Guidance

Investment requirements for England’s river basin management plans

Published 29 November 2022

Applies to England

About this report

This report accompanies the 2022 river basin management plans. It outlines the economic evidence for making the investments required to protect and improve the quality of England’s water environment. The report describes and compares the costs and benefits of taking action in both monetary and non-monetary terms. It builds on the evidence provided in the Impact assessment for the updated river basin management plans (2015) that accompanied the 2015 river basin management plans. The main change is better evidence on the scale and costs of measures needed to reduce the damaging impacts of the water industry and agriculture. The report also describes the likely scale of available funding to pay for the required measures from 2021 to 2027.

Foreword

Ensuring clean and plentiful water is one of the biggest challenges we face, and delivering it is one of the biggest gifts we can all give to future generations. It’s a priority for the Environment Agency and government – and needs to be for everyone else, too.

The health of our rivers, groundwater and waterways are critical to improving the natural environment for people and wildlife. People have high expectations for the water environment, and rightly so; it sustains all life on Earth. It provides a diverse range of habitats for nature to thrive in; provides the beauty, relaxation, and connection to nature so important for human health and wellbeing; and supports our economy to provide food, energy, and everything in-between.

However, the water environment is under threat. The state of our rivers is flatlining. Only 15% of them currently meet the criteria for good ecological status, and that number has stayed stubbornly the same for the last several years. We are still seeing too much pollution from sewage, farming, industry, and run off from urban areas. Meanwhile new threats are seeping into our waters – including microplastics and so-called forever chemicals – and climate change is putting more pressure on water and the plants and animals that depend on it. Things have to change. So, what’s going wrong?

One of the main reasons for the current state of England’s waters, and those across the world, is that investment in protecting and improving the environment has not kept up with the growing pressures causing conditions to get worse. When we do not include the costs of preventing pollution and protecting habitats in all our activities, from farming to industrial production, the environment can easily be harmed. We might have been successful in keeping the cost of food and other goods down, but over time the resulting damage to the environment accumulates and we start to notice its effects. As is often the case, it can cost more to fix a problem than it would have done to prevent it. Some problems can be unforeseen, inconvenient or change in priority over time, however. More people, more land use change, more economic activity, a changing climate and the nature crisis have all pushed us to a position where, in terms of investment, we’re running to stand still.

In places where a great variety of plant and animal life is abundant, the environment is closer to its natural state. Where such places form an extensive network, they are better able to adapt to pressures like climate change and tolerate temporary shocks like floods, droughts, and pollution. The healthier these systems, the better they support pollinators and other creatures on which human health, wealth and wellbeing depend. As water flows throughout the natural environment, efforts to improve the water environment necessarily improve the wider environment – many of the changes needed are in how we use and manage land, for example.

The restoration of rivers including the Thames, Mersey, Aire, and Don shows what can be achieved. This has directly benefitted the towns and cities they flow by and through. It stands as testament to the progress that can be made by progressively investing in improved waste water treatment and working to limit other sources of pollution.

To help us decide how best to invest in the future we all want, we need to identify the best value actions to get us there – what will give us the most improvement for every pound spent and what would be overly expensive for little gain. This national economic assessment of the river basin management plans sets out the costs and benefits to the economy of achieving society’s goals for the water environment, using the most cost-effective measures. It outlines current levels of investment and the gap between what is already committed to being spent, and what is needed. The figures are clear. More investment is required over the coming decades.

This message comes at a challenging time for everyone’s finances. The coronavirus pandemic and other global events continue to negatively affect the economy. Yet so many of us have learned over the past few years the value of a vibrant natural environment for our health and wellbeing. In terms of the wider economy and society, the investment is worth it. England’s towns, cities and industries cannot thrive without reliable water supplies. Biodiversity will only recover with enough cool, clean water for life. We are part of nature, and we must sustain it, if it is to sustain us.

Although the costs are significant, the sum total of all benefits is incalculable. We must invest because it’s worthwhile, because it’s what we all want, and because the alternative will leave our children, their children, and all future generations poorer in terms of health, wealth, and connection with nature.

John Leyland, Executive Director, Environment and Business

Executive summary

This economic assessment of the 2022 river basin management plans presents the costs and benefits of actions to achieve the environmental objectives of the plans in England. It provides evidence to help the Secretary of State understand the benefits of investing in the planned measures when considering the approval of the plans. It also summarises the funds already committed to action between 2021 to 2027.

The 2015 impact assessment was updated with new and improved information on costs and benefits, most significantly for measures to address the damage caused by agriculture and the water industry.

Economic assessment is fundamental to river basin planning, with both cost-effectiveness and cost-benefit analysis used to identify the best value packages of measures for reducing harmful pressures on the water environment. Where the benefits to be gained from reaching a good water body status cannot justify the costs, water body status objectives may be lowered to a level at which the benefits do outweigh the costs.

Quantifying the value of the environment can be difficult. The natural capital approach being advanced within the Environment Agency recognises that not all green infrastructure and ecosystem services can or should be valued in monetary terms. Accordingly, this assessment monetises costs and benefits to the extent possible, while highlighting that there is much of value which cannot be monetised but must not be ignored in decision-making.

For this economic assessment, information on costs and benefits of reducing pollution from agriculture was gained through more sophisticated modelling than was available in 2015. This modelling monetised the benefits of investing in improved practices and targeted changes in land use for both the water environment and reduced emissions of greenhouse gases and ammonia.

Estimates of the costs to reduce water industry environmental impacts have improved thanks to more in-depth analysis and evidence of the costs of carrying out measures. Technical advances since 2015 mean waste water can be treated to a higher standard and this has allowed an increase in the status objectives of some water bodies and associated benefits for the 2022 plans.

Overall, against costs of £50.6 billion (bn) (present value (PV) over 37 years) the limited monetisation of benefits at £64bn presents a cost-beneficial case for investment in the measures needed to meet the environmental objectives of the 2022 plans. Wider non-monetised benefits only serve to strengthen this case further. Large sums of money will need to be invested over the coming decades to achieve the plan objectives. However, the work involved will build the foundations of strong and sustainable economic growth over a much longer period. Delaying investment and action would likely increase the scale and cost of the task given pressures from population growth, a changing climate, and existing sources of pollution.

To help deliver the river basin management plans £5.3bn worth of action by 2027 is already planned and funded. Further water industry investment from 2025 will be agreed through the 2024 water industry price review process. This investment will help achieve the environmental objectives of the plans, attracting new green jobs and new cultural and recreational opportunities, boosting tourism and leisure and enhancing public well-being. More is needed.

1. Introduction

The aim of the river basin management plans is to enhance nature and the water environment that are the foundation of everyone’s health, wealth and wellbeing, and the things people value, including culture and wildlife.

This economic assessment of the 2022 river basin management plans for England presents the total costs and benefits of actions to achieve their environmental objectives. It provides evidence to help the Secretary of State for Environment, Food and Rural Affairs understand the benefits of investing in the planned measures when considering the approval of the plans. The assessment also summarises the funds already committed to action between 2021 to 2027.

Economic assessment is a core feature of river basin management planning, including consideration of the positive and negative consequences of environmental pressures and management measures. Wider environmental priorities, economic considerations, and social issues are also considered when setting water body status objectives in river basin management plans.

In proposing water body status objectives for the 2022 river basin management plans, the Environment Agency has considered what measures are technically possible, and whether the benefits delivered by carrying out the measures justify the costs. In addition, the plans include consideration of distributional impacts (how costs are shared between those sectors that pay and over what time period) and social impacts.

The economic 2015 impact assessment set out the costs and benefits of a baseline and a proposed policy option to apply a test of disproportionate expense (that is, whether benefits justify the costs) to the objectives in the river basin management plans for the first time. The baseline option set good status objectives in all England’s water bodies where technically possible. The proposed option set good status objectives only in water bodies where this was technically possible and cost-beneficial (benefits outweigh costs). The proposed option was shown to have a higher net PV (difference between present costs and present benefits). This resulted in 75% of water bodies being set good status objectives, with costs reduced by £11bn from the baseline but benefits only reduced by £1bn (at 2021 prices). As a result, the proposed option was adopted and formed the basis for the 2015 river basin management plans, the clean and plentiful goal in the government’s 25 Year Environment Plan, and the starting point for the updated 2022 river basin management plans.

The headline results from the 2015 impact assessment, updated to 2021 prices, are shown in Table 1a.

Table 1a (£million (m)): Headline results of the impact assessment of the river basin management plans (updated to 2021 prices)

£m	Baseline (rejected)	Proposed (adopted option)	Difference
Total PV costs	32,000	20,890	- 11,110
Total PV benefits	27,820	26,860	- 960
Net PV	- 4,180	+ 5,970	+ 10,150

Table 1b (objectives): Headline results of the impact assessment of the river basin management plans (updated to 2021 prices)

Objectives	Baseline (rejected)	Baseline (rejected)	Proposed (adopted option)	Proposed (adopted option)	Difference	Difference
	Water bodies	Elements	Water bodies	Elements	Water bodies	Elements
% at good or high status	82	97	75	95	- 7	- 2

*Elements are the measurable physical, chemical and biological characteristics used to assess the status of a water body. Each element has its own classification status of bad, poor, moderate, good or high. The individual element results are combined to derive the overall water body status. A water body cannot be at good status overall unless every element is at good status.

1.1 Economic assessment 2022

This assessment relates to the 2022 river basin management plans. It reviews and, where appropriate, updates the costs and benefits at national level for the adopted long-term programme. It is not a comprehensive update of the 2015 impact assessment and is not a cost benefit analysis considering alternative options for the programme. The economic evidence is provided to both support government decisions regarding the updates to the plans and inform future water environment investment decisions.

To discover more information about the 2022 river basin management plans, see:

• River basin management plans, updated 2022
• Ministerial Guidance on river basin planning
• Case studies showing river basin management plan implementation projects in action

2. Methods and data

This section describes the methods and data used to conduct the assessment for the 2022 plans, building on the impact assessment for the 2015 plans.

2.1 Catchment level appraisals for setting water body status objectives

The water body status objectives in the 2015 plans were reviewed and, where necessary, updated to produce the water body status objectives in the 2022 plans. For the 2015 plans, detailed catchment level economic appraisals were undertaken to identify the most cost-beneficial ways to improve the water environment in each catchment. If the costs of getting a water body to good status were higher than the benefits, less stringent (than good status) objectives were set on the grounds of disproportionate expense. A brief summary of the catchment appraisal process is given in Appendix A.

These catchment appraisals were subject to a proportionate review in 2017 to 2018 as part of the development of the Price Review 2019 (PR19) Water industry national environment programme (WINEP). Out of 335 catchment appraisals, 170 were reviewed owing to the availability of new information on the costs of taking action and the technology available for removing pollutants from waste water. This resulted in good status objectives being proposed for water bodies in 22 operational catchments in the updated plans which had less stringent objectives in the 2015 plans. This brought the percentage of water bodies with good status objectives in the 2022 plans to 78% rather than 75% for the 2015 plans.

2.2 National level assessment

Cost and benefit values from catchment appraisals (Appendix A) were summed to inform the national 2015 impact assessment. Any values for which updated information had become available since 2015 were replaced for this assessment to prevent double counting of costs and benefits. Updated values came primarily through new analysis for the water industry and agriculture sectors.

For the water industry sector, costs of measures for planned investment from 2019 to 2025 were estimated from individual scheme costs provided by the water companies. Schemes to reduce the impact of water abstractions were calculated from water resources national framework environmental scenario model outputs. The remaining water industry cost estimates were based on high level programme estimates derived from the cost of previous investment programmes and the government’s storm overflows discharge reduction plan.

For the agriculture sector, a new national level cost and benefit analysis was conducted based on new research and improved tools. This work represents a significant improvement in the scale and assessment of measures needed to resolve water environment issues arising from agriculture. More detail on the methodology is available in Appendix B.

The benefits from preventing water bodies deteriorating in status were estimated by looking at those water bodies at significant risk of deteriorating. This risk was estimated using seven different national-scale risk assessments on the future pressures from:

• abandoned mines
• changes in water flow and water level
• invasive non-native species
• physical modification
• rural and agricultural land management
• towns, cities and transport
• water industry waste water

The methods used baseline national spatial data geographical projections of climate impacts, population growth and land use changes. More detail is in Appendix C.

Additional evidence on metal mines and invasive non-native species was obtained from work to inform recent impact assessments (for instance to support the consultation on possible Environment Act 2021 targets) and other Environment Agency appraisals.

Most measures to achieve water body chemical status objectives were not included in this assessment. Many of the required measures are already in place (for example, product bans or the phasing out of certain activities). The need, scale and cost of other potential measures are uncertain. Some abandoned metal mine schemes have been included in relation to achieving ecological status objectives, where detailed assessment of the costs and benefits is possible.

2.3 Environmental objectives

Three sets of environmental objectives were considered when calculating costs and benefits of actions to improve the water environment:

1. Preventing deterioration, is a core objective of river basin planning. As the condition of water bodies improves, it is important that they are not allowed to return to a lower condition. Actions to prevent deterioration are not subject to cost-benefit assessment and disproportionate expense can only be used as a reason for not preventing deterioration in a very limited number of cases.

Over time, as progress is made towards achieving the protected areas and water body status objectives in the plans, the scale of the task of preventing deterioration and protecting the gains made will increase, particularly in light of increasing pressures from a changing climate and population growth. The rise in pressures causing deterioration is currently limiting the effectiveness of all other investment in the water environment.

2. Protecting designated areas (protected areas) is the obligation of meeting the various requirements of habitat sites, drinking water protection zones, shellfish waters, bathing waters, nutrient sensitive areas, and nitrate vulnerable zones. Action to meet these requirements is additional to those preventing deterioration, although in practice the same action could prevent deterioration and meet protected area requirements. In some cases, particularly related to rural land management, action to meet protected area requirements may also contribute to achieving water body status objectives in other water bodies upstream or downstream of the protected area.

3. Improving water bodies to achieve their status objectives. This will require further measures in addition to those preventing deterioration and those protecting designated areas.

2.4 Sector groups

For this economic assessment, the sectors whose activities benefit from or can impact on the quality of the water environment have been put in 4 groups. The sector groups used are:

1. government (the public sector)
2. industry, services, and infrastructure
3. rural land management
4. water industry

This was done to help show the type and scale of action needed by each sector group to achieve the environmental objectives of the plans.

The sectors included in the groups are:

1. government (the public sector), including:

• local government
• central government (including funding to the Environment Agency for flood and coastal erosion risk management and other environmental management)

2. industry, services, and infrastructure, including:

• industry, manufacturing, and other business (including chemicals)
• angling and conservation
• non-governmental organisations
• recreation
• mining and quarrying
• urban and transport
• navigation (including ports)
• internal drainage boards
• waste treatment, transfer, storage, and disposal
• domestic/general public

3. rural land management, including:

• agriculture and farming
• forestry

4. water industry

2.5 Assumptions and data sources used

Valuation of the costs and benefits of measures in the plans was completed in accordance with HM Treasury (Green Book) and supporting supplementary guidance.

Benefits were valued using environmental economics approaches as set out in the HM Treasury Green Book guidance on Enabling a natural capital approach (ENCA).

A 37-year assessment period was applied to be consistent with the 2015 impact assessment. The Green Book standard declining social discount rate was used (3.5% for the first 30 years, 3.0% for the remaining 7 years).

A 2021 price date was used to match the latest available GDP deflator at September 2022. All values were assumed to have remained constant in real terms since the original studies on which they were based and will continue unchanged in real terms throughout the 37-year economic assessment period.

2.5.1 Costs

Costs of measures were obtained from a variety of sources. These included:

• individual scheme estimates provided by water companies for their PR19 WINEP
• estimates of further water industry costs based on the potential types and scale of future action and the costs of previous programmes of work (developed by the Environment Agency in consultation with Ofwat and water companies)
• short and long term estimates of sustainable agricultural and rural land use change schemes (developed by the Environment Agency using FARMSCOPER, see Appendix B)
• existing programmes of measures to tackle water quality problems resulting from invasive species and abandoned mines

Costs (and resulting benefits) which were excluded from the assessment were:

• achieving surface water good chemical status
• enforcement of existing baseline regulations
• advice and guidance to increase compliance with baseline regulations
• ongoing monitoring
• investigations into the reasons for not achieving good status
• planning and options design

An optimism bias of 6% was applied to all government-led programmes, which is in line with the adjustment ranges recommended in the Green Book supplementary guidance. Costs associated with PR19 WINEP schemes include bespoke water company optimism bias factors.

Future (post PR19) water industry cost estimates were calculated at a national level with significant high level assumptions about the programme of measures required; because of this, it would not be appropriate to apply project-based optimism bias factors to these estimates.

Optimism bias was not applied to schemes that are largely operational or land management based and do not have a hard engineering component, such as costs associated with managing invasive species and agriculture sector costs generated using FARMSCOPER. This is because costs for these types of work are known to be less vulnerable to under-estimation.

2.5.2 Benefits

Wherever possible, benefits were calculated using transfer values endorsed by Defra’s ENCA. The valuation of water environment benefits is based on National water environment benefit survey (NWEBS) (Metcalfe, P.J., 2012. Update of Conservation Reserve Program Water Framework Directive Benefit Values – Economic Component, A Draft Report for the Environment Agency) central willingness to pay values. NWEBS values capture marginal benefits delivered through improvements in water body classification status (that is, moving from class bad to poor, poor to moderate, or moderate to good). The NWEBS 2012 values were updated accounting for inflation and population growth to 2021 prices. NWEBS values are primarily public good benefits, rather than private benefits to a sector or specific groups of people, and capture non-market aesthetic, recreational and existence benefits.

For groundwater appraisals, per km³ benefit transfer values were included with a particular focus on valuing use and potential future use (option) values of additional clean groundwater resource values (Groundwater Appraisal Guidance, Environment Agency, 2018).

Ammonia and greenhouse gas emission reduction benefits were calculated for agricultural and rural land use measures using FARMSCOPER and Department for Business, Energy and Industrial Strategy carbon values.

A simplifying assumption was made that benefits start in the year a measure is implemented.

3. Investment needed to protect and improve the water environment

This section summarises the costs of taking action to achieve the objectives of the plans.

The costs of taking action (measures) to protect and improve the water environment were broadly allocated to the sectors whose activities caused the problems (‘polluter pays principle’). These are not necessarily the sectors which will pay for the measures. This analysis does not attempt to estimate how much each sector should pay. Taking action to sort out problems caused by different sectors will need funding from a range of sources, with decisions to be taken by government, other public bodies, the private sector, and the voluntary sector. The costs of reducing problems caused by abandoned structures or historic activities (for example, abandoned coal and metal mines) were allocated to the government sector.

3.1 Summary of measures

The programmes of measures needed are provided in each river basin management plan. The following points summarise the types of action required to reduce problems caused by the 4 sector groups.

3.1.1 Measures for the government sector group

These include those to reduce the environmental impacts of the country’s infrastructure, for example, roads, flood defence and coastal erosion risk management structures. Where new or improved services are provided, environmental requirements are accommodated at the design stage. For existing services that have an unacceptable impact on the water environment, additional (or retrofit) measures may be needed. This could include installing passive treatment systems to treat highway run-off or installing fish passes around structures in rivers.

The government sector group also includes measures where no other current sector is obviously responsible for causing the problem. This includes:

• habitat improvements for structures no longer owned or operated (such as weirs used in the past for channelling water away from a river)
• addressing water pollution caused by abandoned coal and metal mines
• action to reduce the spread and harm from invasive non-native species
• seaweed clearance and bird and dog control to protect bathing waters from direct pollution

3.1.2 Measures for the industry, services and infrastructure sector group

This group covers a wide range of activities, requiring a similarly broad range of measures to reduce their impacts. The activities and types of measures include the following.

• industry – improve treatment plants for cleaning water used in production, reduce water use, and reduce pollution wrongly entering public drains

• urban and domestic – improve private sewerage systems, misconnections, septic tanks and private sewage treatment plants and use of sustainable drainage systems to reduce pollution from roads and urban areas

• waste treatment, transfer, storage and disposal – improve management at waste sites to reduce pollution being washed into water bodies through improved collection and treatment systems or off-site disposal

• ports and navigation – review and if necessary, improve dredging plans, install fish passes around structures (for example, locks on rivers with boat traffic) and reduce environmental impacts of structures without affecting their intended use

3.1.3 Measures to reduce the impacts from the rural land management sector group

The measures include:

• improving soil management to reduce the loss of soil, phosphate, and nitrate – to reduce diffuse pollution and keep land productive for longer
• improving management of slurry and manures to reduce pollution from phosphate, nitrate, and faecal indicator organisms in water bodies
• preventing pesticides getting into the water environment, particularly in areas used to supply drinking water
• preventing livestock from freely entering watercourses, where they can cause soil and pollutants to be washed into watercourses, particularly where there is a risk of polluting bathing waters
• changing the land use (such as from agriculture to woodland) in the best locations to minimise loss of farm production and maximise improvement of the environment

3.1.4 Measures to reduce the impacts from the water industry sector group

These include:

• improving sewerage systems and sewage treatment works to reduce the amount of pollution (ammonia, organic material, phosphate, nitrogen, faecal indicator organisms, metals, and other toxic chemicals) released to the water environment
• reducing the amount of water taken from sensitive water bodies by taking water from other locations, reducing demand for water and leakage from water supply pipes
• reducing the number of sewerage misconnections to surface water drains which aren’t treated
• installing fish passes around the physical modifications (abstraction weirs and reservoirs) they own
• using more nature based solutions and working with land managers in catchments

3.2 Summary of investment needed

Table 2 shows the costs of reducing the problems caused by the activity of the four sector groups to deliver the environmental objectives of the plans (preventing deterioration, protecting designated areas, and achieving water body status objectives). Costs for each of the objectives are discussed in the following sections and total £87bn (£51bn PV) over 37 years. Costs and benefits by river basin district are available in Appendix D.

Table 2 Costs by sector of achieving the environmental objectives in the 2022 river basin management plans (£m)

	Preventing deterioration	Protecting areas with designated uses (combined)	Achieving water body status objectives	Undiscounted total cost	Discounted PV total cost
Government	750	80	4,800	5,620	3,280
Industry, services, and infrastructure	20	-	2,040	2,060	1,200
Rural land management	11,360	43,780	3,850	59,000	34,450
Water industry	5,570	3,030	11,410	20,010	11,680
Undiscounted total cost	17,710	46,890	22,090	86,690	-
Discounted PV total cost	10,330	27,360	12,890	-	50,580

Note: Numbers may not sum to totals due to rounding. Costs in PV terms, calculated over 37 years, discounted (3.5% for 30 years, then 3% for the last 7 years). Price base year is 2021.

Rural land management costs do not consist of only annual running (operational) and capital cost (for new equipment and infrastructure) but also the loss of agricultural production where land use change occurs. Operational costs can also result in a cost-saving depending on the type of measure. Annual costs later in the assessment period of 37 years become heavily discounted (that is, reduced) in PVs.

Where the water industry, other industries or government need to build a new or improve an existing sewage, effluent or mine water treatment plant, there is often a large one-off capital cost with smaller annual running (operational) costs. Large one-off capital costs early in the 37-year assessment period are subject to only a small amount of discounting.

The government has published its storm sewage discharge reduction plan and associated (impact assessment) which contains a mandatory £56bn investment programme. The storm sewage programme will address environmental impacts, public health impacts and social harm. Of this, £3bn of improvements has been included in this assessment for the water industry sector, to help to meet the specific requirements of habitat sites and water body status objectives.

3.3 Investment needed to prevent deterioration

The challenge of preventing deterioration of water body status and protected area compliance is significant. If no action was taken to improve or protect the condition of the water environment, then analysis has shown that the status of all water bodies in England would be likely to deteriorate by at least one status class (for example, good to moderate, moderate to poor and so forth) by 2050.

In England, businesses, the third sector and public sector jointly spend about £5bn a year on preventing deterioration through water-related actions to protect public health and wellbeing and protect the water environment at the baseline for this assessment. This amount is therefore not included in the costs of new measures in Table 2. This £5bn is composed of:

• water industry operating costs to collect and treat sewage of approximately £3bn
• industry and business investment of around £1bn to limit their pollution of the water environment and meet basic regulatory requirements
• agriculture expenditure of £450m to meet basic regulatory requirements and further reduce impacts on the water environment – includes direct payments from government and voluntary industry initiatives
• expenditure by government and the voluntary sectors to mitigate historic damage and provide water related benefits for people and wildlife

Estimating the future costs of preventing deterioration is the most uncertain aspect of this economic assessment. It remains unclear how effective current water management measures will be as pressures increase and interact. Future change scenarios were used to explore these major risk factors (see Appendix C for more information):

• climate change is a threat to the country’s ability to maintain the water environment as it is today, and to be able to secure any future improvements
• a growing human population increases both demand for freshwater resources and potentially the amount of pollution
• the ability of natural systems to adapt is reduced where those systems are broken and simplified by land uses far removed from natural conditions with rich biodiversity
• invasive non-native species can have strong negative effects on wildlife and habitats and have huge potential economic impacts on inland navigation and flood risk

The estimated costs by sector of measures to prevent deterioration from protected area compliance and water body status are given in Table 2. Additional measures include:

• tightening of limits in existing permits (discharge to and abstraction of water)
• action to slow the spread of invasive non-native species
• action to reduce the inputs of nitrate to groundwater from agricultural sources

In practice, many water environment improvement projects are designed to both prevent deterioration and deliver improvements. Where measures have this design, the costs and benefits have been split between those objectives.

The majority of the costs of preventing deterioration relate to rural land management. The modelling done to identify the costs and benefits of action by this sector (see Appendix B) assigned costs of measures to catchments around and upstream of water bodies that had deteriorated since 2015 first. Next the protected areas objective was assigned costs, then the improvement of water body status objective.

Another large portion of the cost of preventing deterioration is linked to the water industry. Of these, costs relating to action on abstraction and flow pressures, and action on water quality pressures are similar in scale.

3.4 Investment needed to protect areas with specially designated uses

Land management measures to reduce the harmful impacts of agriculture are often undertaken over a wide area, because sources of pollution from agriculture are often diffuse (spread across a whole catchment). This is very different to measures in the water sector for example, which treats sewage at particular locations. To reduce agricultural pollution in a water body or protected area, it is often necessary to take action within, around and upstream of the water body or protected area. These actions improve the quality of the water environment in multiple water bodies, and the wider environment for the same investment. It would not make sense to try and limit the benefits of an investment to particular water bodies within a catchment.

In many catchments there is more than one protected area (see Appendix B), so it is difficult to separate actions and costs of improving the water environment between different protected areas. These actions also help achieve status objectives in other water bodies.

Costs were assigned to protected area types in a fixed order in the modelling work for rural land management measures and, if necessary, land use change. The protected area types assigned costs first appear more costly because their costs always increase where an action benefits their own type of protected area and others. This avoids double counting but skews results. Overall costs are therefore summed together to avoid giving the false impression of how much it costs to achieve individual protected area type objectives.

3.5 Investment needed to achieve water body status objectives

In this assessment the cost of actions to prevent deterioration of water body status or protected area objectives are prioritised over improving water bodies to achieve their status objectives. In some cases, those actions will be sufficient to also achieve the status objectives so no further costs would be added. Some problems affecting water body status may require additional measures to be taken, and the costs of these are counted against the investment needed to achieve water body status objectives.

As time goes by and the easiest and most cost-effective gains are made first, the cost for further improvements will rise as more difficult and costly challenges need to be addressed. This may weaken the economic case in terms of monetary returns on investment or the balance of monetised costs and benefits as more water bodies meet their status objective.

4. Benefits of protecting and improving the water environment

This section describes the monetary and non-monetary benefits of achieving the objectives in the plans.

4.1 Benefits summary

Many of the expected outcomes of achieving the environmental objectives in the river basin management plans align with the 25 Year Environment Plan indicators. These are described as follows with the relevant indicators in brackets.

Freshwaters will be less polluted, cooler and provide a diversity of habitats for plants and animals (B3). Flows will vary naturally (B6) and water levels above and below ground will be sufficient to support thriving natural communities (B3) and provide water for sustainable use by people (B5, E8). Rivers will form vital corridors for wildlife to move through the landscape (D1). Fish stocks will improve due to better water quality and flows, and the removal of barriers to their migration and spawning journey (B7).

Wetter landscapes store more carbon (A2). They will provide cooling effects, helping to moderate local temperature extremes. More naturally functioning catchments will result in increased resilience to both flooding and drought (F2, F3) – two benefits that will be increasingly important for dealing with the effects of climate change. Coordinated effort to limit the number and spread of invasive species (H1, H2) will keep the risks below potential thresholds, benefitting native wildlife and limiting negative economic impacts.

Investment by the water industry will reduce overall pollutant loads (B1) and the number of serious pollution incidents due to poor infrastructure (B2).

Source to sea land management will hugely benefit coastal waters, protecting shellfisheries (C10, E9) and marine habitats. Coastal bathing waters will be maintained at excellent standards (B4).

Regenerative farming practices will reverse the loss of precious soil resources (E7), locking up greenhouse gases and preventing excess sediment choking waters (B1). Targeted habitat creation on farms will improve connectivity (D1) and provide new havens where biodiversity can recover (D5). Improved management of nutrients (B1) will see visibly clearer water restored and oxygen levels recovering (B3), benefiting wildlife and boosting the natural beauty of the water environment.

With better quality blue and green infrastructure in urban areas (G3), more people will be able to engage with nature where they live (G4). Reduced environmental risk exposure will be good for business, making places a better investment proposition, supply chains more stable and the workforce more resilient. Health and wellbeing will improve through stress and fatigue reduction, green and social prescribing and outdoor exercise opportunities (G7).

The quality of recreational activities, including angling, water sports and wild swimming, will improve and they will be safer (G4). Trips to the seaside to enjoy beautiful beaches are fun days for all and help regenerate coastal communities. Environmental consciousness will continue to grow as people fall in love with nature (G5) and want to play a more active role in protecting and regenerating special places (G6). Environmental awareness will positively affect consumption choices, reducing domestic water demand (E8), embedded carbon (J1), water in bought goods (K1) and levels of waste (J3).

Landscapes and waterscapes will regain more of their valued character and unique sense of place (G1), with a particular focus on specially designated areas (D2):

Habitat sites – Special Areas of Conservation and Special Protection Areas

• improved nature conservation
• improved health and wellbeing – places to experience and enjoy nature
• increased benefit to economy via tourism
• reduced costs for other “downstream” water uses such as drinking water due to improved water quality
• increased flood regulation and storm protection due to improved water management
• climate regulation from carbon sequestration and cooling

Drinking water protected areas

• public health protection – water is safe to drink
• reduced cost of treating water used for supplying drinking water

Bathing water

• public health protection – water is safe for recreation
• increased benefit to economy via tourism

Shellfish water protected areas

• public health protection – shellfish are safe to eat
• increased production volume
• lower costs to producers
• higher market value and improved market access

Nutrient sensitive areas (eutrophic sensitive areas and nitrate vulnerable zones)

• improvements to water quality and ecological health of waters
• reduced impacts on water uses for example, water abstraction, recreation and amenity, conservation, tourism
• reduction in nitrates in waters used for drinking water abstraction and costs of raw water treatment
• improved farming practices and levels of sewage treatment

4.2 Monetised benefits

It was only possible to value some of the benefits summarised in Section 4.1. Where it was possible to monetise benefits, they were valued using the approaches in HM Treasury Green Book guidance on ENCA.

The benefits that were monetised in this assessment are:

• recreation, includes all recreational uses of rivers, lakes and coastal areas, for example, walking and sports such as fishing, rowing and kayaking, and aesthetic value, where people value water environments that look clean with thriving biodiversity

• existence value, or the value people derive from knowing that such environments exist in a healthy state, irrespective of whether they use it

• preventing a deterioration in the quality of the water environment from a higher status class to a lower one – this is underestimated as people are generally willing to pay more to prevent loss than to gain, as measured by NWEBS and because deterioration of more than one class is not accounted for (see Appendix C)

• benefits for the provision of public water supply from actions to improve groundwater

• benefits for biodiversity, air quality, greenhouse gas emission reduction and reduced drinking water treatment costs resulting from measures to reduce pollution from agricultural activities

• ecosystem service values resulting from wetland creation

In terms of ecosystem goods and services provided by the water environment, the monetary valuation captures non-market (that is, public) recreation, aesthetic, and non-use (existence) values, using citizen’s willingness to pay for improvement from one condition to a better condition (NWEBS).

To avoid potential double counting, all benefits of improving the quality of the water environment resulting from measures to reduce pollution caused by the agriculture sector were counted against achieving water body status objectives. The benefits of protecting designated areas shown in Table 3 are only those resulting from reductions in ammonia and greenhouse gas emissions and reduced drinking water treatment costs. These benefits result from changing agriculture practices and land use changes to improve the water environment.

It was not possible to quantify or monetise the following benefits:

• the additional value provided by improvements to, or prevention of deterioration in, internationally important biodiversity of habitats sites protected areas
• recreational and tourism economic benefits associated with improving, or preventing deterioration of, designated bathing waters
• shellfish market values associated with improving, or preventing deterioration of, designated commercial shellfish water harvesting sites
• the public health and social impact benefits of reducing storm overflow discharges beyond those associated with changes in average NWEBS values

The total monetised benefit resulting from the actions to achieve the 3 sets of environmental objectives (preventing deterioration, protecting areas with specially designated uses, and achieving water body status objectives) in the plans is £124bn (£64bn PV) over 37 years. Table 3 shows the monetised benefits divided between those environmental objectives.

Table 3: Summary of monetised benefits of the actions needed to achieve the environmental objectives in the 2022 river basin management plans (£m)

Objective	Undiscounted benefits £m	Discounted PV benefits £m
Preventing deterioration	39,540	21,630
Protecting areas with designated uses (combined)	45,350	21,520
Achieving water body status objectives	39,130	20,940
Total monetised benefits	124,030	64,080

Note: Benefits in PV terms are calculated over 37 years, discounted (3.5% for 30 years, then 3% for the last 7 years). Price base year is 2021.

4.3 Natural capital benefits

The Environment Agency is working to understand how a natural capital approach might help to inform investment decision-making for the environment. This includes the development of the Natural capital register and accounting tool (NCRAT). As this approach offers new ways to assess the value of the environment, there is potential to move future economic assessments for river basin planning towards including more of the kinds of metrics provided by NCRAT (see Appendix E).

As an example, a natural capital asset value was calculated, using a very simplistic approach, for surface water quality across England, both now and in the future when all water body ecological status objectives in the 2022 plans have been achieved. This shows that at their current classification status, surface water bodies are worth £59bn in non-market value. When all the surface water body ecological status objectives are achieved, they will be worth £89bn. Each of these values is accumulated over 100 years and discounted to PV. The natural capital asset value of each water body was calculated as the accumulated NWEBS marginal benefit values from bad ecological status to the current or objective water body ecological status, using management catchment NWEBS values. A water body at bad ecological status was assumed to have no value and a high ecological status water body offers no further value beyond the same water body at good ecological status.

The future total asset value represents an increase of over 50% or £30bn in PV terms resulting from the investments to be made in improving the water environment. It should be noted that the 100-year assessment period for natural capital assets compared to the 37-year period for the wider economic assessment means that increased costs would likely be required to achieve this increased benefit. However, comparing over just the 37-year period of this assessment, the natural capital approach values surface water bodies £22bn higher as a result of the investment costs calculated here. As this value includes the asset value of the water body at its current status, it is higher than the £20.9bn shown in Table 3 which is the sum of NWEBS benefits resulting from marginal changes in status only.

As an example of the wider-ranging natural capital metrics already developed beyond water quality, an NCRAT scorecard was produced for the North West River Basin District, showing a total quantifiable PV natural asset value of £115bn over 100 years (see Appendix F for more detail).

5. Comparison of monetised costs and benefits

This section compares the costs and benefits described in Sections 3 and 4, assesses the sensitivity of the analysis and how costs and benefits may be distributed.

It must be noted in comparing the costs and benefits that the catchment level appraisals described in Section 2 do not attempt to monetise all possible benefits or to optimise bundles of measures to maximise the difference between benefits and costs (net present value (NPV) or benefit cost ratio (BCR)). In addition, the costs and benefits are only comparable at the highest level, that is, whether overall benefits exceed overall costs. This is because many of the costings of measures used were available at sector level rather than the water body level at which most benefits were calculated. There is no direct connection between specific actions and specific benefits. This is particularly true for the water industry and agriculture sectors and especially the benefits of reduced ammonia and greenhouse gas emissions, which are difficult to link to water bodies.

Table 4 demonstrates that at the highest level the environmental objectives in the 2022 plans are cost-beneficial, with a BCR of 1.27.

Table 4 Comparison of costs and benefits of achieving the environmental objectives in the 2022 river basin management plans (£m)

Discounted PV total cost (£m)	50,580
Discounted PV total benefits (£m)	64,090
BCR	1.27
Net PV (£m)	13,510

Note: Costs and benefits are in PV terms, calculated over 37 years, discounted (3.5% for 30 years, then 3% for the last 7 years). Price base year is 2021.

5.1 Sensitivity analysis

Sensitivity tests are performed to explore the sensitivity of expected outcomes to potential variations in key input variables. For the assumptions around costs, variations in estimates were addressed by inclusion of optimism bias. For the estimate of benefits assumptions were considered around the level of risk to the quality of the water environment and the valuation of the quality of the water environment.

The following sensitivity tests were performed:

1. As noted in Section 3.2, there is evidence to show that water bodies at risk of deterioration could deteriorate two status classes during the period of the analysis, rather than only one class as is assumed in the present assessment, so the following percentages were considered in the sensitivity analysis:

• 50% of water bodies at risk of deterioration are prevented from deteriorating by two classes rather than one
• 25% of water bodies at risk of deterioration are prevented from deteriorating by two classes rather than one

2. Using the full range of NWEBS values, rather than the central value.

The water environment discounted benefits of measures to prevent deterioration are ~£17.1bn PV over the 37 year assessment period, assuming that all water bodies at risk will deteriorate by only one class. Less conservative assumptions estimating the benefits of preventing deterioration of 2 classes in 25% and 50% of water bodies at risk, result in the PV benefits increasing to £20.8bn and £23.2bn respectively.

The 2 tests for preventing deterioration and NWEBS value ranges were combined to show a range of benefits around the total benefits of £64bn, where the central value for the NWEBs and only 1 status class deterioration has been assumed. This overall range takes at the lower end the conservative assumption that all water bodies at risk would deteriorate by only 1 class, and the low NWEBS value is representative. At the higher end it takes the assumption that 50% of water bodies at risk would deteriorate by 2 classes and the high NWEBS value is representative. The range of possible total benefits is then £61bn to £70bn, with corresponding BCRs of 1.2 and 1.4. This shows that the assumptions taken forward in the final results is not central to the possible range but lands towards the lower end of the benefits envelope, that is, the total benefits estimate of £64bn is conservative. The sensitivity of the total benefits around the NWEBS values is balanced by the air quality and climate regulation co-benefits resulting from measures needed to meet the protected area and water body status objectives in the plans.

5.2 Distribution of costs

The costs of measures are described here in terms of which sector’s activities are causing problems. However, beyond the known funding (see Section 6), no decision has been made on who should pay for measures to reduce harmful activities.

There are generally three approaches to thinking about who should pay for measures to reduce pollution and other harm to the environment so that it can recover to a more natural state. In practice these approaches may be applied in combination:

1. The ‘polluter pays’, giving a strong incentive to reduce harmful activities in the future and recognising either a responsibility to help reverse previous damage done, or a way for the costs to be covered through the sector’s ongoing activities, even if the funds ultimately come from customers or the public.

2. The ‘beneficiary pays’, those who will benefit from an improvement to the environment should pay. These ‘beneficiaries’ have an incentive to fund measures to resolve problems others cause because they will see the benefits, but this can disincentivise polluters from making changes, if they think someone else will clean up their pollution.

3. The ‘government pays’, government covers the costs of change, although ultimately this might mean the public pays either in increased taxes, or loss of other services or benefits as funding is moved from other activities to cover costs.

For each sector group causing or responsible for a pressure resulting in a failure to achieve an environmental objective in the river basin management plans, the following examples show how the 3 approaches would work in practice.

Polluter pays:

• water industry – water company’s domestic and business customers
• Rural land management – farmers and growers; pesticide manufacturers and suppliers
• industry, services, and infrastructure – operators
• government – taxpayers (through ongoing activities)

Beneficiary pays:

• water industry – none
• rural land management – water companies where it presents a cost-effective solution to catchment nutrient balances and protection of water abstracted for drinking
• industry, services, and infrastructure – developers
• government – voluntary group funding for habitat improvements on orphaned assets

Government pays:

• water industry – none
• rural land management – direct payments (subsidies) and environmental land management payments
• industry, services, and infrastructure – grants to voluntary groups and service providers
• government – taxpayers (where no sector is responsible)

Voluntary groups also undertake measures paid for by their members, fundraising and grants from government, Heritage Lottery fund, charitable trusts, and private companies. This is generally for issues caused by the rural land management sector or where no sector is responsible or can be made responsible (for example, historic industries).

5.3 Distribution of benefits

The location of actions from 2 major programmes of recent and planned investments were compared with information from the Ministry of Housing, Communities and Local Government English indices of deprivation 2019. The analysis found investments are fairly evenly spread across deprivation deciles. Future investments are expected to follow a similar pattern.

For water industry schemes to improve the water environment there is a slight statistical bias towards investment occurring in the least deprived areas. Between 2019 and 2024, 32% of the investment occurs in the 30% least deprived areas and 28% the investment occurs in the 30% most deprived areas.

6. Funding for planned activities 2021 to 2027

This section outlines the funds already committed to taking action to achieve the objectives in the plans, between 2021 and 2027.

Through its legal, administrative, and funding frameworks to protect and improve the water environment, the government decides on how the costs of the measures in the plans should be divided between different sectors and sources of funding (that is, who should pay). In doing so it makes political judgements, informed by economic (costs and benefits of measures) and other evidence, to balance often conflicting policy needs. This largely governs how much funding is available for measures. Potential sources of funding include government funding paid for through taxes or borrowing, or private funding promoted by rules (regulation), advice, guidance, financial gain, or wanting to do good for society (altruism). Other potential sources of funding include the National Lottery Heritage Fund and charitable organisations.

This section presents the sources of funding for carrying out measures which are known and reasonably secure for the 6-year phase (2021 to 2027), that is, not subject to too much uncertainty due to potentially changing political or other priorities. Given the time taken to develop and decide on funding, these sources are generally the results of earlier decisions informed by the ongoing river basin planning process and associated evidence base, rather than a specific response to the 2022 river basin management plans and this economic assessment.

The programmes of measures and their estimated contribution towards the cost of achieving the environmental objectives in the 2022 river basin management plans are listed in Table 5. These do not include the estimated £5bn per year for ongoing action to prevent deterioration from current pressures. Most of these programmes of measures also help resolve environmental problems not specifically covered by the river basin management plans.

Table 5: Programmes of measures 2021 to 2027 (confirmed and estimated funding)

Programmes of measures	£m
WINEP 2020 to 2025	4600
Water industry green recovery programme 2020 to 2025	793
Countryside Stewardship scheme 2021 to 2027	364
Farmer match funding for Countryside Stewardship scheme 2021 to 2027	135 to 178
Environment Agency flood and coastal risk management capital programme (estimate of potential associated environmental enhancements 2021 to 2027)	50
Government Water Environment Investment Fund 2021 to 2025	22
Catchment partnership funding for WEIF supported projects 2021 to 2025	42
Abandoned metal mine programme 2022 to 2025	35
Abandoned coal mine water programme 2021 to 2027	120
Environment Agency habitat improvements associated with water resource management activities 2021 to 2027	10
Environment Agency and partners habitat improvements associated with fisheries management activities 2021 to 2027	2
Forestry Commission England Woodland Creation Offer and Woodland Creation Planting Grant 2022 to 2025	10 to 50
National Highways road run-off improvements 2021 to 2027	18

For the period 2021 to 2027 around £5.3bn of funding has already been committed to help achieve the environmental objectives of the 2022 river basin management plans through the WINEP and water industry green recovery programme. Beyond this funding, the WINEP 2020 to 2025 includes some other improvement actions that are not included in the cost estimates in this economic assessment. This includes improvement schemes for sites of special scientific interest and priority habitats that are not also habitat sites protected areas, as well as funding for monitoring of discharges and investigations. Monitoring and investigations often lead to future improvement schemes, but the costs of these are not included in this economic assessment.

The water industry green recovery programme also includes schemes that deliver environmental improvements which go beyond the actions included in the cost estimates in this economic assessment. That is, they may lead to improvements not necessary to reach the water body status objectives. These include trialling the creation of 2 bathing waters in rivers, reducing lead in drinking water supplies, and reducing the risk of people’s houses flooding with sewage.

Funding from the next WINEP (2025 to 2030) will be confirmed when Ofwat approves water company business plans and price limits in 2024. This will include additional expenditure to help achieve the environmental objectives of the plans. Funding for these improvements could be similar to that of the current (2020 to 2025) WINEP.

The government has published its storm sewage discharge reduction plan and associated impact assessment. This plan contains a mandatory £56bn investment programme. The storm sewage programme will address environmental impacts, public health impacts and social harm. Many of the priority environmental impacts (including those preventing the achievement of the environmental objectives in the river basin management plans) should be delivered by 2030.

By 2030 the water industry is also expected to further reduce the damage caused by unsustainable water abstractions and improve the resilience of drinking water supplies.

The government’s Future Farming and Countryside Programme contributes to the achievement of environmental objectives in the river basin management plans in England through the Countryside Stewardship scheme. A total of £364m of Countryside Stewardship funding has been committed to revenue options and capital items which contribute to improved water quality or quantity for the period to 2027, along with £135m to £178m of farmer match funding. This total may increase as further agreements are entered into and with the roll out of schemes including the Sustainable Farming Incentive and Local Nature Recovery schemes.

In addition to government grant contributions to on-farm costs, the government funds a substantial service of advice and guidance for farmers. This includes Catchment Sensitive Farming (£15m per year) and Environment Agency regulatory visits. These activities are needed to deliver both increased compliance with existing regulation and the required uptake of good practice and changes in land use.

Further funding of agricultural and rural land management measures is provided by the water industry, catchment groups, and other voluntary partnerships.

The funding associated with the national flood and coastal erosion risk management investment programme is an estimated figure based on a proportion of the Environmental Statutory Allowance to be allocated to achieving the environment objectives in river basin management plans alongside delivering flood and coastal risk management benefits. Plus, the eligible grant in aid associated with the target 5,440 hectares of habitat to be created or improved alongside delivering flood and coastal risk management benefits.

The England Woodland Creation Offer has an estimated budget of £126m for the period 2021 to 2025. Tree planting can improve water quality, provide shading for rivers to help reduce the impact of a warming climate, and reduce flood risk. A wide estimate (£10 to 50m) is given for the proportion of the funding that will directly help achieve the environmental objectives of the river basin management plans.

7. Summary of updates for 2022 economic assessment

This section summarises the key features of this updated economic assessment, with reference to the impact assessment in 2015.

The main changes between the 2015 impact assessment and this 2022 economic assessment are in the improved information available on the costs and benefits of some of the major programmes of measures.

The 50% increase in undiscounted costs to reduce the negative impacts of the water industry and 260% increased costs for changing rural land management are mainly the result of more detailed analysis of what needs to be done and how much it will cost. There is a minimum 40% increase in costs to reduce negative impacts from government, and industry, services and infrastructure, but as the largest sectors in terms of absolute costs, the water industry and particularly agriculture dominate to a greater extent than was previously the case.

The benefits described in Section 4 have increased by around 200% because of a better assessment of the benefits of preventing deterioration and the quantification and monetisation of reductions in greenhouse gas emissions associated with actions by agriculture to improve the water environment. Emissions reduction benefits add up to 45% of the total monetised benefits counted here.

The benefit of preventing deterioration has increased through an improvement in the risk assessments used to consider the potential impacts of climate change and population growth. Both the cost and benefit estimates are likely to remain under-estimates because of uncertainties in:

• how much investment will be needed in future to respond to the impact of climate change, population growth and ongoing land-use change
• how much people value maintaining the benefits they already receive from the water environment compared to those of an improved water environment
• our assumption of only 1 class deterioration, while evidence is showing that deterioration could involve 2 or more classes

The economic case for achieving the environmental objectives in the river basin management plans is positive, with the monetised PV benefit from each £1 spent falling from £1.28 to £1.27. This is despite the fact that many benefits are not monetised and that more expensive actions become necessary over time, as the easiest, highest benefit actions are completed. The inclusion in the updated assessment of high-cost actions like reducing storm sewage discharges, which have a low monetised benefit in terms of achieving plan objectives also affects the monetary return on investment figure. NPV has increased from £6bn in 2015 (at 2021 prices) to £13.4bn here.

In the 2015 impact assessment, the cost of preventing deterioration of protected area compliance was assigned to the cost of meeting protected area objectives. In this assessment it has been assigned to the preventing deterioration costs to better reflect the overall cost of maintaining the benefits currently provided by the water environment.

Other technical changes made since the 2015 impact assessment include:

• updating some of the catchment level cost benefit studies used to explore potential evidence for the application of the disproportionate expense exemption
• new information of the costs of mitigating the discharges from abandoned metal mines