Capping water bills could create a “material risk” that utilities firms will be unable to raise enough money to stop sewage leaks and improve infrastructure, according to the water industry’s trade body.
Draft proposals from Ofwat to limit the rise in household water bills to £19 per year – or 21 per cent – would prevent suppliers from raising the sufficient equity required to invest in improving performance, Water UK said.
An industry letter addressed to Ofwat chief David Black also warned “new homes could be blocked, the recovery of our rivers will be slower” and the sector would struggle to deal with looming water shortages, without changes to the regulator’s price review.
A final decision on the cap is due in December.
The current plans mean bills would increase by a third less on average than stakeholders had requested.
Crisis-hit Thames Water, the UK’s biggest water supplier, warned on Wednesday the cuts would make its turnaround from collapse impossible and proposed hiking bills by as much as 59 per cent by 2030.
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Thames Water: Ofwat proposals ‘not tenable’ with supplier’s recovery as new bill hikes planned
“By relying on the approach used in previous price reviews to assess the suitability of its determiniations, Ofwat fails to account for a fundamental shift in the sector, as it moves into a multi-decade period of high investment requirements,” a Water-UK commissioned report from the consultancy Oxera, reads.
It argued water companies must be profitable in order to bring in the investment needed to handle the impact of increasing rainfall, primarily caused by climate change.
UK-based water firms had initially suggested bill increases averaging around £144 over the next half decade. They had also proposed investing £105bn to address sewage entering British rivers and wider issues in the sector, a figure the regulator wishes to cut by £17bn.
David Henderson, Water UK chief, said: “Ofwat has a difficult job, but investors are telling us that they need Ofwat to change its approach. Unless the right conditions to invest are put in place, our environment and our economy will pay the price.
We cannot delay upgrading and expanding vital infrastructure any longer and need Ofwat to reconsider its approach.
An Ofwat spokesperson said: “We have received responses from many organisations, including water companies, customers, environmental and consumer organisations, and investors. Inevitably these reflect a diverse range of views on the proposals we have made.
“We will consider all of these responses carefully over the next three months and set out our final decisions on 19 December.”
Water firms have faced intense scrutiny after the number of sewage spills in English rivers and seas soared in recent years, more than doubling between 2022 and 2023.
According to the Environment Agency, there were around 3.6m hours of spills last year, compared with 1.75m in 2022.
The issues have prompted backlash from polticians and the general public, which has worsened amid news of significant dividend and bonus payouts to senior executives.
However, Oxera’s report raised doubts over Ofwat’s assumption that companies could halve dividends while raising “significant amounts of new equity, since the new investors are likely to have defined dividend requirements.”
Water UK’s Henderson told the BBC on Wednesday the public had a “right to be angry” at sewage spills but bills would still need to increase to prevent further leaks.