A £100m campaign urging households and businesses to use less water will be funded from customers’ bills, Ofwat has said.
The regulator’s chief executive David Black told MPs that if the measures worked it would be cheaper than building additional major new sources of supply.
Firms are under increasing pressure to both reduce demand and cut down on leaks amid concerns that pressure from climate change and a growing population will put a growing strain on reserves in the coming years.
Homes and businesses use an estimated 14 billion litres of water every day in England and Wales, and the figure is predicted to rise by at least four billion litres by 2050.
Ofwat first announced in July that it planned to launch the fund – which will run alongside other infrastructure spending projects – but confirmed on Monday who would pay for it.
Mr Black told MPs on the public accounts committee: “We’re establishing a fund of £100m for the next price review period, which will be from customers, to help the sector get to a much better place on water demand.
“We haven’t seen progress from the sector in the current period nor in the previous period. The government set challenging targets, we think the sector needs to rise to the challenge of delivering on that.”
He added: “It is cheaper if that works than the alternatives of building major new sources of supply.
“A major new reservoir is expensive, we’re talking about perhaps £2bn or more, so it’s absolutely right that we look at the demand side as well.”
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Ofwat said reducing water use could save households as much as £500 a year.
However, some committee members expressed scepticism over whether firms would be successful in persuading the public and if £100m would be enough.
Critics also questioned why customers were covering the cost of the fund.
Environmental campaigner Feargal Sharkey wrote on X, formerly Twitter: “Bill payers have been funding reduction campaigns for 34 years, why are we been asked to provide yet more money directly as a result of their incompetence?”
It comes after companies said they wanted to hike annual household bills by up to £156 in the second half of the decade to fund new investment in the water system, including by building new reservoirs to help meet extra demand.
Campaigners have hit out at water firms for turning to customers to fund such measures when they pay out billions of pounds annually in shareholder dividends and interest, which make up around 20% of the cost of bills each year.
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The government estimates households use 144 litres of water per person per day – which it wants to cut to 122 litres by 2038 and 110 litres by 2050.
It also wants water companies to reduce the 20% of supplies that are lost through leaky pipes.
Ofwat is yet to decide exactly how it will use the money.
But it could involve measures such as a “widescale” public information campaign, along with targeted interventions to identify “large water users” and then suggest ways they could be more efficient with their use.
A consultation will launch early next year, with the fund set to be operational by April 2025.
An Ofwat spokesperson said it was “part of our twin track approach of developing new sources of supply and managing demand.”
They added: “Our water resources are precious and water companies must continue to work with industry to be more efficient. This benefits the environment and will help to drive down costs for everyone.”
