UK water sector faces historic investment challenge to secure water future, NAO report warns

The UK water sector faces unprecedented environmental, supply and infrastructure challenges, according to a critical new report by the National Audit Office (NAO). With a projected shortfall of five billion litres of water per day by 2050, the industry must urgently attract record levels of investment to safeguard future supplies. Yet, the report finds, the regulatory framework has failed to ensure operational improvements or secure the necessary financial resilience to meet looming demands.

Auditing the roles of Ofwat, the Environment Agency, the Drinking Water Inspectorate and the Department for Environment, Food and Rural Affairs (Defra), the NAO highlights critical failures in driving infrastructure development and investment. “Given the unprecedented situation facing the sector, Defra and the regulators need to act urgently to address industry performance and resilience to ensure the sector can meet government targets and achieve value for money over the long term for bill payers,” said Gareth Davies, head of the NAO.

The sector’s investment needs are staggering. Ofwat anticipates a 70% increase in infrastructure spending over the next five years, amounting to £47 billion, part of a wider £290 billion needed over 25 years to meet government targets. At the same time, confidence in the financial health of water companies is deteriorating, with Ofwat raising concerns about the resilience of 10 out of 16 major firms in 2023-24.

Despite the urgency, there is no national plan to coordinate the necessary projects. Currently, 30 major water supply initiatives, including nine reservoirs, are under development at an estimated additional cost of £52 billion. However, the sector’s pace of progress remains slow. Without a robust system to assess the condition of water infrastructure, replacement efforts are woefully behind — at the current rate, it would take 700 years to renew the existing network.

This chronic underinvestment and sluggish performance have led to record-low public trust. Although the UK maintains one of the highest standards of drinking water globally, there has been little to no improvement over the past decade in key areas like mains bursts, supply interruptions, and pollution incidents. Storm overflows, resulting in untreated sewage being released into rivers and seas, remain a visible and damaging environmental issue.

Responding to the report, Mike Keil, Chief Executive of the Consumer Council for Water, emphasised the scale of the task ahead: “Restoring customer trust in the water sector is a monumental task which depends not only on effective regulation but also water companies delivering on their commitments. Companies are now being entrusted with an unprecedented amount of customers’ money to tackle many of the challenges laid bare in the NAO report and there will be no hiding place for them if they fail to deliver the step-change in performance people expect.”