Water firms would be in a similar state today even if they had invested all the money they had paid out in dividends into renewing the UK’s water infrastructure, the boss of the water industry trade association has claimed.
David Henderson, the chief executive of Water UK, said today it was “just not true” that water companies’ well documented problems would not exist had they not paid out dividends to shareholders.
The firms’ track record of issuing payouts to shareholders have attracted staunch criticism in recent years, given many firms’ poor environmental track records. Campaigners argue that rather than rewarding shareholders with a share of any profit, the money on should have been funnelled towards investment in the sector’s creaking infrastructure.
But Henderson said this argument is a mischaracterisation of water firms’ performance and that many shareholders have invested more in water firms than they have received in dividends.
“It’s very commonly thought that shareholders have been taking out dividends,” he told Times Radio. “They’ve taken out £52bn since 1990 [when] privatisation happened, and they’ve put in about £215bn.
“But let’s say they took out zero. That’s £52bn in dividends and you spend all that on investment, that will cover about half of what we are proposing for the next five years alone. So it’s just not true, I’m afraid, to suggest you could have zero dividends and that would solve the problems.
“And frankly if a taxpayer we’re funding all of this instead, the taxpayer would be paying interest on the debt that it borrows to fund those investments.
Henderson’s comments come as the water industry continues its aggressive lobbying of Ofwat, the sector’s regulator, for permission to raise bills in order to fund investment.
Every five years, the regulator conducts a price review into the amount that water firms can charge. The UK’s 25 water companies submitted business proposals earlier this year, including how much they would like to charge and invest, which Ofwat has reviewed and responded to.
It is now consulting with the industry on its response.
Henderson said that the ceiling will mean the sector’s infrastructure will continue to creak. “Ofwat looks at [water companies’] plans every five years. Since about 2010 it has consistently cut those plans, which is why everyone’s water bills, on average, have fallen in real terms. If they had merely risen with inflation, they’d be about a fifth higher than they are today.
“Unlike energy prices, which have gone up very considerably since 2010, water bills have fallen. And as a result of those falling bills, we’ve had less investment than we need,” he said.
Henderson also blasted the track record of central government and local authorities on granting planning permission for new reservoirs. There has not been a single new reservoir built in the UK since water firms’ privation in 1990, despite the UK’s population having grown by nearly ten million people.
“We have consistently tried to build reservoirs since 2010… The first Environment Secretary under the coalition government blocked Thames Water from building a reservoir on the understanding that [there] was no immediate need. Talk about the definition of a short term decision.”
Ofwat told City A.M. that it would “consider all responses” to its consultation, and plans to set out its final decision on December 19.
The Department for the Environment and Rural Affairs was contacted for comment.