Water Supply and Demand Management

House of Commons Public Accounts Committee Water supply and demand management Ninth Report of Session 2019–21 Report, together with formal minutes relating to the report Ordered by the House of Commons to be printed 1 July 2020 HC 378 Published on 10 July 2020 by authority of the House of Commons The Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine “the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit” (Standing Order No. 148). Current membership Meg Hillier MP (Labour (Co-op), Hackney South and Shoreditch) (Chair) Mr Gareth Bacon MP (Conservative, Orpington) Kemi Badenoch MP (Conservative, Saffron Walden) Olivia Blake MP (Labour, Sheffield, Hallam) Sir Geoffrey Clifton-Brown MP (Conservative, The Cotswolds) Dame Cheryl Gillan MP (Conservative, Chesham and Amersham) Peter Grant MP (Scottish National Party, Glenrothes) Mr Richard Holden MP (Conservative, North West Durham) Sir Bernard Jenkin MP (Conservative, Harwich and North Essex) Craig Mackinlay MP (Conservative, Thanet) Shabana Mahmood MP (Labour, Birmingham, Ladywood) Gagan Mohindra MP (Conservative, South West Hertfordshire) Sarah Olney MP (Liberal Democrat, Richmond Park) Bridget Phillipson MP (Labour, Houghton and Sunderland South) Nick Smith MP (Labour, Blaenau Gwent) James Wild MP (Conservative, North West Norfolk) Powers Powers of the Committee of Public Accounts are set out in House of Commons Standing Orders, principally in SO No. 148. These are available on the Internet via www.parliament.uk. Publication © Parliamentary Copyright House of Commons 2020. This publication may be reproduced under the terms of the Open Parliament Licence, which is published at www.parliament.uk/copyright/. Committee reports are published on the Committee’s website and in print by Order of the House. Committee staff The current staff of the Committee are Bradley Albrow (Second Clerk), Hajera Begum (Committee Assistant), Jessica Bridges-Palmer (Media Officer), Ameet Chudasama (Senior Committee Assistant), Richard Cooke (Clerk) and Shai Jacobs (Chair Liaison). Contacts All correspondence should be addressed to the Clerk of the Committee of Public Accounts, House of Commons, London SW1A 0AA. The telephone number for general enquiries is 020 7219 5776; the Committee’s email address is [email protected]. You can follow the Committee on Twitter using @CommonsPAC. Water supply and demand management 1 Contents Summary 3 Introduction 4 Conclusions and recommendations 5 1 The overall system for managing water resources 8 Balancing the need for investment with keeping prices affordable 8 Tackling leakage 9 Achieving net zero carbon emissions 11 2 Water supply and demand 12 A national message on the need to reduce water consumption 12 Measures to improve water efficiency 13 Damage to the environment 13 Formal minutes 15 Witnesses 16 Published written evidence 17 List of Reports from the Committee during the current Parliament 18 Water supply and demand management 3 Summary There is a serious risk that some parts of the country will run out of water within the next 20 years. More immediately, some areas are facing shortages during the COVID-19 pandemic. The responsible bodies – the Department for Environment, Food & Rural Affairs (the Department), the Environment Agency and Ofwat – have collectively taken their eye of the ball and urgent action is now required if we are to have a reliable water supply in the years ahead. Over 3 billion litres, a fifth of the volume used, is lost to leakage every day. Despite this, no progress has been made in reducing leakage over the last 20 years. The government’s weak efforts to encourage reductions in water consumption have achieved very little. Water companies have at least now been given tougher targets to make improvements, but we are calling for the responsible bodies to go further, and annually publish clear performance tables so that the government and the water companies can be properly held to account. Government has been too slow to implement policies that could improve water efficiency such as product labelling and changes to building regulations. Nor has it done enough to resolve the tension that water companies face between needing to invest in infrastructure to improve water supply and the pressure to keep water bills affordable for consumers, particularly where consumers say they are prepared to pay more. We are sceptical about the effectiveness of water companies’ efforts to mitigate environmental damage and are not convinced the UK’s net zero emissions target has been sufficiently embedded in the oversight and regulation of the industry. The Department has shown a lack of leadership in getting to grips with these issues. We look now to the Department to step up, make up for lost time and ensure all parties act with the urgency required. 4 Water supply and demand management Introduction Overall responsibility for setting the policy and regulatory framework for water in England sits with the Department for Environment, Food & Rural Affairs (the Department), which oversees a complex delivery landscape of multiple regulators and privately-owned water companies. Ofwat regulates the services provided by water companies and sets them performance targets during its five-yearly price control process. The Environment Agency manages the water resource management process and must ensure water companies and other water abstractors abide by the terms of their environmental permits and licenses. These cover how much water they can take out of the environment and how they should handle and treat sewage. Demand for water is about 14 billion litres per day in England and Wales. Due to rising demand and falling supply of water the Environment Agency now estimates that England will need an extra 3.6 billion litres per day by 2050 to avoid shortages. Water companies have a statutory requirement to set out every five years how they intend to balance supply and demand over the next 25 years through their water resource management plans. Water supply and demand management 5 Conclusions and recommendations 1. Government has failed to be clear with water companies on how they should balance investment in infrastructure with reducing customer bills. The government recognises the need for investment in strategic infrastructure projects and water companies are responsible for considering the options available to them and putting their investment proposals to Ofwat based on these considerations. Ofwat scrutinises companies’ investment proposals and accepts or rejects them on the basis of the evidence of need, and whether the costs of the proposal are reasonable. Water companies have had little help from government in how they resolve the tension they face in balancing their plans for investment with the need to keep bills affordable, especially where they feel they have good evidence on their customers’ willingness to pay for long-term resilience. We recognise that infrastructure improvements cannot be achieved overnight, but the rate of progress has been far too ponderous. Recommendation: The Department should provide more guidance to water companies on the level of investment needed to ensure resilience by 2050 and how they should balance this in their business plans with pressure to reduce consumer bills. The Department should write to us by 31 December 2020 to update us on progress in this regard and how they plan to accelerate the pace of infrastructure improvement. 2. It is wholly unacceptable that over 3 billion litres are wasted every day through leakage, with no improvement in the last 20 years. From a high of over 4.5 billion litres a day in the early 1990s, daily losses through leakage fell to around 3 billion at the turn of the century. However, this reduction was followed by over a decade of complacency and inaction, which has meant water leakage is now a hugely pressing problem. No one organisation has got a thorough grip on dealing with this issue and driving the change necessary. The Department urged water companies in 2016 to make tackling leakage a much higher priority. However, there has still been little progress. The Department has belatedly set annual targets for water companies and longer-term targets to reduce leakage by a third by 2030 and by half by 2050. Ofwat assures us that companies are exposed to substantial penalties if they do not meet their targets over the next five years and is confident that the worst performing companies are now starting to get their act together. Ofwat now expects leakage to fall by 16% between 2020 and 2025, which would result in 561 million litres of water a day being saved. However, meeting the targets relies on unknown and untested approaches. We are unconvinced by Ofwat’s hope that water companies will “surprise themselves” at what they can achieve, and call on the Department and Ofwat to be more proactive in ensuring companies meet leakage targets. Recommendation: The Department should hold water companies to account by publishing annual league tables showing their performance on tackling leakage against the targets set. Annual published league tables should be introduced by 31 December 2020. 3. Government has failed to develop a national message to consumers on the need to reduce water consumption and how to do so. Government relies on water companies to promote the importance of reducing water consumption. But with 6 Water supply and demand management each company adopting different approaches there is no coherent or coordinated national message. As a result, awareness of the need for water efficiency is very low compared to that of saving energy. There is no evidence of the impact on consumer awareness or behaviour of what water companies are doing. This demonstrates that industry action has been insufficient and has failed, and that government now needs to substantially step up its efforts to coordinate increased awareness of the need to reduce water consumption.

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