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Inside the water industry’s £96bn plan to clean up Britain’s rivers

Water bills rising as a result of water company investment and performance promises
Water bills rising as a result of water company investment and performance promises

In the coming weeks, water company executives will face questions from the public in a fresh series of “your water, your say” meetings.

At previous sessions this year, conducted via video conference, bosses from Thames Water, South West Water, United Utilities and others were asked to explain their poor record tackling leaks and river pollution.

Now, questions are likely to focus on another highly contentious issue – why household bills are set to go up.

Under plans to clean up Britain’s rivers and coastline, water suppliers are proposing to charge customers more than £150 extra per year by 2030, according to industry body WaterUK.

It means the typical English household’s annual bill will rise from £425 to £575, in 2022/23 prices, according to documents submitted to regulator Ofwat on Monday.

For this, customers are promised an “unprecedented” £96bn of investment in water and sewerage infrastructure, a figure that suppliers say is nearly double the prior five-year period’s total.

Yet critics have questioned whether this will really deliver the game-changing overhaul the industry says it will, while the range of reporting styles used by companies makes the numbers difficult to compare to one another.

Of course, suppliers have made plenty of promises about performance in the past, and failed to keep some of them.

Despite a public outcry, a report by the Environment Agency this summer warned that the tide of “pollution incidents” in England was still rising, from 1,883 incidents in 2021 to 2,026 in 2022.

There were also more than 300,000 storm overflow incidents, where raw sewage is discharged straight into rivers and the sea as a “release valve” when pipes struggle to cope after big downpours.

As Feargal Sharkey, the former Undertones frontman who now campaigns for cleaner rivers, puts it: “We’ve already paid these companies to develop, build and maintain a sewage system capable of properly dealing with our sewage.

“So I don’t know why Ofwat would ever agree that the customer should pay again for a second time for a service we’ve never received.”

Ofwat, for its part, insists that consumers will only be asked to pay for “future investment, not past company mistakes”.

David Black, Ofwat’s chief executive, has vowed the regulator will scrutinise bills to ensure “any increase is justified, efficient and delivers significant improvements in river and bathing water quality”.

A typical annual water bill in England and Wales last year was £417, including £199 for supplying clean water and £218 for sewerage services.

Since the water industry was privatised in 1989, £200bn has been invested in the network by suppliers, according to industry body WaterUK. That is almost double the figure pre-privatisation.

WaterUK claims leaks are also down by a third, ammonia and phosphorus levels going into rivers have fallen by two thirds, the number of beaches rated “excellent” has risen seven-fold and bills have been kept relatively low.

Two litres of water costs about 0.33 pence, compared to 45 pence if bought from the supermarket, according to industry figures published by Ofwat.

But when you examine the industry’s environmental record, the numbers are far less flattering. Water companies lose roughly one-fifth of their supplies to leaks every year, while periods of extended rainfall can overwhelm their networks and force them to discharge huge amounts of raw sewage into waterways.

Firms spewed sewage into rivers and the sea for 1.75 million hours last year, with more than 300,000 spills recorded due to storm overflows.

In July, Thames Water, Britain’s biggest water supplier, was fined £3.3m by a court after admitting to polluting rivers in 2017 – just the latest fine of several that the company has received over the years.

A month later, United Utilities was separately fined £800,000 for taking too much water from the environment, having illegally abstracted 22 billion litres of water from boreholes in Lancashire, the Environment Agency said.

Company bosses argue their investment in the past 20 years has helped to keep bills low, while highlighting that much of Britain’s water infrastructure dates back to Victorian times.

The bill increases proposed on Monday set out to begin addressing this.

Starting from next year, bills will begin climbing to finish at an average of £580 per year in 2030, according to analysis of company plans reviewed by The Telegraph. That is up from an average of £417 in 2022/23 – or an increase of £163.

The lowest bill proposed was £518 per year with Severn Trent, while the highest was Southern Water at £674 per year.

Thames Water, which has suffered from financial problems, said it expects to charge £611 per year by 2030.

However, due to the anachronistic way water companies present these numbers, the figures do not account for inflation and are based on 2022/23 prices – meaning bills are likely to end up being even higher in reality.

For example, Northumbrian Water, one of the only companies to provide estimates that accounted for inflation, said annual bills could rise to £464 per year excluding inflation. But that number jumped to £561 when inflation was included.

Suppliers are also poised to raise money through equity or take on more debt to fund their improvement plans. Severn Trent on Friday unveiled plans to spend £12.9bn from 2025 to 2030, including £5bn on “enhancement” – i.e. upgrades to its network.

It has raised £1bn directly from investors by selling equity and also plans to take on an extra £5.9bn in debt. However, of the borrowings, £3.8bn is new debt and £2.1bn will be for refinancing.

John Campbell, an analyst at Bank of America Merrill Lynch, said the ease with which the company raised cash from shareholders suggested “relative easiness about funding Severn Trent’s growth”, in a note entitled: “The coast is clear. Reiterate Buy.”

The company is promising to reduce storm overflows by 30pc, pollution by 30pc and leaks by 16pc over the next price period.

Monday’s proposals also failed to clear up uncertainty surrounding Thames Water, the supplier that has been struggling with rising debts.

Thames raised £750m from investors in July but had sought to raise £1bn. It said its plan for 2025 to 2030 was viable if it paid no dividends to shareholders – but gave little detail over how it would fund them beyond the proposed bill increase and a suggestion that it will seek to raise a further £2.5bn from investors.

Across the whole industry, WaterUK says £96bn will be spent between 2025 and 2030.

That includes £24.2bn towards environmental improvements – including £11bn into reducing storm overflows – £4.1bn in anti-drought measures, £2.3bn into resilience to reduce outages and £1.5bn into water quality improvements.

Suppliers are set to build 10 new reservoirs, build pipes to carry water from wetter areas to dryer ones and will develop 28 new wetlands to help improve water quality and biodiversity.

Martin Young, a utilities analyst at Investec, says the early signs are that water companies are responding to public criticism with plans that “push the envelope”.

Many of the expenditure figures published so far are higher than what Young had modelled.

“Obviously, what that means is the public will be paying for it and bills will be going up,” he adds.

Exactly what households think about that will be for water company bosses to find out, as they face their customers over the next couple of months.