Water companies will struggle to raise the billions of pounds needed to clear Britain’s waterways and fix its creaking infrastructure under the regulator’s plan to keep a lid on rising water bills, the industry will warn.
The water sector’s trade association is expected to warn the industry regulator that its proposals to cap the steady rise in household bills by curbing water company spending may drive away the investors needed for a multibillion-pound overhaul of water infrastructure.
Water UK is also poised to tell Ofwat that its current plans will create a “material risk” that companies may fail to raise enough funds to carry out its next investment programme – and the high levels of investment needed over the coming decades.
The industry is preparing to issue its starkest warning yet on Wednesday, the final day that companies and other stakeholders are able to give feedback on Ofwat’s proposals, which will regulate the industry’s business plans and the returns their investors can expect between 2025 and 2030.
Water companies in England and Wales asked Ofwat for permission to spend a total of £104.5bn over the next investment cycle, which would cause the average household water bill to climb by £144 over five years.
However, the plans were reined in by the regulator in its “draft determination” last month, when it set out a budget of £88bn for the sector and called for the average bill hike over the period to be capped at £94 – or £19 a year.
Graph of Ofwat’s new pricesThe more modest price hike nevertheless provoked a swift backlash from campaigners and politicians, who accused the regulator of showing “contempt” for households who have endured poor service, sewage dumping and leaks in recent years.
The UK’s private water companies have faced a barrage of public anger after years of paying millions in bonuses and dividends while underinvesting in an ageing network led to high levels of leaks and sewage overflows.
At the same time Britain’s biggest water supplier, Thames Water, has been put into unprecedented special measures to allow extra scrutiny of the troubled company as fears grow over whether it may have to go through a painful restructuring or be temporarily nationalised.
Mike Keil, the chief executive of the Consumer Council for Water, said: “Millions of people will feel upset and anxious at the prospect of these water bill rises and question the fairness of them, given some water companies’ track record of failure and poor service.”
Water UK is expected to submit research by Oxera, a consultancy, to make a case for greater spending and higher bills within the water sector. The research, seen by the Guardian, found that Ofwat’s tighter spending targets would “hamper the sector’s ability to deliver the environmental and service improvements expected of the sector by its consumers and other stakeholders and would not be in the public interest”.
The report added: “There is a material risk that the sector is unable to raise the new equity investment required to finance the proposed investment programme, as well as the high levels of expenditure expected over the coming decades.”
An Ofwat spokesperson said: “We expect to receive responses from many organisations, including water companies, customers, environmental and consumer organisations and investors. These are likely to reflect a diverse range of views on the proposals we have made. We will consider all of these responses carefully.
The regulator is due to announce its final decision on the water companies’ spending plans by 19 December.