UK water companies push for up to 40% price rise, major provider Thames Water nears collapse

Julia Kollewe
The Guardian
Wed, 28 Jun 2023 11:26 UTC

© Jansos/Alamy

A Thames Water maintenance crew attend a burst water main in west London. The leakage rate from the company’s pipes is at a five-year high.

Water companies are reportedly pushing for bills in England to rise by up to 40% under plans being drawn up to pay for the cost of dealing with the sewage crisis and the climate emergency.

The increases are due to be announced next year and could drive annual bills up from an average of £450 to £680 in parts of the country by the end of the decade, according to a Times report citing consultation documents.

Most companies are asking the regulator to approve real-terms price increases of an average of 25% between 2025 and 2030, it reported. Thames Water is reportedly proposing rises of 20%, while Wessex Water wants to put up its prices by 30%.

The chancellor, Jeremy Hunt, was expected to discuss the bill increases in his meeting on Wednesday morning with the water regulator, Ofwat, and other watchdogs. He was also to ask regulators how they were cracking down on companies that may be exploiting rampant consumer inflation by raising prices.

The government is worried that the bill increases could be announced at around the time of the next general election.

An Ofwat spokesperson said: "Water companies are currently preparing their business plans for 2025-30. As part of these plans, companies will need to make considerable investment to deliver better services for customers and improve their impact on the environment - both of which are falling short.

"Companies will need to manage the affordability of their business plans for current and future customers and those less able to pay their bills, carrying out research to understand customers' views. We will consider that evidence, along with a wide range of other considerations, as part of our price review process."

The chair of the National Infrastructure Commission said the planned price increases are "probably not unrealistic".

Sir John Armitt told BBC Radio 4's Today programme: "By 2050, the Environment Agency and the water companies believe that about £50bn needs to be invested to get sewage overflows down to an acceptable level.

"We have previously estimated that £20bn needs to go into ensuring that we have sufficient water by 2050. So as you can see, you're talking about very large sums of money to restore and enable our water infrastructure and our sewage infrastructure to be fit for purpose."

Armitt added: "As a country, we have to decide what quality, what level of infrastructure we require. We then have to decide whether we want to pay for it, if we can afford to pay for it, we have to look after those who [have] limited resources and therefore cannot handle extra bills easily."

Water bills in England and Wales increased in April by the most in almost two decades, putting further pressure on budgets already strained by the soaring cost of energy and food. The typical water bill rose to an average of £448 a year from April, an increase of 7.5%.

Consumer groups said at the time that the increase of 8p a day could be a "tipping point" for the one in five customers who were already struggling to pay.

They also warned that some consumers could pay significantly more than the average because of regional variations and individual factors, such as whether they have a meter and how much water they use.

Comment: The Guardian also reports on the looming collapse of major provider Thames Water:

Contingency plans for the collapse of Thames Water are being drawn up by the UK government and the industry watchdog amid fears that Britain's biggest water company cannot survive because of its huge debt pile.

Ministers and the water regulator Ofwat are holding discussions about the possibility of placing Thames Water into a special administration regime (SAR) that would take the company into temporary public ownership.

The public has bailed out the banks and is now liable to bail out private industry, meanwhile any profits have and will continue to primarily go to private investors.

In a statement to the stock market, the company said it had received an expected £500m of new funding from shareholders in March and was continuing to work constructively with them "in relation to the further equity funding expected to be required to support Thames Water's turnaround and investment plans".

It continued: "Ofwat is being kept fully informed on progress of the company's turnaround and engagement with shareholders ... Thames Water continues to maintain a strong liquidity position, including £4.4bn of cash and committed funding, as at 31 March."

Thames is owned by a number of pension funds and sovereign wealth investors including the BT pension scheme, the Canadian funds Omers and British Columbia Investment Management Corporation, the China Investment Corporation and the UK lecturers' pension fund USS.

Its former owner between 2006 and 2017, the Australian bank Macquarie, was accused of asset stripping as it extracted billions in shareholder dividends while Thames's debt soared.

The water company is struggling with a £14bn debt burden, the leakage rate from its pipes is at a five-year high and, like many of its rivals, it has been repeatedly fined over the discharge of raw sewage into rivers and missing targets on pollution and sewer flooding.

Sewage warnings at 83 beaches in UK as companies dump waste water with gov't approval

The chancellor, Jeremy Hunt, met the competition and utilities regulators on Wednesday to discuss cracking down on any companies exploiting rampant inflation by raising prices and water companies' plans to increase water bills by up to 40% to pay for tackling the sewage and climate crises.

The SAR bailout process was last used in late 2021 when the energy supplier Bulb went bust. The company was handed to a "special administrator" that had access to government funds to keep it running to supply gas and electricity to its 1.7 million household customers. A year later, Bulb was sold to the rival company Octopus Energy.

A government spokesperson said: "This is a matter for the company [Thames Water] and its shareholders. We prepare for a range of scenarios across our regulated industries - including water - as any responsible government would. The sector as a whole is financially resilient. Ofwat continues to monitor the financial position of all the key water and wastewater companies."

An Ofwat spokesperson said: "We monitor the financial position of all the key water and wastewater companies. We have been in ongoing discussions with Thames Water on the need for a robust and credible plan to turn the business around and transform its performance for customers and the environment. We will continue to focus on protecting customers' interests."

The talks between the Department for Environment, Food and Rural Affairs, Ofwat and the Treasury remain at a preliminary stage and the contingency plans may not be acted upon, according to Sky, which first reported the news.

Darren Jones, the Labour MP who chairs the parliamentary business and trade committee, said Ofwat had a case to answer over the problems in the industry, and he was "increasingly sick" of seeing the same failings.

"We know that companies that are too important to fail must be regulated differently to other companies," he told BBC Radio 4's Today programme. "For too many years, decades even, we've allowed these companies to be operated with high-risk stakes, with high levels of debt, with wealth being extracted from the companies, with investment not being high enough.

"And then, once again, we're in a situation where we're being told that customers, taxpayers, are going to have to pick up the bill for a failure of good corporate behaviour at these companies, and by the sounds of it poor regulation. These companies have been allowed to not invest for the future, even though we know in many ways what we needed them to do for the future, and the regulators have allowed them to get away with it."

After the surprise resignation of its chief executive, Sarah Bentley, on Tuesday, Thames is now being run by joint interim chief executives - Alastair Cochran, the chief finance officer, and Cathryn Ross, the strategy and regulatory affairs director and a former head of Ofwat. Bentley stepped down a month after giving up her annual bonuses because of the firm's environmental track record.