My Lords, I hope that Amendment 81CC will be seen by the Minister as a constructive one. It is supported by the Local Government Association, of which I am a vice-president but it is also supported by the water industry, specifically its trade body, Water UK. The purpose of the amendment is to place a
requirement on Ofwat to have regard to future housing projections and demographic growth in adopted local plans. This would give greater certainty for water companies to invest in the essential infrastructure needed to support growth. The benefit for local communities would be more consistent planning such as investment in new reservoirs, more flexibility between water supply zones and upgrades to outdated existing infrastructure to cope with more extreme weather conditions and the increased incidence of drought and flooding.
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It has become increasingly clear that accelerated development to support economic growth, which the Government are committed to delivering, will stretch the capacity of our infrastructure. We therefore need to mobilise large-scale, long-term investment in repair, replacement and renewal of critical infrastructure across the country to provide the supply that we need. Demand for water is rising, supplies are more problematic, and flooding is more prevalent—partly as a consequence of too many of our drainage systems being unable to cope with the volume of water. I think we would all agree that an improved water infrastructure is needed to deal with that increasingly volatile weather, with more reservoirs to fight drought and more efficient pipe repair and replacement to conserve supplies.
Significant parts of the UK’s water infrastructure are becoming outdated. The average age of sewers in England and Wales is 63 years, 40% of London’s water mains are more than 100 years old, and the latest available total leakage level for the water companies in England and Wales, which I take from the 2009-10 Ofwat Service and Delivery report, shows supply pipe leakage as being 787 megalitres per day, out of a total of 3,281 megalitres per day. That is a loss of 24%—enough to fill more than 300 Olympic-size swimming pools.
Another key issue is the five-yearly price reviews, which are unhelpful to water companies’ ability to plan for the long term. In England and Wales, water companies determine their need for investment in infrastructure through their resource management plans, which take into account a wide range of supply-demand factors, including housing projections, to ensure security of supply in the future. The Water Services Regulation Authority, Ofwat, is the water industry’s economic regulator for England and Wales. Currently, it reviews prices every five years and sets the prices that water companies can charge and the investments that they can make over the period. The next five-year period begins in 2015.
Economic regulation is recognised as an important enabler of infrastructure investment. However, given the greater investment in water infrastructure needed now, it is vital to consider whether the existing regime remains fit to respond to the future investment challenges. The Institution of Civil Engineers concluded in its 2010 State of the Nation report that water investments planned for 2010-15,
“don’t adequately take into account future population growth”,
because the current framework focuses on short-term costs in place of long-term sustainability. The report concluded that the price review framework,
“simply can’t cope with issues that require investment beyond the five-year regulatory cycle”.
Long-term investments require confidence over the life of the investment. The current system of price reviews does not give water companies sufficient certainty over charging, which they need in order to undertake longer-term investment schemes.
The amendment would therefore place a new duty on Ofwat to take explicit consideration of local housing and demographic change projections in its role as economic regulator, which would translate into more certainty for water companies to invest in essential infrastructure needed to support growth. I beg to move.