Water bills to drop from 2020
5th September 2018
By Lyndsey Hall
According to plans set out by some of the biggest water providers in England and Wales, bills are set to fall by up to £25 from 2020.
The announcement comes in the wake of political and regulatory criticism of the performance of the water industry this year, after battling freezing temperatures back in February and March, followed by the summer heatwave which caused supply shortages and hosepipe bans across the UK.
Severn Trent and United Utilities said the average bill would be cut by 5% and 10.5% respectively. South West Water said it would offer customers a stake in the business, and Thames Water said bills would be unchanged, but it would return £20 million to shareholders compared to the £100 million it returned last year.
The plans are being submitted by the nine main UK water companies and a number of smaller providers to the regulator Ofwat for the five year period 2020-2025. Ofwat will then publish an assessment of each company’s plan in January 2019.
Water UK, the lobby group for the industry in the UK, summarised the plans and found that average domestic water bills would fall by more than 4% in real terms across England as a whole. Ofwat said in December 2017 that the results of its price review would see bills cut by between £15 and £25 per year from 2020 to 2025.
In February, environment minister Michael Gove warned water companies over their “concerning” behaviour. He urged them to do much more to tackle leakage, which rose 2% to 3.183 billion litres per day in 2017-18. Thames Water, which serves 15 million customers across the south of England, has said it would invest £11.7 billion in upgrades by 2025, including £2.1 billion to “boost resilience and reduce leakage”. It aims to cut leaks by 15% and reduce pollution incidents by 18%.
This year, Thames Water was chastised by the regulator for failing to tackle leaks and has been ordered to pay back £65 million to customers as part of a £120 million package of penalties. In June, Ofwat also reprimanded Thames Water, Severn Trent, Southern Water and South East Water for their inadequate response to problems in the wake of a cold snap in February and March, which saw several burst water mains and thousands of homes without water.
United Utilities, which announced and then abandoned a hosepipe ban this summer, said it would invest £750 million in producing a “major water resilience scheme” for customers in Manchester and the Pennines. Severn Trent also said it would spend £6.6 billion on improvements over the five year period from 2020-2025, and its new pipelines would achieve a 13% efficiency in spending. Severn Trent also proposed a new “community dividend” that would lead to 1% of annual profits supporting communities in the region.
Since privatisation in 1989, water bills have risen above inflation by about 40% and the regulator has faced criticism for overestimating the costs incurred by water companies during its previous price reviews. The huge profits and big salaries paid to water company bosses have been repeatedly attacked by politicians and others. Labour has suggested water firms should be brought back under public ownership.
Ofwat has called on suppliers to be more transparent about their dividend policies, executive pay, debt-to-equity ratio and other issues. In parliament, the environment, food and rural affairs select committee is investigating whether the water industry best serves consumers, and whether current regulatory enforcement mechanisms are “fit for purpose”.
Ofwat will publish and initial assessment of each water company’s business plan in January and will issue its final determination in December 2019.