Regulators have allowed water firms to raise bills significantly over the next five years. PA news agency asks why, and explains what happens next.
Household water bills in England and Wales will rise by an average of £157 over the next five years, following a ruling by the industry regulator.
The increase has sparked anger from consumer groups, after many firms’ dire records on sewage spills and water leaks.
Environment Secretary Steve Reed said the public are “right to be angry”, and said the Government would reform the sector to “clean up our rivers, lakes and seas”.
Here the PA news agency breaks down what happens next, and what it will mean for consumers.
– What happened?
Every five years, England and Wales’ regional water suppliers submit plans to regulator Ofwat for the upcoming half decade.
The plans include how far they can increase bills over the period, plus how much they will spend on upgrading drains, sewers and reservoirs.
Ofwat then gives a draft ruling in July, kicking off about six months of final negotiations over how much firms can charge.
Ofwat published its final decision on bills increases on Thursday.
We’ve approved substantial improvements for customers and the environment through a £104 billion upgrade for the water sector
Ofwat’s David Black: “Customers will rightly expect companies to show they can deliver significant change over time to justify the increase in bills” pic.twitter.com/PxalE17uEt
— Ofwat (@Ofwat) December 19, 2024
– What’s the damage?
Ofwat granted an average bills increase of 36% versus current levels, or £157 over the next five years.
The lion’s share of that increase, an average of £86, will come in 2025.
Thames Water had asked for a rise of £231 by 2030, but that has been reduced to £152.
But there are significant variations in price changes between firms.
Under the plans, Southern Water customers will face a £222 increase over five years, while Dwr Cymru customers’ bills will go up by £185.
At the other end of the scale, Sutton and East Surrey (SES) Water bills will go down by an average of £6 over the next five years.
– Why do they want to raise bills so much?
Water firms face huge problems with their drains, reservoirs and sewers, leading to vast amounts of pollution spilling into rivers and waterways.
That means firms need to spend billions on upgrading their systems.
Because they are privatised, they also want to turn a profit so they can keep getting more investment from shareholders.
To make matters worse, many face huge debt piles. The 10 biggest water companies have about £60 billion of combined debt.
Regulator Ofwat has “failed” and “run up the white flag” by announcing rises in household water bills, the chairman of an environmental campaign group said.
Charles Watson, from River Action, said: “The shareholders in these companies are just laughing all the way to the bank.”
– Isn’t Ofwat meant to stop such sharp increases?
Yes. Ofwat said on Thursday that it had “robustly” examined firms’ requests to raise bills.
But it actually gave firms higher bill increases than they asked for in their original business plans submitted in early 2024.
For example, Anglian Water had initially asked for average annual bills to rise to £573 by 2030, a 17% increase. Ofwat reduced that to £557 in a draft ruling in July.
Water firms then had a chance to put forward updated requests for bill increases. Anglian hiked its request to £649 in annual bills.
In Ofwat’s final decision on Thursday, it allowed Anglian to charge customers £631 on average per year – well above the initial increase submitted by the company in the first half of 2024.
Similar processes happened at Northumbrian Water, Severn Trent, South West Water, United Utilities and Yorkshire Water.
– What else is getting people angry?
Critics say firms have chronically underinvested in their infrastructure since they were privatised in 1989, while paying out huge shareholder dividends.
In the 30 years since water firms moved into private hands, not a single major reservoir has been built in England and Wales.
Liberal Democrat environment spokesman Tim Farron said the industry was “a national scandal”.
He accused companies of “failing to invest in fixing leaky infrastructure, whilst company executives are stuffing their pockets with bonuses”.
– Is anyone trying to fix it?
Labour launched an independent commission which will review how regulator Ofwat works earlier this year.
But the commission will not report back to the Government until next year.
Environment Secretary Steve Reed said the last Conservative government “irresponsibly let water companies divert customers’ money to line the pockets of their bosses and shareholders.
“The public are right to be angry after they have been left to pay the price of Conservative failure.
“This Labour Government will ringfence money earmarked for investment so it can never be diverted for bonuses and shareholder payouts. We will clean up our rivers, lakes and seas for good.”
– What happens next?
Ofwat’s ruling is its final decision, but companies now have the option to appeal to the Competition and Markets Authority.
That would kick off another months-long process which could further delay when customers find out about their ultimate bills increases.
As for customers, they will likely see sharp hikes as early as next April.
Mike Keil, chief executive of the Consumer Council for Water (CCW), called for a social tariff and better support as he warned over the financial hit to households from the increase in bills.
He said: “These bill rises may be less than what water companies wanted but they are still more than what many people can afford.
“Customers will be hit particularly hard from April, with a large chunk of these increases frontloaded into next year – on top of inflation.”