Thames Water spirals into special measures as regulator allows water firms to hike prices by £94 over the next five years
- PM has ruled out nationalising sector, amid concerns firm could collapse
Thames Water has been thrown into special measures as the industry regulator paved the way for average bills to rise by £94 in the next five years.
Ofwat yesterday put Britain’s biggest water utility on notice that it must clean up its act as concerns mounted that the company could collapse.
That would present a huge industrial crisis for Sir Keir Starmer, who has ruled out nationalising the sector.
It came as the watchdog said water companies can raise prices by 21 per cent, or an average of £94, by 2030, allowing them to go on an £88billion spending spree to fix ailing infrastructure.
There are significant variations in price changes between suppliers.
Thames Water has been placed on special measures, amid concerns that the company could collapse
The collapse of a major company would present a large industrial crisis for Sir Keir Starmer, who has ruled out nationalising the water sector
Under the plans, Southern Water customers will face a £183 increase over five years, while Dwr Cymru customers’ bills will go up by £137 and Yorkshire Water customers will pay £107 more.
Chancellor Rachel Reeves said huge bill increases would be a ‘bitter pill’ for consumers amid outrage over sewage being dumped in Britain’s rivers.
And environment secretary Steve Reed said after a meeting with the bosses of England and Wales’ 16 water companies that it marked a ‘reset moment’.
He blamed the higher bills on ‘14 years of Conservative failure’ and said he will ‘ensure that can never happen again’.
Campaigners said households were being ‘punished’ by ‘greedy water companies’ who have paid out ‘billions’ to shareholders.
But in a blow to debt-laden Thames Water, the regulator blocked its plan to hike bills by 44 per cent over the next five years and said the increase must be capped at 22 per cent.
The decision throws doubt on the supplier’s ability to raise urgent cash from shareholders - fuelling fears that the company could collapse.
Ofwat placed Thames Water in special measures that could see the business split up into several different water suppliers, a limit on the amount of debt it can take on, or a public listing to raise extra cash.
The watchdog said the firm, which supplies 16million customers in London and the South East, can raise average bills by £99 by 2030.
Thames Water wanted to charge households £191 more by the end of the decade, That would have seen bills rise to £627 a year, compared with £535 under Ofwat’s plan.
Thames Water must now review its rescue strategy and report regularly to the regulator on how it is progressing.
It also has to submit a financial resilience plan after warning it only has enough cash to survive until May next year.
Ofwat has permitted Thames Water to hike average bills by £99 by 2030 (file photo)
And an independent monitor could be appointed with full access to company files to report to Ofwat.
It comes after the regulator this week said it would ‘look into’ Thames Water’s payment of a £196million dividend and £754,000 in executive bonuses.
A Thames Water spokesman said: ‘We welcome the opportunity to provide Ofwat with further evidence about the need for the investment we plan to make, our costs and how we will deliver it.’
Russ Mould, investment director at AJ Bell, said Ofwat’s decision ‘may increase the likelihood’ of a government bailout.
But the Prime Minister said the nationalisation of water utilities is not on the agenda.
‘I don’t want bills to be so punishing for people,’ Starmer told LBC.
‘So we will have a plan to get to grips with that in terms of governance of water, but that requires us to deal with both the pollution and the bill side of it.
‘That doesn’t involve nationalisation, but it does involve making sure the regulations we have are properly enforced, looking at possible further regulation, and something I’m very keen on, which is to have sort of personal responsibility from the top.’
Other water firms were also knocked back by Ofwat including Severn Trent, which was told it can raise bills for its 4.6million customers in the Midlands by up to £93, less than the £144 increase it had asked for.
South East Water, which this week also warned it was at risk of running out of money, will be allowed to hike bills by £18 rather than £51.
‘The knockback on bill increases is a big blow to water companies and means they’re going to have to invest their cash very efficiently if they’re to have any chance of meeting the regulator’s demands,’ Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said.
Sedimentation tanks at the Thames Water Long Reach treatment facility. The firm said it welcomed the opportunity to provide the regulator with 'further evidence' on future investment
James Wallace, the chief executive of campaign group River Action, said: ‘These bill hikes punish households struggling with the cost-of-living crisis for the abject failure of greedy water companies to invest in their crumbling infrastructure and reduce record sewage spills.
‘For decades the industry has put profit before the environment, rewarding its shareholders with billions in dividends, and in the process filling our rivers with human sewage.’
Mr Reed said: ‘This is a reset moment. Every penny that is being earmarked for investment in fixing the sewage system will be spent on fixing the sewage system.
‘It will not be diverted into bonuses and dividends in the ways the Conservatives permitted. Everything changes today.’
Water companies have until August 28 to respond to Ofwat’s draft decision. The regulator will make its final judgement in December.
