In a recent announcement, the water companies in England and Wales have been informed that their requested bill hikes will not be approved by the industry regulator. After reviewing the companies’ business plans for the next five years, Ofwat has declared that it is inclined to slash the combined increases by a third. This decision will result in an average bill increase of only £19 per year or 21% over the period.
Ofwat’s Chief Executive, David Black, emphasized that customers have expressed a desire for drastic changes in the way water companies handle environmental concerns. The regulator’s draft decisions on company plans have approved a significant increase in investment, from £29 billion to £88 billion, in order to make sustained improvements in customer service and the environment. A final ruling will be announced in December.
All 16 companies had sought substantial bill increases between 2025-2030, with Southern Water leading the way with a proposed rise of almost 73%. However, as Ofwat’s report suggests, their requests, including the 42% hike demanded by crisis-hit Thames Water, are unlikely to be met following final consultations on the plans. The water industry is currently facing intense criticism from various sources, making it challenging for companies to justify such significant bill increases.
According to Ofwat’s report, the companies’ business plans proposed an average bill increase of £144 over five years. However, the regulator has reduced Thames Water’s proposed increase of £191 by 2030 to £99, and Severn Trent’s proposed increase of £144 to £93. This decision reflects the industry’s longstanding issue of prioritizing bonuses and shareholder dividends over essential investments in infrastructure and systems that date back to the Victorian era.
In a recent development, Sky News revealed that the new Environment Secretary, Steve Reed, has summoned water company bosses for an urgent meeting. The government is expected to announce plans for tougher regulation on Thursday, which includes the establishment of customer panels to hold company boards accountable and higher financial penalties for failures.
Ofwat has also announced additional processes for Thames Water and Southern Water, with the latter facing a new oversight regime that could result in an independent monitor being appointed with full access to its financial information. Thames Water, which covers 16 million customers, could potentially be placed in a government-controlled special administration due to investors’ reluctance to invest in light of Ofwat’s resistance to the company’s proposed bill increases.
The report also states that companies will be required to reduce storm overflow spills to an average of 16 per year by 2029. This target is concerning, considering the recent data from the Environment Agency, which showed that discharges of untreated sewage doubled from 1.8 million hours to a record 3.6 million in 2023. Furthermore, the number of individual spills increased by 54% to 464,000. Environmental groups have raised concerns that these numbers do not accurately reflect the true extent of the problem.
While listed water companies’ shares reacted positively to Ofwat’s announcement, with United Utilities and Severn Trent opening up by around 2% and Pennon’s shares increasing by more than 6%, the industry body, Water UK, expressed disappointment. A spokesperson stated that Ofwat’s interim determinations represent the most significant cut in investment to date and could have severe consequences. The Consumer Council for Water also raised concerns that the proposed bill increases would put additional financial strain on households, with an estimated two million properties already struggling to meet their water bills.
In conclusion, Ofwat’s interim verdict on the water companies’ business plans for the next five years has sent a clear message that the industry needs to prioritize environmental concerns and customer service over profits. A final ruling is expected in December, and the government’s plans for tougher regulation will also be announced on Thursday.
