Water bills in England and Wales will rise by 36% over the next five years, as suppliers were accused of forcing struggling households to pay for years of underinvestment to fix leaky pipes and cut pollution.
The industry regulator Ofwat said on Thursday that, from next April, it would allow companies to raise average bills by £31 a year, or £157 in total, over the next five years to £597 by 2030 to help pay for investment. That represents a 36% increase before inflation, which will be added on top.
Consumer groups and politicians have put pressure on the regulator to limit the increase in bills, amid widespread criticism of the industry over leaky infrastructure and releasing sewage in Britain’s seas and rivers.
The increase is bigger than the 21%, or £19 a year, rise that Ofwat first proposed in July. Since then, the regulator has been in detailed discussions with each water company over their spending plans.
The biggest bills increase will be allowed for Southern Water, whose customers will pay 53% more by 2030. This is likely to cause further frustration for almost 60,000 households across Hampshire who have been hit by a water outage at a Southern Water supply works this week. The company has apologised and said the issues may continue until the weekend.
Bills will rise by 47% for Severn Trent customers, with a 42% increase for customers of the Welsh water companies Dŵr Cymru and Hafren Dyfrdwy.
Ofwat also announced that struggling Thames Water, whose customers will pay an extra 35% by 2030, was fined £18.2m for paying “unjustified” dividends. The regulator said it would claw back £131.3m.
The total spending allowed by Ofwat will come to £104bn, £4bn short of what water companies had requested. The industry had asked for permission to spend £108bn over the five-year period, arguing that the increased bills would allow them to invest in the network and make it more resilient to global heating. Ofwat’s original proposal equated to £88bn in spending.
Ofwat said £12bn would be spent on cutting spills from storm overflows by 45% by 2030, compared with 2021 levels. Storm overflows are the major source of sewage in British waterways.
David Black, Ofwat’s chief executive, said water companies must show they could “deliver significant improvement over time to justify the increase in bills”.
He added: “Today marks a significant moment. It provides water companies with an opportunity to regain customers’ trust by using this £104bn upgrade to turn around their environmental record and improve services to customers.”
Steve Reed, the environment secretary, blamed the former Conservative government for the bills increase, saying: “Under the Conservatives, our sewage system crumbled. They irresponsibly let water companies divert customers’ money to line the pockets of their bosses and shareholders.
“The public are right to be angry after they have been left to pay the price of Conservative failure.”
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Campaigners have argued that companies have underinvested in water infrastructure and households should not face steep price rises, with particular concerns over vulnerable consumers. The increase in bills is likely to add to calls for a cheaper social tariff for vulnerable households.
Dr Mike Keil, the chief executive of the Consumer Council for Water, a government-backed advocate for consumers, said: “These bill rises may be less than what water companies wanted but they are still more than what many people can afford. Customers will be hit particularly hard from April with a large chunk of these increases frontloaded into next year – on top of inflation.”
Charles Watson, the chair and founder of the campaign organisation River Action, said: “It is a travesty that customers are now being forced to pay higher water bills, especially when these increases are directly the result of years of under-investment by the water industry.”
Water companies will scrutinise Ofwat’s decisions and could appeal to the Competition and Markets Authority if they believe they have not been allowed to charge households enough. Analysts have said they expect several companies to appeal in the hope of charging consumers more.
For several water companies the bills increase come amid severe financial pressure. Thames Water, South East Water and Southern Water are seen by Ofwat as the companies most at risk of financial failure.
The decision is critical for Thames Water in particular. The bills increase will be a key factor in trying to attract new investors to inject another £3.3bn in new equity investment, and prevent Thames from falling into temporary nationalisation.