How we are funding the biggest investment in our water system in a century

Over the five years to 2030, water companies in England and Wales will invest £105 billion in the system that supplies our water and treats our sewage.  

That’s a huge sum, far more than customer bills alone cover. So how is it paid for? The simplest way to understand it is to think about how most people buy a home.

Nobody buys a house out of one month's pay. The cost is too big to meet all at once. Instead you put down a deposit, borrow the rest, and pay it back gradually over many years. This makes sense because the home will serve you for decades to come.

Investment in the water system works in much the same way. A new reservoir, a major upgrade to a treatment works, or thousands of miles of replacement pipes will serve customers over many decades. It wouldn't be fair to ask today's customers to pay for all of it in one go, when people will be relying on those assets for multiple generations.

The money is raised up front in two ways. Companies borrow some of it, just as a homeowner takes out a mortgage. Shareholders also put money in directly, just as a homeowner may have saved a deposit. Customers then repay that investment through their water bills, over the long lifetime of the assets.

This is why bills are only one part of the picture. Customer bills each year pay for both the running costs of keeping the water flowing and the sewage treated, and steadily repay past investment.  

And that money isn’t free. Investors expect a return for putting it in, just as a bank charges interest on a mortgage. Most of that return is the interest that water companies pay to borrow, and the rest is what shareholders need to keep investing here in the UK rather than putting their money elsewhere. To ensure that returns are no higher than they need to be, the regulator can block or reduce payments if a water company breaks the rules.

If water companies didn't borrow, and shareholders didn't invest, customer bills would have to fund this record spending on their own. Unless taxpayers start directly paying for water infrastructure, an additional £150 would need to be added to every customer’s annual bill to maintain the current levels of investment.  

It wouldn’t be fair for today’s billpayers to bear the full cost of new infrastructure that will last for many generations to come. So a long-term investment programme this large is paid for over time, not all at once. Investors put the money in up front, and customers pay it back gradually, with strict rules about how much interest lenders can charge and how high returns can be for shareholders. That unlocks the record investment that will secure our water supplies, support economic growth and end sewage entering our rivers and seas for decades to come.