Many companies might want to change their water supplier for multiple reasons. Price is just one issue that could cause worry; of greater concern is any instance of supplies being cut off, reduced, or polluted in any way, as these can have a damaging operational effect.
In addition, there may be wider concerns when companies are engaged in poor environmental practices such as sewage dumping or polluting lakes, leading to algae growth, while also failing badly on infrastructure maintenance and investment issues.
The latter concern was picked up on ahead of last year’s general election in the Labour Party manifesto, which noted that no new reservoirs had been built in England in the past 30 years. This was not the whole truth, as several were in the pipeline, but it does still leave concerns that the water companies have been slow to respond to future needs.
A Damning Report
However, it appears that while the water companies may indeed have failed in various ways, some of the blame for this lies in the failure of regulators. A report by the National Audit Office (NAO) has been highly critical of the role they have played in recent years, arguing this is a key reason for consumer trust being at “an all-time low”.
Criticism was aimed at the Department for Environment, Food and Rural Affairs (Defra), water regulator Ofwat, the Environment Agency and the Drinking Water Inspectorate.
In a damning conclusion, the report stated: “Defra and the water sector’s regulators have not encouraged water companies to spend what they need to deliver the performance expected. The sector now faces significant environmental and supply challenges.”
A Huge Financial Challenge
The NAO stated that an “unprecedented amount of investment” will be needed to tackle the challenges facing the water industry after years of underinvestment and failure. This includes the prospect of the UK being five billion litres short of the amount of drinking water that will be needed by 2050.
According to the report, Ofwat estimates that meeting this need will require a “70 per cent increase in infrastructure spending”, which equates to £47 billion more over the next five years, as part of the overall bill of £290 billion required to meet the government’s targets by 2050.
If this were the only issue, there might be a simpler path to resolution than is actually the case. Customers may be rightly angry if firms have not spent the money they were supposed to and instead filled the pockets of shareholders with dividends.
However, the reality is worse; Ofwat has said it is concerned about the “financial resilience” of ten of the 16 main water companies. While most people have heard about the struggles of Thames Water, it seems the problems go a lot deeper.
Can The Reservoirs Be Delivered?
A particular concern is how the increased supply needs will be met. This is where the rubber hits the road on the issue of new reservoirs. While the NAO acknowledges that nine new reservoirs in the Midlands and south are in various stages of planning, among 30 major projects, it decried the fact that there is “no national plan” for these.
That means different companies are making their own plans, although it should be noted that one planned reservoir, at Havant Thicket, is a partnership project between Portsmouth Water and Southern Water.
Delivering these projects is also a massive challenge, with Ofwat acknowledging that they need “greater certainty than the five-year price cycle offers”. In addition, because it has been so long since major reservoirs were built in the UK, the water companies involved “do not necessarily have the depth of skills or experience to do so in the volume now expected”.
This scathing report does make for difficult reading for the regulators, water companies and consumers alike.
In the first two cases, there is fierce criticism. But for companies that pay their suppliers to maintain a good service, concerns that they may struggle to do so in the future because they have not invested in maintenance and future-proofing are a real concern.
Decision Time?
The performance of individual companies may be the deciding factor in those who have a choice of supplier making decisions about whether to stay with them or go elsewhere. But it also raises some major questions going forward.
In particular, while the Labour manifesto also pledged to strengthen water industry regulation (something the NAO report would suggest is justified), the lack of success in the UK in delivering major infrastructure projects in recent years – most notably HS2 – may leave little confidence that the need for major new reservoirs will be adequately met.
