The water industry regulator has been accused of overseeing a “stealth bailout of water companies” over proposals to increase bills by up to 44% over the next five years.
Campaign group Windrush Against Sewage Pollution (Wasp), which exposed suspected illegal discharges of sewage across England and Wales, has challenged Ofwat, the industry regulator, over the proposed price rises. The final determinations are due to be announced in December.
In a submission to the regulator, Wasp says the review should not be finalised until ongoing investigations into the industry are concluded, including a wide-ranging review of the industry announced by environment secretary Steve Reed.
It also says the regulator has failed to provide key data on how much shareholders in water firms have paid in upgrading infrastructure since privatisation, warning that billpayers have footed the bulk of the bill.
The citizen science organisation believes that it forced environmental watchdogs into action after it deployed AI to detect previously untracked sewage discharges, publishing a paper in March 2021.
Eight months later, the Environment Agency announced its largest ever criminal investigation into potential breaches of environmental conditions at wastewater treatment works.
Ashley Smith, founder of Wasp, said water firms had built “illegal operation” into their business models, presiding over sewage pollution in rivers and along the coastline in England and Wales while taking billions of pounds in dividends. Consumers were now expected to pay for the clean-up operation.
He said: “If the price review carries on as planned, customers are going to be forced to pay higher bills to conduct a stealth bailout of water companies. We think Ofwat is tricking the public into funding it.”
Ofwat’s 2024 price review sets the price controls for water and sewage companies for 2025-30. It published a draft determination in July, proposing to increase total spending by the water industry in England and Wales from £59bn over 2020-25 to £88bn over 2025-30. The water firms requested investment and expenditure of £105bn.
On average, household bills from water and wastewater companies will rise by £19 a year over the five years, before inflation.
Average bills at Thames Water, the UK’s biggest water and sewage company, will rise more than £99 over the five-year period, from £436 to £535. The biggest increase is for customers of Southern Water –its proposed bills will rise by £183 (44%), from £420 to £603.
Ofwat says its regulatory framework has “enabled £200bn of investment since privatisation” but has not provided, on request from Wasp, the proportion of this investment that was paid for by shareholders in water firms. Wasp also alleges that Ofwat has not adequately tracked how this money has been spent and its impact on water quality in the environment.
Since privatisation, water companies have paid out £53bn in dividends, according to Ofwat’s figures.
A report in May by David Hall, a visiting professor in the Public Services International Research Unit at the University of Greenwich, claimed that shareholders had “invested less than nothing of their own money” in water companies in England and Wales. Ofwat said in response at the time that it “strongly refuted” the figures.
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The Wasp submission says: “It appears that the information underpinning Ofwat’s assertions regarding £200bn investment does not include reportable analysis of how much of that money came from shareholders. Not even a broad figure of percentage.
“We accept the urgency of the need to resolve the infrastructure ‘black hole’, but that urgency should not be an excuse for exploiting the captive billpayer.”
In 2022, the government’s Office for Environmental Protection announced that it would carry out an investigation into Ofwat, the Environment Agency and the Department for Environment, Food and Rural Affairs over the regulation of combined sewer overflows in England. That is ongoing, and Wasp says a price review cannot be conducted in the usual way until this inquiry and others have reported.
An Ofwat spokesperson said: “We have received responses to our consultation from many organisations, including environmental and consumer organisations, water companies, customers and investors.
“Inevitably these reflect a diverse range of views on the proposals we have made. We will consider all of these responses carefully and set out our final decisions on 19 December.”
A Water UK spokesperson said: “Water companies want to invest £105bn to support economic growth, build more homes, secure our water supplies and end sewage entering our rivers. Ofwat wants to cut that investment by £17bn – a record amount.
“We cannot delay upgrading and expanding vital infrastructure any longer. Ofwat needs to reconsider its approach and approve these plans in full so we can get on with it.”