Water scarcity occurs when water demand exceeds natural water availability over a range of spatial and temporal scales. Though meteorological and hydrological droughts have been analysed over large spatial scales, the impacts of water scarcity have typically been addressed at a catchment scale. Here we explore how droughts and water scarcity interact over a larger and more complex spatial domain, by combining climate, hydrological and water resource system models at a national scale across England and Wales. This approach is essential in a highly connected and heterogeneous region like England and Wales, where we represent 80 different catchments; 70 different water resource zones; 16 water utility companies and the water supply for over 50 million people. We find that if a reservoir’s storage is in its 1^st percentile (i.e. the volume that is exceeded 99% of the time), then there is, on average, a 40% chance that reservoirs in neighbouring catchments will also be at or below their 1^st percentile storage volume. The coincidence of low reservoir storage decays relatively quickly, stabilising after about 100‐150km, implying that if inter‐basin transfers are to be provided to enhance drought resilience, they will need to be at least this length. Based on a large ensemble of future climate simulations, we show that extreme droughts in precipitation, streamflow and reservoir storage volume are projected to worsen in every catchment. The probability of a year with water use restrictions doubles by 2050 and is four times worse by 2100.