Conclusion 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.