Public anger over a significant increase in water bills to be unveiled this week will be justified, the environment secretary has warned, as households across England and Wales are forced to pay for a “catastrophic failure” of underinvestment and toothless regulation.
With the government braced for a backlash over the increases, Steve Reed told the Observer that a widespread “failure of regulation and governance” was to blame for bill rises expected to average at least 21% over the next five years. He said a “complete reset” of the water industry was needed in the face of poor service, polluted waterways and persistent leaks.
The water industry regulator Ofwat has already warned that the increases are needed to pay for improvements. However, a concerted push by water companies could mean that bills rise by even more than the £94 over five years that Ofwat signalled in the summer. They have been pushing for an average increase of 40%, pushing bills to £615 a year by 2030.
Amid warnings that the hike could hit many families already in financial distress, Reed said he was now doing everything he could to fix a broken and discredited system to stop similar price rises happening again.
“No one wants to see these bills rise,” he said. “I share people’s anger that this will be happening. We don’t know what the final figure will be, but the higher bills people will be seeing are because of the Conservatives’ failure over the last 14 years to invest in improving the water infrastructure.
“It’s got crumbling infrastructure, it’s got bursting pipes, and we’ve got the highest level of sewage ever recorded. People up and down the country are furious about the level of sewage pollution in our rivers, lakes and seas. At the same time, the Tories allowed money to be spent on bonuses and shareholder payouts – £41m in bonuses since 2020 – to water executives who are overseeing catastrophic failure.”
Reed said the government was already bringing in new rules ring-fencing money for investment, as well as handing Ofwat the power to ban unfair bonuses and introduce personal criminal liability for water executives responsible for pollution. A commission has also been ordered to draw up the “biggest reset in 35 years”.
He added: “This government cannot undo the damage that the Tories did to our water infrastructure by refusing to invest in it for 14 years. I know there’s no way that I can undo that damage. It’s happened, and now consumers are being asked by Ofwat to pay the price of that failure. What I can do is make sure it never happens again.”
However, Reed said he could not intervene in Ofwat’s ruling over the price increases, to be announced on Thursday. He said it was an independent regulator overseeing an independent process. Since the summer, there have been demands for rises to be blocked and for Ofwat to be abolished. Last year, the Observer revealed that two-thirds of England’s biggest water companies were employing executives who had previously worked at the watchdog.
Raw sewage discharges are allowed to be released only in exceptional circumstances such as very heavy rain. Photograph: Dan Kitwood/Getty Images
Ed Davey, the Liberal Democrat leader, called for Ofwat to be scrapped. “Families across the country, already struggling to make ends meet, have been faced with sky-high water bills, while water company executives have lined their pockets with bonuses,” he said. “This cannot continue. A useless, tired regulator won’t end the scandal of bonuses for sewage dumpers.
“The Liberal Democrats are urging the government to scrap Ofwat and introduce a tough new regulator with real teeth, to make sure water companies put customers and the environment first, instead of just lining the pockets of their shareholders.”
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The price rises come after years of public anger over the state of waterways and criticism that water companies have pumped funds into bonuses and dividends while underinvesting in ageing infrastructure, with sewage discharges at record levels. In March, it was revealed that untreated human waste was discharged for more than 3.6m hours
into rivers and seas last year, up 105% from 2022. In serious criticism of Ofwat and the previous government, Reed said that regulation “is clearly far too weak”. He has commissioned the former deputy governor of the Bank of England, Sir Jon Cunliffe, to look at a “complete reset of the water sector”, though the plans will not be enacted until after the next election.
“If you had damp in your home and you didn’t fix it, then 10 years later it will be far worse and you’d have to pay much more to put it right,” he said. “That’s exactly what has happened with our water sector. What we’ve done to help consumers with this is ringfence the money that’s earmarked for investment so it can only be spent on what it should be spent on, and that’s upgrading the broken water infrastructure.”
Reed again ruled out nationalising the water companies. “The failure isn’t linked to ownership, it’s linked to regulation and governance,” he said, adding that it was not fair to ask taxpayers to pay for the failure of water companies. He said it would also take too long. “We’re going to be pragmatic about this and take the route that will resolve this problem the fastest and cost consumers the least,” he said.
There have already been warnings that even the increases proposed in the summer would leave millions of households in England and Wales facing real financial problems. Those proposals would lead to bills increasing by £19 on average each year between 2025 and 2030. A survey of 9,500 households by the Consumer Council for Water found that 18% said they were already struggling with bills and 40% said they would struggle to afford the increases.
