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UK Water Industry: Myths vs. Facts
Water companies in England and Wales have proposed investing a record £108 billion to secure our water supplies, end sewage in rivers and enable economic growth. We urge Ofwat, the economic regulator, to approve these plans in full.
With scrutiny on the sector never higher some misleading and incorrect information has taken hold.
Here we explain the facts behind some of the myths regarding water companies in England and Wales.
Myth: Water companies have prioritised paying out large dividends to shareholders rather than investing to improve services and infrastructure.
Fact: This is not true. Water companies have invested far more than they have paid out in dividends. Since privatisation water companies have invested £236 billion, in today’s prices. In every year since privatisation companies have invested more than they have paid in dividends.
While some may argue that the regulator allowed dividends to be too high in the past this is not the case now. Since 2020, regulatory returns to water company investors have averaged around 2.7%, which is less than you would receive from a high street bank. Last year (in 2023-24), six out of 16 companies did not pay a dividend.
Returns are set by the economic regulator Ofwat, and water companies are not allowed to take them as dividends if their performance is poor. Without a financial return, which can be paid as dividends, investors would not be able to invest in the water sector and would take their money elsewhere.
Myth: Water companies have been loaded with unsustainable levels of debt.
Fact: Debt is a sensible and prudent way to finance long term investment. Debt is always cheaper than equity and for much of the 21st century interest rates have been at historic lows. This makes it the best value way to invest in large infrastructure projects and has helped keep bills lower than they would otherwise have been.
Using debt to finance investment is well-established. Gearing (the ratio between a company’s net debt and its regulated asset base) for water companies in England and Wales was 69% in 2023-24. This is comparable to, or lower than, other sectors such as publicly owned Network Rail (69%) and Heathrow Airport (85%).
The economic regulator, Ofwat, closely monitors financial resilience and has controls in place to ensure customers are protected.
Myth: Water companies don’t have a plan to end sewage spills.
Fact: The water industry recognises that the issue of spills has not been given the attention it required and has collectively apologised. Subsequently, the water industry has published plans to invest more than £11 billion, including 9,000 improvements, to end spills, meeting or in many cases exceeding all Government targets over the next five years. This plan is with the economic regulator Ofwat for approval.
Myth: Water bills are too high given current levels of service and environmental issues.
Fact: The economic regulator Ofwat has prioritised keeping bills low, which has contributed to performance issues. Had bills risen with inflation since 2010, they would be around 25% higher than they are today. This would have enabled higher levels of investment.
The price of water and sewerage services is £1.20 a day in Birmingham, compared with £2 a day in Berlin and £4 a day in Copenhagen.
To meet the challenges of the future, bills will need to rise to correct the mistakes of the past through more investment.
Myth: Customers are being asked to pay twice for investments that should have already been made.
Fact: This will never happen. Regulations are in place to ensure that customers don’t pay for anything that isn’t new, necessary and value for money. Water companies are not allowed to seek additional funds for projects that have previously been funded. In addition, water companies are required to automatically refund customers if projects are not delivered, or targets are not met.
Myth: Privatisation of the water industry has failed to deliver benefits and renationalisation would deliver better results.
Fact: There is no clear proof that companies would perform better environmentally or financially if they were nationalised. Regardless of the ownership model, the challenges caused by climate change and population growth remain the same. During the Olympics in Paris, which has a publicly owned water system, triathlon events were repeatedly delayed due to poor water quality caused by sewage spills during high rainfall.
Nationalising the industry would take time, be extremely costly and complex, and the burden of financing investment in our infrastructure would simply be transferred to taxpayers – and there is no guarantee that the government would provide the funding that the sector needs.
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