South West Water was given nearly half a billion pounds in government subsidies to keep bills down for customers, despite the water firm shelling out three times that amount in dividends to shareholders over the same period.
The Department of Environment, Food and Rural Affairs (Defra) has been giving South West Water, which is listed on the London Stock Exchange as part of the Pennon Group of water firms, an annual bung of £40m a year since 2013 to pay the first £50 of each customer’s bill.
The subsidies, first revealed by the Democracy for Sale newsletter, were paid to help customers cope with Southern Water’s fee structure on account of it being “significantly higher than bills in other regions… which [had] led to a perception of unfairness”.
The taxpayer-funded subsidies helped keep bills down for customers when, over the same 11-year period, Pennon Group was found to have paid out £1.5bn to its shareholders.
The subsidies were also found not to contain any performance-related provisos or preconditions, despite the fact South West Water has one of the worst environmental ratings of any UK water company in recent years.
Earlier this year, one of the water firms’ watchdogs, the Environment Agency, told the South West Water it needed to improve its environmental track record, after awarding it a rating of just two stars, the second-lowest grade possible.
Over the last 13 years the utility provider has alternated between one- and two-star ratings, and recently argued in court that the public do not have a right to swim in the sea.
The revelation has sparked concern among water quality campaigners, with James Wallace, chief executive of River Action, telling Democracy for Sale: “How can it be legal let alone ethical for Defra to funnel money into a water company that rewarded its investors for years of rampant pollution with multi-million pound dividends?”
The payments date back to the coalition government, and were first introduced due to water treatment and provision costing more in south west of the UK, which has an unusually low population density.
But earlier this month, the new government committed to bringing the subsidies to South West Water customers to an end from 31 March of next year after Ofwat, the industry’s second regulator, forecast the area’s households would be similar to those in other regions.
In a written statement to Parliament, Emma Hardy MP, minister for water and flooding, said: “The taxpayer-funded contribution to the water and sewerage bills of South West Water household customers will end after 31 March 2025.
“Over the last decade the difference between water bills in the South West region and others has decreased. Over the next Price Review period (2025-2029) Ofwat’s latest projections are that SWW customers will have similar bills to those in other regions.”
South West Water told Democracy for Sale: “Removing the £50 contribution across the South West is one of several tough decisions this government has had to make. We’re here for our customers, with a £200m support package, doubling down on our pledge to eradicate water poverty to 2030 and one of a handful of water companies doing so.”
Defra pointed City AM to Emma Hardy’s comments.