Water & Floods

Climate change increases the likelihood of flooding. UK cities, towns and villages must adapt and improve their resilience to its impacts: currently, about five million homes are at risk.

A new long term funding strategy delivering a national standard for resilience to flooding is needed to better prepare and protect all parts of the country.

The National Infrastructure Assessment set out the case for this nationwide standard of resilience to flooding, with catchment based plans. These plans should evaluate the full range of options including traditional flood defences, ‘green infrastructure’, individual property measures and spatial planning.

Climate change and population growth puts increasing pressure on England’s water: there is a one in four chance of a serious drought before 2050. Boosting resilience, the Commission showed, is almost half as expensive as relying on emergency measures in times of drought (saving up to £20 billion over the next 30 years).

A twin-track approach of managing demand and enhancing supply is needed to deliver by 2050 an extra 4,000 million litres of water every day to reduce the risk of drought. This can be achieved by the government, regulators and water companies working together to deliver a national water transfer network and additional supply by the 2030s, halving leakage by 2050 and better managing demand.

The nation’s energy, water, digital, and transport systems are vulnerable to shocks and stresses such as those caused by heatwaves, accidents, surges in demand or flooding. Many risks are exacerbated by climate change.

With infrastructure systems increasingly interconnected, the knock-on effects of any failure can have major impacts on the economy and people’s lives. This study explores how the country needs to prepare better for the future and manage for uncertainty.

This means government setting clear resilience standards every five years, and infrastructure operators stress testing their systems to demonstrate they can meet resilience standards and address vulnerabilities. Infrastructure operators should maintain long term resilience strategies, and regulators should account for these when making their price determinations.

Government, regulators, and operators all have a role to play. The resilience framework the Commission recommends seeks to improve how infrastructure systems anticipate, resist, absorb, and recover from shocks and stresses, while valuing resilience properly and driving adaptation and transformation to meet the needs of the future.

Climate change, growing demand and increased digitalisation is putting more pressure on the country’s infrastructure systems, and strategic, long term investment across water, energy and telecoms is needed to enable them to adapt.

The Commission has recommended that the government sets out a long term vision with strategic priorities for each of these sectors and give regulators new powers. This will enable companies to invest in sustainable infrastructure to reduce emissions, ensure reliable digital connectivity and build resilience to floods and drought, while still protecting consumers’ interests.

The high levels of investment will come from the private sector, but is ultimately funded by consumers, so they need to have confidence that their money is being spent on the right things and that they are not being exploited. Investors benefit from a regulatory system that is trusted by the public and government, so the Commission recommends that an updated regulatory system should more fairly balance the risk and reward between investors and consumers and work for all groups of consumers. The Commission also recommended a move away from monopoly providers to a greater use of competition, where appropriate, in the design and build of infrastructure service networks

Government should introduce a statutory requirement by 2022 for Secretaries of State to publish:

• clear, proportionate and realistic standards every five years for the resilience of energy, water, digital, road and rail services
• an assessment of how existing structures, powers and incentives enable operators to deliver these standards or where changes are needed.

Regulators should introduce obligations on infrastructure operators to meet these resilience standards by 2023.

Regulators should require a system of regular stress testing by 2024 for energy, water, digital, road and rail infrastructure operators, to ensure that infrastructure operators’ systems and decision-making can credibly meet resilience standards for infrastructure services.
Regulators should introduce obligations by 2023 on infrastructure operators to require them to participate in stress tests and to require remedial action in case of failure of stress tests.

Energy, water, digital, road and rail infrastructure operators should develop and maintain strategies to ensure infrastructure services can continue to meet resilience standards in the long term. To ensure this, regulators should:

• introduce obligations by 2023 on infrastructure operators to require them to develop and maintain long term resilience strategies (where there is no current requirement)
• set out, in future price reviews, how their determinations are consistent with meeting standards of resilience in both the short and long term.

Forward looking regulation, by independent regulators, remains the best approach to balancing the needs of consumers and investors, whilst incentivising efficiency. However, this should be embedded in a clearer strategic framework for the long-term investment needs of the country:

• The government should introduce legislation by 2021 to fulfil its previous proposal that regulators have regard to endorsed recommendations from the Commission
• The government should set out a long-term strategic vision for each of the regulated sectors, through strategic policy statements, within the first year of each Parliament, to support lasting plans and stable funding.

Regulatory frameworks should reflect the devolution of powers within the UK:

• Ahead of the next price controls, regulators should put in place formal mechanisms, such as advisory committees, to ensure they have regard to the strategic vision set out by devolved administrations, where devolved and reserved powers interact
• In future price controls, regulators should demonstrate how they have taken consideration of the strategic vision of metro mayors and relevant local government, within devolved powers, where this has material impacts for network investment
• Regardless of specific devolved powers, regulators should engage with the views of elected representatives, alongside other sources of insight into consumers and the public’s preferences.

Regulators’ duties need to be coherent, covering price, quality, resilience and environment. Government should introduce legislation by 2021 ensuring that, where they are currently missing, Ofwat, Ofgem and Ofcom have duties to require them to seek to:

• Ensure their decisions promote the resilience of infrastructure systems
• Ensure their decisions are consistent with, and promote the achievement of, the government’s legislated greenhouse gas emissions targets, currently achieving net zero greenhouse gases by 2050
• Collaborate with other regulators, where relevant, to avoid contradictory regulation and promote efficient outcomes for consumers on cross-sectoral issues.

The use of competition should be enhanced as the most reliable means of supporting innovation, particularly where there is rapid technological change:

• Regulators should focus ‘standard’ periodic price controls on the maintenance of existing networks and marginal enhancements
• Ofcom should continue to promote infrastructure competition for fibre and mobile networks
• Government should introduce legislation, ahead of the next price controls, to remove any barriers to the use of competition in the provision of strategic enhancements to water and energy networks
• For future price controls, Ofwat and Ofgem should separate consideration of strategic enhancements from the ‘standard’ periodic price control. Ofwat and Ofgem should develop tendering processes for strategic enhancements, with a clear, public justification required where tendering is not used
• Government should ensure that regulators have the resources they need to carry out competitive tenders for transformational investments.

Regulators should be more proactive in addressing financial risk and corporate governance, to ensure that rewards reflect performance and risks that are genuinely taken by investors:

• In future price controls, regulators should take direct account of information asymmetries in assessing the weighted average cost of capital and total expenditure allowances, ‘aiming off’ to ensure a fair outcome for consumers and investors
• In future price controls, regulators should introduce outperformance sharing mechanisms to allow consumers to share in the benefits that equity investors achieve from high gearing, where companies have gearing levels which significantly exceed the level assumed by the regulators
• For natural monopoly companies, regulators should evaluate the case for an absolute cap on gearing
• For firms with a natural monopoly, regulators should ensure executive salaries are demonstrably linked to long-term performance for consumers and the public.

Regulators should be able to prevent companies from engaging in price discrimination that does not provide an overall benefit to consumers:

• Regulators should require companies to report annually on which groups of customers are paying more for the same service; companies should be required to publicly justify their price discrimination policies or rectify them
• Regulators should be able to require companies to change their price structures where price discrimination cannot be justified by benefits to consumers
• Government should introduce legislation, by 2021, to replace the current court-based enforcement of consumer law with an administrative compliance and enforcement model, subject to appropriate scrutiny by the courts.

Government and regulators cannot rely on a flawed assumption that market design and distributional consequences can be separated. For future regulatory proposals with significant distributional consequences:

• Regulators should publish an analysis of the distributional consequences for consumers and businesses of their proposals, and of the impact of possible mitigations for significant adverse effects
• Regulators’ boards should be given the power, by 2021, to seek explicit guidance from ministers on strategic policy direction and distributional choices, against a menu of feasible options provided by the regulator and within a fixed three-month period

The UK Regulators Network should have a stronger role, supported by an independent chair:

• By the end of 2020, the UK Regulators Network should appoint an independent chair
• By the end of 2020, the government should review data sharing powers by regulators to ensure they can develop a ‘whole customer view’
• By the end of 2021, regulators, with the support of the UK Regulators Network, should develop joint data sets to enable whole customer analysis
• By July 2021, the independent chair of the UK Regulators Network should publish a business plan setting out how the network will support collaboration on the achievement of common goals; coordination to avoid contradictory regulation and inefficiency; data and knowledge sharing, including supporting the regulators to improve their data management capability; improved performance reporting by regulators.

The Commission recommends that government should set out a nationwide full fibre connectivity plan by spring 2019, including proposals for connecting rural and remote communities. This should ensure that full fibre connectivity is available to 15 million homes and businesses by 2025, 25 million by 2030 with full coverage by 2033. To achieve these targets:

• Ofcom should promote network competition to drive the commercial rollout of full fibre, by deregulating where competition is effective and guaranteeing a fair bet on risky investments before regulating any uncompetitive areas.
• Government should part subsidise rollout to rural and remote communities, beginning by 2020, starting with the hardest to reach areas and community self-build.
• Government and Ofcom should allow for copper switch-off by 2025.
• Government and Ofcom should take action to cut the cost of full fibre deployment including:
  • Government should ensure the processes for obtaining wayleaves and connecting new builds are the same for digital infrastructure as other utilities by 2019.
  • Local government should designate ‘digital champions’ to improve telecoms processes such as street work permissions and access to publicly owned assets.
  • Ofcom should monitor the accessibility of Openreach’s duct and pole infrastructure by levels of usage.

The Commission recommends that government should set out a pipeline of pot 1 Contracts for Difference auctions, to deliver at least 50 per cent renewable generation by 2030, as part of the transition to a highly renewable generation mix. Government should:

• Move technologies that have recently become cost competitive, such as offshore wind, to pot 1 following the next Contracts for Difference auction in Spring 2019. Pot 1 should be used for the overwhelming majority of the increase in renewable capacity required.
• Publish indicative auction dates and budgets for the next decade by 2020.
• Over time take whole systems costs into account in Contracts for Difference auctions, as far as possible.
• Consider whether there is a case for a small-scale, pot 2 auction in the 2020s, if there are technologies which are serious contenders for future pot 1 auctions.
• Not agree support for more than one nuclear power station beyond Hinkley Point C, before 2025.

The Commission recommends that government needs to make progress towards zero carbon heat:

• Establishing the safety case for using hydrogen as a replacement for natural gas, followed by trialling hydrogen at community scale by 2021.
• Subject to the success of community trials, launching a trial to supply hydrogen to at least 10,000 homes by 2023, including hydrogen production with carbon capture and storage.
• By 2021, government should establish an up to date evidence base on the performance of heat pumps within the UK building stock and the scope for future reductions in the cost of installation.
• Set a target for the rate of installations of energy efficiency measures in the building stock of 21,000 measures a week by 2020, maintained at this level until a decision on future heat infrastructure is taken. Policies to deliver this should include:
  • Allocating £3.8 billion between now and 2030 to deliver energy efficiency improvements in social housing.
  • Government continuing to trial innovative approaches for driving energy efficiency within the owner occupier market.
  • Government setting out, by the end of 2018, how regulations in the private rented sector will be tightened and enforced over time.

The Commission recommends that government should set a target for recycling 65 per cent of municipal waste and 75 per cent of plastic packaging by 2030. Government should set individual targets for all local authorities and provide financial support for transitional costs. The government should establish:

• Separate food waste collection for households and businesses (to enable production of biogas) by 2025.
• Clear two symbol labelling (recyclable or not recyclable) across the UK by 2022.
• A consistent national standard of recycling for households and businesses by 2025.
• Restrictions on the use of hard-to-recycle plastic packaging (PVC and polystyrene) by 2025.
• Incentives to reduce packaging and for product design that is more easily recyclable by 2022.
• A common data reporting framework for businesses handling commercial and industrial waste by the end of 2019, ideally through voluntary reporting but if necessary by legislation.

The Commission recommends that government, Ofgem and local authorities should enable the roll out of charging infrastructure sufficient to allow consumer demand to reach close to 100 per cent electric new car and van sales by 2030. Government should address the implications of technological innovation in long term transport planning processes, including the next rail control period and road investment strategy.

• Ofgem should take on the role of regulating the interaction between electric vehicle charge points and the electricity network immediately, ensuring that electric vehicle charging and vehicle to grid services contribute to the optimisation of the energy system. Government, industry and Ofgem should work together to set minimum standards for a network of interoperable, smart charge points.
• Ofgem should commission electricity network operators to work with charge point providers to identify potential anticipatory investments required to accommodate public charging infrastructure. Opportunities for investment within the current price control period should be identified by Summer 2019.
• Government should place a requirement on local authorities to work with charge point providers to allocate 5 per cent of their parking spaces (including on-street) by 2020 and 20 per cent by 2025 which may be converted to electric vehicle charge points.
• Government should subsidise, by 2022, the provision of rapid charge points in rural and remote areas, where the market will not deliver in the short term.
• Government should establish a centre for advanced transport technology in the Department for Transport to bring together work on technological innovation and ensure its implications are central to future investment proposals. This should include developing and overseeing the Commission’s proposed connected and autonomous vehicles framework.

The Commission recommends that government should make £500 million a year of funding available from 2025/26 to 2034/35 for local highways authorities to address the local road maintenance backlog.

The Commission recommends that cities should have the powers and funding they need to pursue ambitious, integrated strategies for transport, employment and housing.

• By 2021, metro mayors and city leaders should develop and implement long term integrated strategies for transport, employment and housing that will support growth in their cities.
• By 2021, government should ensure city leaders have the right powers to deliver these integrated strategies, including the power for metro mayors to make decisions on major housing development sites.
• Government should set out devolved infrastructure budgets for individual cities for locally determined urban transport priorities in line with the funding profile set out by the Commission. Budgets for 2021-2026 should be confirmed by mid 2019. Government should pass legislation, by 2020, requiring cities to be given regular five year infrastructure budgets.
• Government should allocate significant long term funding for major capacity upgrades in selected growth priority cities, in line with the funding profile set out by the Commission. Cities benefiting from major projects should make commitments on housing delivery and provide at least 25 per cent of funding. Priority cities should be identified by mid 2019, with long term investment commitments agreed by 2020. Future rounds should take place no more than twice a parliament.

The Commission recommends that government should set out a strategy to deliver a nationwide standard of resilience to flooding with an annual likelihood of 0.5 per cent by 2050 where this is feasible. A higher standard of 0.1 per cent should be provided for densely populated areas where the costs per household are lower. To deliver the strategy:

• By the end of 2019, government should put in place a rolling 6 year funding programme in line with the funding profile set out by the Commission. This should enable efficient planning and delivery of projects and address the risks from all sources of flooding.
• The Environment Agency should update plans for all catchments and coastal cells in England before the end of 2023. These should identify how risk can be managed most effectively using a combination of measures including green and grey infrastructure, spatial planning and property level measures.
• Water companies and local authorities should work together to publish joint plans to manage surface water flood risk by 2022.
• The Ministry of Housing, Communities and Local Government and planning authorities should ensure that from 2019 all new development is resilient to flooding with an annual likelihood of 0.5 per cent for its lifetime and does not increase risk elsewhere.

The Commission recommends that government should ensure that plans are in place to deliver additional supply and demand reduction of at least 4,000 Ml/day. Action to deliver this twin-track approach should start immediately:

• Ofwat should launch a competitive process by the end of 2019, complementing the Price Review, so that at least 1,300 Ml/day is provided through (i) a national water network and (ii) additional supply infrastructure by the 2030s.
• The Department for Environment, Food and Rural Affairs should set an objective for the water industry to halve leakage by 2050, with Ofwat agreeing 5 year commitments for each company (as part of the regulatory cycle) and reporting on progress.
• The Department for Environment, Food and Rural Affairs should enable companies to implement compulsory metering by the 2030s beyond water stressed areas, by amending regulations before the end of 2019 and requiring all companies to consider systematic roll out of smart meters as a first step in a concerted campaign to improve water efficiency.

The Commission recommends that government should publish good quality data on infrastructure costs and performance. All public bodies taking decisions on strategic economic infrastructure should publish the forecast costs and benefits of their major infrastructure projects at each appraisal stage and at a suitable point after completion, by the end of 2019. The Infrastructure and Projects Authority should work with departments to ensure that costs are comparable between sectors.

The Commission recommends that design should be embedded into the culture of infrastructure planning, to save money, reduce risk, add value, support environmental net gain and create a legacy that looks good and works well, by:

• Government ensuring that all Nationally Significant Infrastructure Projects, including those authorised through hybrid parliamentary bills, have a board level design champion and use a design panel to maximise the value provided by the infrastructure.
• Design panels for nationally significant infrastructure projects having regard to design principles to be published by the National Infrastructure Commission based on advice received from the national infrastructure design group.

The Commission recommends that government should deliver long term certainty over infrastructure funding by adopting the funding profile set out in the ‘fiscal remit’ table in Spending Review 2019 and other future spending plans.

The Commission recommends that government should maintain access to the European Investment Bank if possible. If access is lost, a new, operationally independent, UK infrastructure finance institution should be established by 2021. To enable this, government should consult on a proposed design of the new institution by Spring 2019. The consultation should cover:

• Functions, including provision of finance to economic infrastructure projects in cases of market and coordination failures; catalysing innovation; and acting as a centre of excellence on infrastructure project development, procurement and delivery.
• A clear mandate, including sound banking, additionality and having a wider economic and social impact.
• Governance to safeguard the operational independence of the institution.

The Commission recommends that local authorities should be given further powers to capture a fair proportion of increases in the value of land from planning and infrastructure provision. To enable this, government should:

• Remove pooling restrictions on Section 106 in all circumstances, through forthcoming secondary legislation by 2020.
• Remove the ballot requirement for upper tier authorities’ powers to levy a business rate supplement of 2p or less in the pound for infrastructure, except where the supplement exceeds one third of scheme costs by 2021.
• Give local authorities powers to levy zonal precepts on council tax, where public investments in infrastructure drive up surrounding property values by 2021.
• Provide greater certainty in compulsory purchase compensation negotiations by including independent valuations early in the process to be paid for by the acquiring authority by 2021.

Ofwat should launch a competitive process by the end of 2019, complementing the Price Review, so that at least 1,300 Ml/day is provided through (i) a national water network and (ii) additional supply infrastructure by the 2030s.

The Department for Environment, Food and Rural Affairs should set an objective for the water industry to halve leakage by 2050, with Ofwat agreeing 5 year commitments for each company (as part of the regulatory cycle) and reporting on progress.

The Department for Environment, Food and Rural Affairs should enable companies to implement compulsory metering beyond water stressed areas by the 2030s, by amending
regulations before the end of 2019 and requiring all companies to consider systematic roll out of smart meters as a first step in a concerted campaign to improve water efficiency.