Water companies to say bill cap creates ‘material risk’ for them

Water companies will say later today that a planned cap on bill increases would create a “material risk” they would fail to raise the investment needed to stop sewage spills.

In July, regulator Ofwat has proposed an average £19 a year ceiling on water bill rises, with a final decision due in December.

However, industry lobby group Water UK will say that this cap would “hamper” company’s ability to improve services.

Water firms have faced criticism from campaigners for making pay outs to investors and handing bonuses to bosses while not investing enough in their businesses.

When Ofwat first proposed the limit as part of its draft decision on the water companies’ 2025 to 2030 business plans, Water UK said the regulator had “got this wrong”.

Ofwat’s suggested rise is a third of what Water UK wants. It said water companies must be able to charge more so they can spend money on fixing leaks.

It argued water companies had to be profitable to attract the investment needed to improve a system overwhelmed by the increased rainfall caused by climate change.

The UK’s largest water company, Thames, has already seen its shareholders abandon plans to invest more money, plunging it into a financial crisis.

A report to be published by consultancy Oxera on behalf of Water UK on Wednesday in response to Ofwat’s draft decision said it “would likely result in significant investability issues for the sector as a whole”.

“In particular, there is a material risk that the sector is unable to raise the new equity investment required to finance the proposed investment programme,” it will add.

An Ofwat spokesperson told the BBC it would carefully consider all responses to its proposals.

“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.”

Critics have said water companies have historically neglected investment in favour of executive salaries and shareholder dividends.

They have suggested a ban on director bonuses until leaks and sewage spills are dealt with.

Water UK’s comments will come as Thames, Yorkshire Water and Northumbrian Water face a £168m fine from Ofwat for a “catalogue of failure” over years of leaks.

Raw sewage spills into England’s rivers and the sea by water companies more than doubled last year.

Meanwhile, a BBC investigation earlier this year revealed sewage had potentially been released illegally 6,000 times in 2022 by England’s water companies in breach of their permits.