according to Water UK, “without more clarity on the specific goals the government wants delivered, there is a high likelihood that vital investment will be deferred in favour of short-term pressures.”
The comments are set out in the Government’s newly-published response by the Department for Food, Environment and Rural Affairs to the consultation on its draft Strategic Policy Statement for Ofwat which ran from 22 July to 15 October last year.
In a paper summarising the responses the consultation and setting out the government’s response, Defra said:
“Overall, respondents welcomed the priorities set out in the SPS and particularly supported government’s ambitions on protecting and enhancing the environment however there were areas respondents felt the government should go further.”
However, the majority of water companies that responded called for greater clarity on government’s overall priorities and targets for the water sector. Environmental NGOs also called for more clarity, particularly around targets for the environment and water quality.
The Government’s final response states:
“The final drafting of the SPS makes it crystal clear that protecting and enhancing our nation’s water environment is a priority for this government, and Ofwat should put this at the heart of how it regulates the industry.”
Responses to the consultation also suggested that it would be in the Government’s interest to strengthen provisions for Ofwat to be held publicly accountable to Parliament for its delivery of the priorities set out in the SPS. The responses argued that the SPS should set out how the Government and parliament intend to hold Ofwat itself accountable for discharging its legal duties.
In response, the Government points out that Ofwat is legally accountable to Parliament, and there are provisions already in place for Parliamentarians to actively hold the regulator to account.
It goes on to say the Government is committed to the model of independent economic regulation - with the proviso that in the National Infrastructure Strategy it also committed to keep the system under review, to ensure it remains fit for purpose.
Water industry investment should secure long-term resilience and protect and enhance the environment
The Government’s final response says it has committed to taking a long-term approach to investment, “recognising that a system that works in the enduring interests of consumers does not simply mean lower prices in the short-term at the expense of future generations.”
The final SPS sets out that water industry investment should be made in a way that secures long-term resilience and protects and enhances the environment, whilst delivering value for money for customers, society and the environment over the long-term. “As the industry works towards these shared goals, it will be vital that support is in place for those who may struggle to afford water bills,” the final SPS says..
Environmental ambition
Respondents welcomed the overarching priorities set out in the SPS, and were particularly supportive of the increased ambition to protect and enhance the environment.
However, the majority of water companies that responded called for greater clarity on government’s overall priorities and targets for the water sector. For example, Water UK said that “without more clarity on the specific goals the government wants delivered, there is a high likelihood that vital investment will be deferred in favour of short-term pressures”. Environmental NGOs also called for more clarity, particularly around targets for the environment and water quality.
Ofwat will play an important role in using its regulatory toolkit to drive water companies to invest to meet their statutory obligations. The Government response says the final drafting of the SPS “makes it crystal clear that protecting and enhancing our nation’s water environment is a priority for this government, and Ofwat should put this at the heart of how it regulates the industry.”
The final SPS explains that specific outcomes that companies need to meet in regards to their wider environmental performance, will be set out in separate documents, such as the Water Industry Strategic Environmental Requirements (WISER).
Once published, the WISER will set out both statutory and non-statutory targets in relation to the environment, resilience and flood risk, the Government response says.
Storm overflows
Commenting on storm overflows, the Government response said that consultees had broadly supported the expectation for companies to tackle the harm caused by storm overflow operation, but that “some responses felt the language did not go far enough and suggested strengthening the text.”
There was also a general theme that respondents wanted greater clarity and clarification of targets and timescales to achieve a significant reduction in the operation of storm overflows.
In addition, water industry stakeholders had considered the language too output focused and were concerned that “prescriptive wording risked Ofwat not being able to effectively incentivise value for money for customers and the environment.”
In response, the Government said it had been clear that the current use of storm overflows is unacceptable. In response to the feedback, the final SPS now provides greater clarity of the government’s expectations in relation to storm overflows, based on the Environment Act 2021 requirements. However, the Government added:
“ It would not be appropriate to set out the specifics of our ambition on storm overflows in the SPS due to its statutory purpose. The final SPS therefore explains how and where expectations on the water industry will be laid out, including our expectation that drainage and wastewater management plans should set out how companies will achieve a reduction in discharges.”
The Government has also more clearly defined its expectations of Ofwat and the water industry in the final draft of the SPS, particularly making clear the duties introduced by the Environment Act 2021 since the draft SPS was put out to consultation.
“In response to the feedback to make language less output focused, the final SPS is not overly prescriptive but makes clear the mechanisms by which ambition will be communicated to companies shortly”, the final response states.
Nature-based solutions and catchment and partnership working
The Government said that consultation responses had “broadly supported our proposals in this area”, noting that many responses supported “greater and faster uptake of nature-based solutions.”
The final response says:
“This government is supportive of nature-based solutions, and so we have strengthened the SPS to ask Ofwat to support an increase in nature-based solutions where appropriate and work with the sector, the Environment Agency, Natural England and others to rapidly identify and overcome any barriers to the uptake of these approaches by water companies.”
Net zero
Commenting on achieving net zero, the Government response says it expects the water industry to work with regulators and others to play their part in achieving against the government’s 2050 target, in line with the polluter pays principle.
The response states:
“The SPS makes it clear that we expect Ofwat, as the economic regulator, to play its role in scrutinising and challenging companies’ business plans, this is to enable efficiency and deliver value for money.”
“In 2020, water companies made a voluntary commitment to deliver net zero operational emissions by 2030. We look forward to seeing the outcomes of this industry-led effort, which could set an example for all sectors of the UK economy.”
A resilient water sector and asset health
The Government reponse says that seven water companies had highlighted the issue of ageing water company assets in their submissions to the consultation, with water companies either stating the importance of Ofwat recognising the increasing need to focus on ageing assets or calling for a steer from government on its ambitions for the industry in this area. Respondents wanted the SPS to be more explicit in directing the sector to take a long-term approach of maintaining and renewing existing assets.
Other respondents such as charities and consumer groups expressed views on the importance of water companies adequately maintaining and replacing existing infrastructure in order to secure long-term resilience and reduce environmental harm.
The Government’s response says the water companies already have statutory duties to provide and maintain the infrastructure that supports their water supply system and sewerage system.
However, in response to the feedback the final SPS has been updated to reflect the importance of companies having a good understanding of the health of their assets, in order to support long-term resilience. “We have also maintained our position that companies will need to shift to long-term adaptive planning”, the Government response says.
Resilience to flooding
Fourteen responses to the consultation raised the issue of flood risk - six responses said that the government needs to go further to address long-term flood resilience in the SPS. There was a particular focus on increasing ambition to tackle growing challenges such as climate change, population growth and ageing infrastructure. Nine responses, including two water companies, had called for partnership working to tackle flood risk with a small number of responses recommending a more integrated and collaborative approach to funding sources, to deliver more and maximise flood resilience. In particular, the National Flood Forum had encouraged greater investment in flood resilience by water companies including through innovative routes such as green finance.
The Government’s final reponse says:
“The Government supports and encourages partnership working and data sharing, especially where there are shared priorities and joint outcomes. Everyone has a part to play and water companies have a duty to cooperate with other risk management authorities. The final SPS challenges water companies to work in partnership with others and to provide improved flood resilience and wider benefits, including social and environmental.”….
“The government’s Flood and Coastal Erosion Risk Management Policy Statement sets out our long-term commitment to integrated water management that delivers multiple benefits. An aspect of this includes the use of water supply reservoirs to mitigate flood risk. The final SPS retains the expectation on Ofwat to challenge and incentivise water companies to identify and deliver greater customer, societal and environmental benefits from their water and wastewater infrastructure and systems, such as using reservoirs to provide greater flood resilience.”
The final SPS encourages water companies to work in partnership and leverage funding from third parties where appropriate to maximise flood risk benefits. The SPS has also been amended to make greater links between green finance opportunities and flood resilience.
Serving and protecting customers
The Government response says consultees had shown “broad support for the priority on serving and protecting customers and the expectations to Ofwat were welcomed.”
However it had received specific feedback on the issues of customer engagement, the Consumer Council for Water Affordability Review, and the affordability of water bills. In response to comments on customer engagement and the CCW Affordability Review, the Government has made two small changes to the SPS.
The Government said it had strengthened its expectation for water companies to engage meaningfully with their customers and for business plans to robustly reflect evidence of customers’ expectations. In addition, the response says:
“We have strengthened our ask of Ofwat to encourage water companies to implement the recommendations of the Consumer Council for Water’s (CCW) Affordability Review.”
However, the Government appears to have declined calls for it to more clearly state its position on bill affordability, to ensure that protections are in place for households who are struggling with their water bill, commenting:
“the SPS already makes it clear that Ofwat must continue to consider the affordability of bills for the generality of customers and that water companies have protections in place to support households who struggle with their water bills.”
Alongside the publication of the summary of responses and government response, we the strategic policy statement has now been laid before Parliament. The statement is now published as final and replaces the previous SPS that was issued in 2017
Click here to read the summary of responses and government response
Click here to read the final Strategic Policy Statement
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