UK taxpayers face a £56bn bill if sewage and water systems are to be fixed, House of Lords committee warns
It will potentially cost £56bn over multiple decades to update the UK’s creaking and outdated water and sewerage systems, raising the prospect of higher water bills for everyone, a House of Lord’s committee has warned.
In a report on water and sewage regulation failures, the Industry and Regulators Committee argued that funding would have to come from water companies, with insufficient public funds available for such upgrades.
If suppliers are chiefly responsible for water and sewage networks, customer bills will likely increase to raise the revenues – which by 2025 will have been flat or falling for 15 years in real terms.
David Black, chief executive of Ofwat, revealed to the committee £56bn would be a doubling of current environmental spending – but that this was “certainly not the limit” as storm overflows are only one aspect of the environmental issues facing the sector.
He argued that Ofwat will not know the full scale of expenditure until companies have submitted their business plan.
To help ease potential customer costs, the committee has suggested the government should legislate for a single social tariff in time for the next price review in 2024, when Ofwat establishes budgets and profit thresholds for water companies.
The committee also calls for cheaper solutions to reduce water pollution to be considered alongside new infrastructure, such as the use of uncropped arable land for storing water.
Alongside confirming the staggering costs in fixing Britain’s leaking infrastructure, which was designed in the Victorian era to direct sewage overflows towards bodies of water, it argued that Ofwat’s role needed to be clarified.
The reported argued further clarity is needed to empower Ofwat to take the strategic decisions necessary to address long-term issues and to ensure accountability to Parliament.
It suggested its statutory duties are contradictory – such as its requirement to protect the short-term interests of consumers by keeping bills low, while also ensuring enough strategic investment is made to secure future supply.
Report slams water suppliers and watchdogs
The committee also criticised nearly every party involved in the water industry, and was particularly damning of suppliers.
It highlighted the Environment Agency’s water and sewerage company performance assessment, published last year, which found that the environmental performance of water companies was at its lowest ever level and most companies’ performance was declining.
The EA argued that unless changes were made, in 20 years the UK will not have enough water to match demand.
The committee called for water companies to disclose information with the same standards as publicly listed companies, which it believes has the potential to improve their governance and increase scrutiny of their financial arrangements.
The HoL’s panel also suggested company executives and board members should also not receive large bonuses while their companies continue to fail the environment, and that egregious environmental crimes should lead to board members being barred from the sector.
It argued suppliers needed to improve their practices dramatically to prevent further damage to the environment and secure future supply.
The committee recognised there has been increased pressures on the sewage network since privatisation in 1989, due to a combination of population growth, property development and climate change.
However, levels of investment have not risen to match these demands – creating a network unable to cope, and which relies on releasing polluted water into the environment.
The committee further argued investment has not kept pace with the demands of future water supply needs, leaving the UK lacking appropriate plans and infrastructure to deal with future demand, and the loss of billions of litres of water to leakage every day.
This did not mean regulators were let off the hook – as the report argued Ofwat failed to ensure companies invested sufficiently in water infrastructure, choosing to keep bills low at the expense of investment, and that the Environment Agency had been too slow to clamp down on pollution across the sector.
An Ofwat spokesperson said: “.The committee has called on us to allow companies more money to invest in the network. We agree that more spending is needed.
“At the same time we note that, over the last two years, 14 of the 17 water companies have not spent the funds they have been granted to invest in the network, and some have spent less than half. We will continue to work with companies, to ensure they deliver the change needed and meet their obligations to improve outcomes for customers and the environment.”
A Defra spokesperson said: “We’ve put the strictest targets ever on water companies to clean up our waters and worked closely with the regulator to drive tougher enforcement against underperforming and polluting companies, including clamping down on excessive cash pay-outs.
“That’s alongside the requirements we’ve set them to deliver the largest infrastructure programme in their history – worth £56billion – to tackle sewage spills, but we know that more needs to be done which is why we will go further and faster to hold companies to account in delivering for customers and our environment.”
An Environment Agency spokesperson added: “We are driving up monitoring and transparency from water companies and taking action against companies breaking the rules. As this report recognises, these things are vital in driving the outcomes we want to see. We also continue to work closely with companies, other regulators and the government to ensure we have enough water, now and in the future.”
Industry body Water UK has also been approached for comment.