The Government has launched what is expected to be the largest review of the water industry since privatisation – the Cunliffe Review.  To support this review, we have published a report on behalf of Southern Water exploring why underinvestment occurs in the water industry and how it can be corrected.

We find that the regulatory framework in the water industry contributes to historical underinvestment,
rather than addressing the issue, because:

• There has not been sufficient focus on asset health and it is easy for long-term investment to be deferred without immediate consequences.

• The characteristics of the water industry make it challenging for Ofwat to identify the efficient level of investment using a ‘yardstick’ model.