Water industry investors have pulled back billions, study claims – BBC News

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  • Author, Dearbail Jordan
  • Role, Business reporter, BBC News

Shareholders of some of Britain’s biggest water companies have withdrawn tens of billions of pounds but failed to invest, new research shows, as companies plan to increase household bills to fund future spending.

Investors have withdrawn £85.2 billion from ten water and sewerage companies in England and Wales since the industry was privatized more than three decades ago, an analysis by the University of Greenwich shows.

Businesses are under pressure due to sewage spills and water leaks, which critics say are due to underinvestment in the country’s infrastructure.

Ofwat, the industry regulator, said it “strongly refuted” the figures.

A spokesperson added: “Whilst we wholeheartedly agree with the demands on businesses to change, the facts are that there has been huge investment in the sector of more than £200 billion.”

Water UK, which represents the sector, said investment in the sector was “double the annual pre-privatisation level”.

Water and sewerage companies want to increase their customers’ bills by an average of 33% over the next five years to finance improvements in services to households.

But David Hall, visiting professor at the University of Greenwich’s Public Services International Research Unit, claims water companies have invested ‘less than none of their own money’ and are ‘treating their customers like a cash cow’.

The University of Greenwich examined the company accounts of the ten largest water and sewerage companies in England and Wales, including Thames Water, United Utilities and Severn Trent.

The report states that between privatizations in 1989 and 2023, money invested by shareholders in the largest companies shrank by £5.5 billion, adjusted for inflation.

In the same period, the amount of ‘retained earnings’ – profits left over after things like dividends have been paid and which can be used to invest in a business – had fallen by £6.7 billion in real terms.

Meanwhile, the total amount these companies paid out to their shareholders in dividends grew to £72.8 billion, taking inflation into account.

Ofwat said the dividend figure is “simply wrong”.

It said it “does not represent the true total as it has been adjusted for inflation. Ofwat puts the figure since privatization at £52 billion”.

All told, the decline in shareholder investment and retained earnings – or profit – and rising dividend payments mean owners have taken out £85.2 billion, according to the University of Greenwich.

Water and sewerage companies are looking to spend around £100 billion over the next five years.

They claim they need more money to improve their infrastructure and help limit leaks.

But Mr Hall said: ‘You raise prices because you can and you get more money out of customers, and then you pass it on to the shareholders because the business you’re in is giving good returns to your shareholders.

“That is why companies do what they do and we should not expect anything different.”

A spokesperson for Water UK said: “Investments require financing through dividends.

“Water companies are now looking to increase the pace of investment, with a record plan for the next five years, to ensure the security of our water supply into the future and significantly reduce the amount of sewage entering rivers and seas.

“We now need Ofwat to give us the green light to go ahead with it.”

According to the Environment Agency, there were 464,056 sewage spills in 2023, an increase of 54% on the previous year.

Sewage is defined as anything that flows down a household drain. This includes the toilet, personal laundry or household cleaning such as a washing machine or doing the dishes.

This also includes road runoff. Due to the warmer winter and wet weather, many roadside barbecues are overloaded.

The coming weeks will be critical in determining how much water companies can increase their customers’ bills.

Ofwat will meet in the coming days to scrutinize water companies’ spending plans and proposed price increases, which would impact bills between 2025 and 2030. Ofwat’s draft proposals will be published on June 12.

Water companies can appeal if they disagree with Ofwat’s recommendations.

But Mr Hall said a fundamental change was needed in the way the water industry is run. “This is a service that is important to us,” he said.

“What we need to do is reverse this system and move to the way the rest of the world does it, which is through public authorities, and take it back into the public sector.”

An Ofwat spokesperson said: “We share the concerns of the general public and campaigners about the performance of water companies, which is simply not good enough.

“We have held companies to account and imposed fines of more than £300 million in recent years. We want to see a transformation in business performance and will set out our plans to achieve this in mid-June.”

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