Water supply and sanitation in England and Wales


Public water supply and sanitation in England and Wales has been characterised by universal access and generally good service quality. Salient features of the sector in the United Kingdom compared to other developed countries is the full privatisation of service provision and the pioneering of independent economic regulation in the sector in Europe. There has been a substantial increase in real tariffs between 1989 and 2005, whilst independent assessments place the cost of water provision in the UK as higher than most other major countries in the EU. The government body responsible for water regulation, together with the water companies, have claimed improvements in service quality during the same period.

Water resources and uses

On average, only about 10 percent of freshwater resources in England and Wales are abstracted. Water companies abstract almost half of this amount. The remainder is used for cooling power plants, other industries, fish farming and other uses. Water companies use mainly surface water, but also groundwater.
The amount of water available in England and Wales to meet the needs of people and to sustain the water environment varies greatly between different places and seasons, and from one year to another. Parts of Wales and the English Lake District are well endowed with water, while water is scarce in parts of Eastern and Southeastern England. Parts of England were affected by severe drought in 1976, 1995 and 2005-2007.
Household water use in England and Wales stood at about 145 litres/capita/day in 2008/09. Total water supply for domestic and commercial customers in England and Wales was 14.5 million cubic metres per day in 2009.

Quality of service

The quality of water and sanitation services in England and Wales is regularly and comprehensively monitored by the economic regulator, OFWAT. OFWAT statistics show that service quality has improved since the early 1990s, i.e. shortly after services were privatised. For example, the number of unplanned interruptions, properties at risk of low pressure, the share of complaints that were not answered within five days and combined sewer overflows have all declined, while sewage treatment works compliance has increased and river water quality has improved. A comparison with service quality in other areas of the European Union is difficult, since in few other countries such comprehensive water and sanitation service quality data are being published as it is being done by OFWAT.
Drinking water quality is also universally high, although isolated incidents where quality falls have occurred. For example, in June 2008 about 250,000 people in Northamptonshire were being told to boil tap water for drinking after routine tests by Anglian Water found cryptosporidium

Infrastructure

Physical assets of private water and sanitation companies in England and Wales include 1,000 reservoirs, over 2,500 water treatment works and 9,000 sewage treatment works. More than 700,000 kilometres of mains and sewers are buried beneath the ground – that’s enough to stretch to the moon and back, or a distance 200 times greater than the UK’s entire motorway network.

Responsibility for water supply and sanitation

Policy and regulation

Within the government the Department of Environment, Food and Rural Affairs has the responsibility for policy in the water and sanitation sector. The economic regulator of water companies in England and Wales is the Water Services Regulation Authority, OFWAT. The Environment Agency is responsible for environmental regulation, and the Drinking Water Inspectorate for regulating drinking water quality. Drinking water standards and wastewater discharge standards in the U.K., as in other countries of the European Union, are determined by the EU.

Service provision

In England and Wales water and sewerage services are provided by 10 private regional water and sewerage companies and 16 mostly smaller private "water only" companies.

History and recent developments

Local government service provision (before 1973)

Before 1973 water and sanitation services were provided by water undertakings and sewerage and sewage disposal authorities respectively. Until the 1950s there existed over a thousand water undertakings, with administrative boundaries similar to those of local government boundaries. By the early 1970s their number had been reduced to 198 by a gradual consolidation process aimed at achieving economies of scale. Out of the 198 water undertakings 64 were run by individual local government authorities, 101 by joint boards comprising several local government authorities, and 33 were statutory privately owned water companies, some of which date back to the Victorian era. At the same time there were over 1,300 sewerage and sewage disposal authorities, most of them run by individual local government authorities. The sector thus was highly fragmented.
Water resources management was entrusted to 29 river authorities created in 1965. Their responsibilities included water conservation, land drainage, fisheries, control of river pollution and, in some cases, navigation.

Public regional companies (1973–1989)

Through the Water Act 1973 the government established 10 Regional Water Authorities in order to achieve even greater economies of scale, especially in sanitation, compared to the prior gradual consolidation of water undertakings. The reform was also aimed at putting in practice the principle of integrated river basin management, especially concerning the planning of investments in wastewater treatment. Given the small size of many river basins in England and Wales, in practice the area covered by each of the Regional Water Authorities typically contained more than one river basin.
The Regional Water Authorities were not only in charge of water supply and sanitation, but also of water resources management, thus opening the possibility of conflicts of interest since the same institution was in charge of abstracting water and discharging wastewater on the one hand, and controlling these same abstractions and discharges on the other hand. The Water Act left open the possibility to contract out water supply and sanitation services to local authorities. However, in practice this did not happen, and substantial assets were transferred from local governments to the new water authorities. Since the transfer was internal to the public sector, no compensation was paid to local authorities. Local authorities also initially held a majority of the Board seats of the new organisations. The private statutory water companies, which provided water to 25% of the population, escaped reorganisation and were left to operate as before.
With the election of Margaret Thatcher in 1979 the water and sanitation sector initially remained public, but the government attempted to make the enterprises operate more along commercial lines. As a result, the number of employees in the sector declined from 61,000 in 1976 to 52,000 in 1985, real operating costs declined, tariffs were increased above the inflation rate and the share of self-financing of investments increased. However, government regulators also cut back on investments. While the industry became profitable, the rate of return on assets based on replacement cost values remained low at less than 2%. As part of the attempt to commercialise the service providers, the Water Act 1983 reduced the number of Board members of the water authorities. However, it also eliminated the local government representation on the Boards and made all Board members appointed by Ministers, thus further centralising the sector.

Privatisation (1989)

In 1989 the government privatised the ten public regional water authorities through divestiture. The authorities' functions related to water resources management were separated and retained by the public sector. At the same time the regulatory agency OFWAT was created, following the model of infrastructure regulatory agency set up in other sectors such as telecommunications and energy.

Water Industry Act 1999

The Water Industry Act 1999 banned the disconnection of water and sewerage services for non-payment by domestic customers. It also allows the continuation of water charges based on rateable property value, as opposed to volumetric rates based on metering.

Retail market for businesses

From 1 April 2017, most businesses and organisations in England will be able to choose which company will supply their retail water services.

Financial aspects

Tariffs

Tariff level. Water and sanitation tariffs in England and Wales have increased by 44% in real terms between 1989 and 2008–09 and are among the highest in the world. The average household water and sewage bill in England and Wales was £330 in 2008-09. According to a 2006 survey by NUS Consulting Group the average water tariff without sewerage in the U.K. for large consumers was the equivalent of US$1.90 per cubic metre. This was the third-highest tariff among the 14 mostly OECD countries covered by the report. A study commissioned by the German industry association BGW in 2006, compared the average household water and sanitation bill in four EU countries. This study showed that water bills in England and Wales were the highest among the four countries. Average water bills were 295 euro per year in England and Wales, higher than in Germany, France or Italy.
Comparison of annual water and sanitation bills in four EU countries:
Water tariffSewer tariffTotal
Germany€85€111€196
England and Wales€95€93€188
France€85€90€175
Italy€59€40€99

Source: Metropolitan Consulting Group: VEWA - Vergleich europaeischer Wasser- und Abwasserpreise, 2006, p. 7 of the executive summary
Taking into account differences in subsidies and service quality, the cost of supplying water at an equalised service level would be 84 euros in Germany, 106 euro in both France and England/Wales, and 74 euro in Italy. Concerning sanitation, unequalised tariffs are the highest in Germany at 111 euro per year, 93 euro in England and Wales, €90 in France and only €40 in Italy. Equalised costs net of subsidies are, however, highest in England and Wales with €138, followed by France, Germany and Italy.
Tariff structure and cross subsidies. Metered connections are charged at a volumetric rate, while unmetered connections are charged at a flat rate based on the rateable value of the property. The rateable value system was intended as a cross subsidy from wealthier to poorer households. However, since rateable values are often outdated, the subsidy is poorly targeted. Since more and more highly rated households opt for metering, flat rates for the remaining unmetered customers are being increased to compensate for the lost revenue. As a result, the already imperfect cross-subsidy system is unwinding. An Independent Report on Charging for Household Water and Sewerage Services published in 2009 by Anna Walker recommended a package of help to ensure that "the transition to metering is not to cause real problems of affordability to those on low incomes".
Tariff review procedures Water and sanitation tariffs are regulated by OFWAT, which sets caps for tariff changes over five-year asset management plan periods. In the 2000–2005 review period OFWAT mandated an average annual reduction of tariffs of 1.6%. However, in the 2006–2010 review period it has allowed an average annual increase of 4.2%.
Affordability As a proportion of income, in England and Wales the cost of water and sewerage together works out at less than 1.5% of weekly earnings. More details on tariffs in England and Wales are provided in OFWAT's annual reports on water and sewerage charges.

Investment and financing

Average annual investments in water and sewerage in England and Wales were £3.3 billion in 2000–2005 and £3.6bn in 2005–2010, according to OFWAT, which corresponds to £61 per capita per year. According to the industry association Water UK, between 1980 and 2010 the water and wastewater industry in England and Wales will have invested over £88bn.
Investments are financed primarily through self-financing and borrowing in the capital market. In March 2006 overall borrowing stood at £23.5bn for England and Wales. Net returns on this borrowing in 2006 were 6.6%.

Efficiency (water losses)

Efficiency of service provision has many dimensions, of which only one is treated here.
According to OFWAT leakage in England and Wales has declined significantly from 228 litres/property/day in 1994-95 to 141 l/p/d in 2006–07, enough to supply the needs of 10 million people. According to the Environment Agency, many companies in the UK have reduced their water loss to the economic level of leakage. This is the level at which, in the long-term, the marginal cost of leakage control is equal to the marginal benefit of the water saved. The rate of reduction in leakage has slowed for many companies because the most obvious causes of leakage have been detected and addressed, leaving only less apparent leakage problems. Models have been developed and fine-tuned to assess the economic level of leakage. A summary of the debate on these models can be found in a recent report by OFWAT.
According to a comparative study commissioned by the German water industry association BGW average water losses in the distribution network in England and Wales have been estimated at 19 percent. They are lower than in France or Italy, but higher than in Germany, where they are apparently only 7 percent. The study states that its methodology allows for an accurate comparison, including water used to flush pipes and for firefighting. This is consistent with the International Water Association's definition of non-revenue water, which includes authorised non-metered consumption such as for flushing and firefighting.
OFWAT does not use percentage figures when it assesses leakage levels. Also it assesses only leakage and not broader losses. It is thus difficult to compare figures from the comparative study cited above with OFWAT figures for England and Wales.

Metering

A particularity of water tariffs in England and Wales is the low share of metering. Most users are not billed on a volumetric basis and have no financial incentive for water conservation. Since the 1990s efforts have been made to increase the share of household metering, which reached 33% in 2008 for the UK. The Environment Agency would like to see 75% of households metered by 2025. Studies show that water meters lead to a 5-15% reduction in household water use. Meters are typically only installed at the request of customers.
In 2006 the Environment Agency announced it favours compulsory metering in water-scarce southern England. The measure is controversial. Consumer groups fear it will penalise poorer families with lots of children, and the disabled, who use more water. The announcement also represents a U-turn for Labour, which fiercely opposed compulsory water meters when in opposition, describing them as a 'tax on family life'. In March 2006 the company Folkestone & Dover Water Services was granted the power to install compulsory water meters in a landmark ministerial ruling under which it was given 'water scarcity status' by Environment Minister Elliot Morley. In a written ministerial statement, Mr Morley said: 'In many parts of the country, water is a precious resource which we can no longer simply take for granted.' The company says that Folkestone and Dover are in one of the driest areas in the UK. Many parts of the Middle East had more rain than this area, and it is getting even drier and warmer due to climate change.

Environmental criticisms

In July 2011, the think tank Policy Exchange reported a significant decline in river quality due to abstraction carried out by water companies. The report calls for water companies to be charged more for using the most environmentally vulnerable rivers and aquifers in drier parts of the country, with cheaper rates where water is more abundant. It also called for higher water charges during droughts.
In 2009, an investigation conducted by the BBC's Panorama concluded that the operation of more than 20,000 Combined Sewer Overflow pipes was leading to the routine spillage of untreated wastes around Britain's coastline, potentially leading to very dirty water around some of the most popular beaches in the UK. The CSOs, intended for use in very rare occasions, were not covered by the existing legislation for waste emissions.

Operational criticisms

A 2001 study by the Public Services International Research Unit, which is affiliated with trade unions and opposes privatisation, stated that