Consultation outcome

Summary of responses and government response

Updated 28 March 2022

Introduction

Under section 2A of the Water Industry Act 1991 (as amended by the Water Act 2014) the Secretary of State may publish a statement setting out strategic priorities and objectives for Ofwat to follow in carrying out its relevant functions relating wholly or mainly to England. Ofwat must carry out those functions in accordance with any statement published under section 2A.

This document summarises the responses received through the government’s consultation to seek views on the draft strategic policy statement (SPS) for Ofwat, and how we have responded to the consultation. The consultation ran from 22 July to 15 October 2021. The responses to the consultation helped to inform the final SPS which has been laid in Parliament.

We asked three questions to provide an opportunity for respondents to give responses, comments and propose alternative options. The questions were:

1. Has the government identified the most relevant strategic priorities for Ofwat? If not, please provide details of the priorities that should be included.
2. Does the strategic policy statement effectively set out government’s expectations of Ofwat in supporting delivery of our priorities? If not, please identify where these expectations could be made clearer.
3. Do you consider that this statement to Ofwat is clear and easy to understand? If not, please identify any areas that could be clarified.

The consultation can be found at: Government’s strategic priorities for Ofwat.

Defra is grateful to everyone who took the time and effort to respond, and all the responses have been reviewed. They may also be seen by other Defra staff to help them plan future consultations.

This summary is a high-level overview of the main themes from the consultation responses; it tries to reflect the views offered but, inevitably, it is not possible to describe all the responses in detail. Many respondents provided detailed comments and views. A thematic analysis has therefore been undertaken to identify the key issues raised.

Analysis of responses

In total 84 organisations or individuals responded to the consultation, including:

• 40 responses received through Citizen Space
• 44 responses received via email

Figure 1 shows the number of responses by organisation type and the number of responses we received from individuals.

Respondents	Sector
Devolved government	1
Investor	1
Professional institute	1
New appointments	2
Industry body	6
Non-government organisation	7
Water retailer	7
Charity	8
Individual	9
Local government	12
Water company	13
Other	17

Fig 1. Respondents by sector

Annex 1 contains a list of the organisations who responded. This list excludes those who chose to remain anonymous.

An analysis of all responses from across both Citizen Space and email have been grouped into key themes. We have provided a summary of responses against each theme and detailed how we have taken on-board the responses in the final SPS.

Summary of responses and government response

The draft SPS identified four strategic priorities:

• protecting and enhancing the environment
• a resilient water sector
• serving and protecting customers
• driving markets to deliver for customers

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. Often comments made in response to this consultation were specific drafting changes, changes that are outside the scope of the SPS or sought changes to government policy or legislation set out elsewhere. We identified several themes where a strength of feeling was apparent across responses, and where views were shared by the majority or a sizeable minority of respondents.

We have summarised key themes below under each of the four priorities, alongside an explanation of how we have responded to them.

As well as comments made on individual priorities a range of views were expressed on the SPS as a whole. For example, 7 water companies as well as other respondents such as Sustainability First and GIIA either asked for government to indicate the order of priorities set out in the SPS or called for a steer from government on how Ofwat should balance potential trade-offs across priorities.

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. These 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 line with the Water Industry Act 1991 (as amended by the Water Act 2014), we expect Ofwat to act in accordance with this statement when carrying out its relevant functions relating wholly or mainly to England. In the final SPS we have been clear in setting out the importance of the quality of the water environment, and our expectation that Ofwat and the water industry will prioritise appropriate action to enhance water quality and deliver a resilient and sustainable water supply.

The government 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.

Ofwat is legally accountable to Parliament, and there are provisions already in place for Parliamentarians to actively hold the regulator to account. Ofwat’s role and its accountabilities to parliament and government are set out in legislation in the Water Industry Act 1991. The government is committed to the model of independent economic regulation. However, in the National Infrastructure Strategy the government committed to keep the system under review, to ensure it remains fit for purpose.

Protecting and enhancing the environment

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.

The statutory purpose of the SPS is to set out government’s strategic priorities for the economic regulator, Ofwat. Water companies will then need to invest to deliver against government’s ambitions for the water environment, with oversight from Ofwat. The SPS sets a foundation from which the entire sector can take bold and ambitious action, not a ceiling to limit ambition. Environmental targets that are relevant to the water industry are therefore to be set out in detail elsewhere.

Ofwat will play an important role in using its regulatory toolkit to drive water companies to invest to meet their statutory obligations. 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.

Our ambitions for protecting and enhancing the environment are, and will continue to be, reflected in the legislative requirements that are set for water companies. Through the Environment Act 2021 government has powers to set out long-term legally binding targets, including at least one target for water. Government expects the industry and its regulators to play their part in supporting the delivery of relevant existing and future targets. The Act also places clear duties on water and sewerage companies to progressively reduce the adverse impacts of discharges from storm overflows, improve monitoring, and to transparently report when discharges occur.

We have made some clarifications to the drafting of the protecting and enhancing the environment section of the SPS, in response to the comments received through the consultation. 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.

Storm overflows

Responses broadly supported the expectation for companies to tackle the harm caused by storm overflow operation, but some responses felt the language did not go far enough and suggested strengthening the text, although some responses went beyond what was possible in the SPS. There was 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. We also heard from respondents who said that language used in the SPS should be consistent with other government publications, particularly in relation to ensuring expectations of industry are consistent. Furthermore, water industry stakeholders 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.

This government has been clear that the current use of storm overflows is unacceptable. In response to this feedback, the final SPS provides greater clarity of the government’s expectations in relation to storm overflows, based on the Environment Act 2021 requirements. 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.

In the final draft of the SPS we have more clearly defined our expectations of Ofwat and the water industry, 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.

Nature-based solutions and catchment and partnership working

Responses broadly supported our proposals in this area. However, there were some responses that suggested strengthening the text, although there was no single overarching theme. We note that many responses supported greater and faster uptake of nature-based solutions.

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

A minority of responses called for the SPS to place a greater emphasis on the importance of the government’s target to achieve net zero emissions by 2050. We heard a range of views, including a call for the government to be clearer on how it expects water companies to achieve net zero and for greater clarity on Ofwat’s role in achieving the target.

The government has been clear that it expects every part of our economy to support the national legally binding target of net zero emissions by 2050. In October 2021 the government published its first Net Zero Strategy which sets out plans for transitioning towards a net zero economy.

The government 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 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. The SPS welcomes this industry commitment.

A resilient water sector

Asset health

Seven water companies highlighted the issue of ageing water company assets. Water companies either stated the importance of Ofwat recognising the increasing need to focus on ageing assets or called 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.

Water companies already have statutory duties to provide and maintain the infrastructure that supports their water supply system and sewerage system (Water Industry Act 1991, sections 37 and 94). However, in response to this 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.

Meeting long-term water resources needs

We received a number of areas of feedback in relation to water demand management. For example, respondents said that the target to reduce Per Capita Consumption (PCC) could be more ambitious. Five water companies suggested that the metrics used to assess water company performance on water resources, including leakage and reducing PCC, were not the most appropriate measures. Some water companies, such as Thames Water, wanted an overall consumption target, to allow water companies flexibility in their approach to demand reduction, depending on the characteristic of their water resource zones. Fifteen of the responses suggested the SPS should contain support for more widespread use of water metering or smart metering.

The SPS does not seek to change or introduce government policy, as its purpose is to set out the strategic priorities for the economic regulator. Government set out its policy on water efficiency in the Written Ministerial Statement on Reducing Demand for Water, on 1 July 2021. We expect these measures set out in the statement to support the reduction of personal water consumption. We have retained the reference to PCC, as the 25 Year Environment Plan commits to working with the water industry to set an ambitious personal consumption target, and the measure is widely used by water companies in their water resource planning.

As noted in the 1 July 2021 Written Ministerial Statement, the government is not proposing to make changes to existing rules around when people can be charged for their water use through water meters. Water companies in seriously water stressed areas may implement wider water metering programmes if it is shown within their water resources management plans that there is customer support, and it is cost effective to do so.

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 2 water companies, called for partnership working to tackle flood risk. Some recommended that the government should go further to enable an integrated approach to water management that delivers against multiple priorities, including improved flood resilience. A small minority of responses encouraged the use of existing assets for flood risk management benefits and that the government should encourage more at pace. A small number of responses recommended a more integrated and collaborative approach to funding sources, to deliver more and maximise flood resilience. In particular, the National Flood Forum encouraged greater investment in flood resilience by water companies including through innovative routes such as green finance.

The government is committed to tackling flood risk and its Flood and Coastal Erosion Risk Management Policy Statement provides a comprehensive package of actions to encourage and enable greater resilience.

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 government agrees that Ofwat should enable and encourage the increasing use of nature-based solutions, as set out above. 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.

Drinking water and lead

Ten responses asked the government to provide more detail on our ambition to deliver safe and clean drinking water. Respondents wanted the SPS to reference the actions necessary to continue to provide it. For example, how to address new or emerging threats like per- and polyfluoroalkyl substances (PFAS) but also how to progressively reduce known harms like lead, recognising that it would be a long-term challenge. Drinking water is vital for public health and the wellbeing of our society. The government has an ambition to reduce lead exposure through drinking water and to that end would encourage water companies to trial approaches to achieving this goal. This ambition has been brought out further in the final SPS and will help inform development of wider policy on lead.

As we work towards reducing lead in drinking water, risk assessments (which are undertaken and constantly reviewed by water companies), must identify an appropriate integrated package of measures to mitigate any risks identified. These may include: making consumers aware of the risk of lead in tap water and what can be done to mitigate the risk; dosing their supplies with orthophosphate; modifying or replacing their part of the pipe where the lead standard is not met; or, modifying or replacing their part of the pipe if the owner of a premise is replacing the lead pipe that belongs to them and the owner has requested they replace the remainder. Water companies should also consider opportunistic replacement of lead pipes when there is other planned work on the distribution system, for example, during the installation of water meters or when repairing a leak.

Government is committed to protecting public health. Defra and the Drinking Water Inspectorate will consider international research, including from the World Health Organisation (WHO), to ensure the parameters to be monitored in drinking water and water safety plan risk assessments are kept under review. Drinking water legislation already requires water companies to sample their supplies for any properties, organisms and substances that they believe could constitute a potential danger to human health or may cause their supply not to be wholesome. As water companies must already have a clear understanding of the risks to the quality of their water, we do not believe that further detail is required in the SPS.

Serving and protecting customers

There was broad support for the priority on serving and protecting customers and the expectations to Ofwat were welcomed. However we did receive 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, we have made two small changes to the SPS.

Several responses suggested enhancing our requirement of customer engagement and customer support in developing business plans and informing investments. We have strengthened our expectation for water companies to engage meaningfully with their customers and for business plans to robustly reflect evidence of customers’ expectations.

Three responses requested incorporating the recommendations of Consumer Council for Water’s (CCW) Affordability Review into the SPS. We also received one response asking for the reference to CCW’s recommendations to be removed. 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.

Three responses suggested that government more clearly state its position on bill affordability, to ensure that protections are in place for households who are struggling with their water bill. However, 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.

Business customers

We heard from a small number of respondents who said that the SPS should more clearly take a position on price regulation and customer service in the water retail market.

Four respondents noted that the use of price regulation in the retail market may prevent the development of competition. We want competition to be the main mechanism through which the market delivers value to customers. However, when opening the market, the government committed to ensuring that customers were no worse off as a result. Our broad expectation is that the requirement for price protection will diminish over time. We therefore did not make any edits to the final SPS on this point.

Four responses suggested that water companies should be incentivised to engage and protect the interests of non-household customers. The SPS already sets out our expectation for Ofwat to incentivise water companies to continually improve their customer services and complaints handling for both household and non-household customers. It also encourages Ofwat to protect the interests of customers that are not engaged in the market using competition or where appropriate regulation.

Driving markets to deliver for customers

There was broad support for the priority relating to markets and competition. However, we did receive specific feedback on the issues of market frictions, New Appointments and Variations (NAVs), and the strategic direction of the market.

In response to comments on market frictions and NAVs we have made two minor changes to the SPS. Four respondents pointed out that some structural challenges in the business retail market needed to be addressed on top of the market frictions to deliver an effective market. We have adjusted the SPS to reflect these comments, setting clearer expectations of Ofwat on these issues.

Two respondents commented on the government’s expectations of Ofwat regarding NAVs. These comments focused on the differences faced by full-service NAVs compared to bulk supply NAVs, and on the NAV licensing regime.

The NAV market has seen significant growth over the last four years. We expect Ofwat to use its regulatory powers to ensure that the NAV market harnesses market forces to deliver value for customers, the environment and wider society. A fit-for-purpose licensing regime alongside an appropriate regulatory framework for full-service and bulk supply NAVs fit into this vision. We have amended the statement to include an expectation of Ofwat to support the development of the NAV market with this in mind.

We have not made changes to the SPS on the issue of strategic direction of the water retail market. Three respondents expressed their wish to see Ofwat publish a clear vision for the business retail market. The new Strategic Panel will provide this strategic direction and oversee programmes of work to improve customer outcomes. Ofwat and Defra will work closely with the Strategic Panel.

Next steps

Alongside the publication of this summary of responses and government response, we have laid the strategic policy statement before Parliament.

Subject to Parliament’s views, the statement will be published on GOV.UK 40 days after the date it was laid before Parliament.

Annex 1 – Organisations that responded

• Abbey Manor Group Ltd and a group of regional SME developers
• Affinity Water
• Anglian Water
• Arqiva
• Blueprint for water
• Bristol Water
• British Canoeing
• Business Stream
• Cam Valley Forum
• Castle Water
• The Consumer Council for Water
• Clean Rivers Trust
• Department for Infrastructure (Northern Ireland)
• Environmental Audit Committee
• East Riding and Hull City Council
• Hayling Sewage Watch / Save our Island Group
• Energy and Utility Skills
• Energy Saving Trust
• Everflow Water
• Future Water
• Global Infrastructure Investor Association (GIIA)
• The Greater London Authority
• Icosa Water
• Independent Water Networks
• Keswick Flood Action Group
• Local Government Association
• London Borough of Hillingdon
• London Drainage Engineers Group
• Mendip District Council
• Mersey Rivers Trust
• Moors for the Future Partnership
• Market Operator Services Limited (MOSL)
• National Flood Forum
• National Energy Action (NEA)
• Northumbrian Water
• Partnership for South Hampshire
• Pennon Water Services
• Portsmouth Water
• Salmon & Trout Conservation UK and Angling Trust.
• Salmon and Trout Conservation UK
• Sedgemoor District Council
• Sefton Council
• Severn Trent Water
• Shernal Brookhouse Limited
• Somerset County Council
• Somerset West and Taunton Council
• South East Water
• South Somerset District Council
• South West Water
• Southern Water
• Stormwater Shepherds UK
• Sustainability First
• Thames Water
• The Chartered Institution of Water and Environmental Management
• The Clean Harbours Partnership
• The Royal Borough of Kensington and Chelsea
• Tideway
• UK Environmental Law Association
• The UK Water Retailer Council
• United Utilities
• W A consultancy
• Water UK
• Waterlevel Ltd
• Water-Plus
• Waterscan and self-supply community
• Waterwise
• Wave
• Wessex Water
• Wild Trout Trust
• Windrush against Sewage Pollution
• Work and wellbeing
• Yorkshire Forum for Water Customers
• Yorkshire Water