The UK government has told water companies to put “consumers above profits” after the industry admitted that households would be asked to foot the bill for a £10bn investment programme to cut sewage spills.
Ruth Kelly, head of industry trade body Water UK, acknowledged on Thursday that a proposal by water companies to raise investment to help prevent sewage spills over the rest of the decade would be paid for by customers through “modest increases to their bills”.
But Downing Street said on Thursday the government did not want households to bear the investment burden.
“We’ve been clear throughout that we don’t want to see things disproportionately impacting customer bills, especially given we know that there are people up and down the country who are struggling with the cost of living, which is why we provided the help we have in that area,” it said.
The proposed rise in bills has yet to be approved by regulator Ofwat, which said it would “scrutinise the detail” as part of its usual process, which requires companies to submit their business plans by October. A final decision will be made by 2025.
Ofwat said it would consider whether the proposed £10bn of investment was new work or projects the companies had already been paid to do, as well as how it fitted in with other needs such as the urgent requirement to fix leaking pipes.
“Water companies must explain how their proposals will be funded, the proposed impact this will have on bills and their expected return to shareholders and lenders,” the regulator said.
Just 60 per cent of the £2.2bn that water companies could have invested in wastewater infrastructure by 2025 has been spent so far, according to Ofwat.
It has already set out a proposal to bring forward £1.6bn of expenditure originally planned for 2025 to 2030 to the next two financial years to reduce sewage spills from storm overflows.
Household bills were increased by 7.5 per cent in April — the biggest rise in two decades — to an average of £448 a year.
It is not yet known what the impact on bills would be if the £10bn of investment is agreed as they are set according to an Ofwat formula.
Shadow environment secretary Jim McMahon told Sky News that water companies should not pass on the cost on to consumers. “We can’t allow in a cost of living crisis for families to take the burden of that because water companies still think they can carry on business as usual.”
Sir Dieter Helm, professor of economic policy at Oxford university, said the announcement by Water UK was “more spin than apology”.
“If they are sorry for their many failings I want to know what they are going to do to put it right,” he said. “If the answer is that they are going to get the regulator to approve another £10bn to be funded from customers, that doesn’t sound like an apology. That sounds like a very profitable option for them.”
All it says is that if Ofwat throws some more money customer money at us, we will do some more.”
Water companies paid out £1.4bn in dividends last year, according to research by the Financial Times, raising criticism from environmental activists who argue that the owners should bear the costs of improvements.
Ashley Smith of the Windrush Against Sewage Pollution campaign said that investors should “dip into their own pockets and become investors, not parasites.”