Dŵr Cymru bills to be the highest in England and Wales

Martin Shipton

People in Wales are set to have the highest water bills in England and Wales following an announcement by the industry regulator Ofwat.

The news has been greeted with outrage following revelations about executive bonuses paid to bosses at Dwr Cymru Welsh Water and the company’s poor environmental performance which has led to hefty fines.

Ofwat has approved a rise in the average water bill for customers of Dwr Cymru Welsh Water to £645 in 2029-30, up from £455 in 2024-25.

All other companies in England and Wales will have lower average bills in 2029-30: Southern Water, £642; Anglian Water, £631; Wessex Water, £614; South West Water, £610; Yorkshire Water, £607; Thames Water, £588; United Utilities, £585; Severn Trent Water, £583; Hafren Dyfrdwy, £557; Northumbrian Water, £510.

Fined

Dwr Cymru Welsh Water has been fined multiple times for falling down on its environmental responsibilities.

Earlier this year, following an investigation by Ofwat, it was found that the company misled customers and regulators on its performance on leakage and per capita consumption data, as a result of which it was ordered to pay £40m to benefit its customers.

Ofwat chief executive David Black said at the time: “For five years, Welsh Water misled customers and regulators on its record of tackling leakage and saving water. It is simply indefensible and that is why we are making Welsh Water pay this £40m to benefit its customers.

“Today’s announcement puts the industry on notice that we have the resources and will act when companies fail to meet their obligations to customers.”

Monitoring

Only this week it was confirmed that Dwr Cymru Welsh Water is facing a huge fine for not properly monitoring effluent discharges from its sewage and water treatment works. Wrexham magistrates heard that the company committed offences at 300 sites across Wales in 2020 and 2021.

Welsh Water could be dealt a financial penalty running into six figures for committing 15 specimen offences. The company was fined £180,000 in 2021 for breaching the conditions of its permit.

Former Welsh Economy Minister Andrew Davies, whose research findings about the performance of Dwr Cymru Welsh Water were published by Nation.Cymru earlier this month, said in response to the announcement that Dwr Cymru Welsh Water customers will have the highest bills: “From highest spills to highest bills. On top of having the worst performance of any water company in England and Wales for sewage spills and other indicators, the prospect of now having the highest water bills in England and Wales will seem like the final kick in the teeth for hard suffering householders in Wales. Customers will continue to pay for the failure of the fact-cat bosses of Welsh Water. This latest decision by Ofwat should sound the death knell for the cosseted and cosy world of water privatisation.

“Once more a toothless regulator, Ofwat has caved into the egregious demands of greedy water companies, including Thames Water as well Welsh Water.”

In his research, Mr Davies highlighted payments made to Dwr Cymru Welsh Waters chief executive: “Despite the poor performance of Welsh Water on a range of indicators, in 2024 the directors received annual variable pay, i.e. performance against targets. Peter Perry was awarded £91,364.62 (25.77% of his salary) paid in July 2024.

“To provide further context and comparison for Welsh Water senior executive pay, the remuneration of the Chief Executive of Cardiff council which has a workforce of 14,757 and a budget of £1.9bn was £229,440 in 2022-23.”

‘Reward for failure’

Rhodri Williams, vice chair of the Consumer Council for Water, said: “People accept the need for investment in infrastructure to secure environmental improvements, but they want to be sure that any extra money in bills goes towards that objective.

“People even accept executive bonuses when it can be shown that the companies concerned have improved their performance, but paying bonuses in circumstances where business plan objectives have not been achieved and when environmental performance has been poor is seen as a reward for failure.

“There has been a great deal of attention on the unacceptable discharge of sewage into our seas and rivers, as well as concerns about unacceptable levels of clean water leakage.”

Mr Williams said he was hopeful that a uniform rebate system for consumers who can’t afford higher bills will be introduced across England and Wales, replacing the current system which some have described as a postcode lottery.

Executive bonuses

Welsh Liberal Democrat MP David Chadwick said: “Make no mistake, today’s announcement is part of the legacy of the previous Conservative Government.

“For years they allowed water companies to get away with stripping out the profit for gigantic executive bonuses while failing to invest in vital infrastructure and pumping raw sewage into our rivers.

“It is an absolute disgrace that Welsh customers now face the highest water bills in the UK while also having some of the lowest incomes.

“People are already struggling with the cost of living immensely, the UK Government must intervene.

“The Welsh Liberal Democrats have long led the campaign to end this crisis and we urge the UK Government to finally replace Ofwat with a new, effective regulator to hold water companies accountable, and introduce a single social tariff for water bills to help eliminate water poverty.”

Opportunity

Announcing the new bill levels and investment plans, Ofwat chief executive David Black said: “Today marks a significant moment. It provides water companies with an opportunity to regain customers’ trust by using this £104bn upgrade to turn around their environmental record and improve services to customers.

“Water companies now need to rise to this challenge, customers will rightly expect them to show they can deliver significant improvement over time to justify the increase in bills. Alongside the step up in investment, we need to see a transformation in companies’ culture and performance. We will monitor and hold companies to account on their investment programmes and improvements.

“We recognise it is a difficult time for many, and we are acutely aware of the impact that bill increases will have for some customers. That is why it is vital that companies are stepping up their support for customers who struggle to pay.

“We have robustly examined all funding requests to make sure they provide value for money and deliver real improvements, while ensuring the sector can attract the levels of investment it needs to meet environmental requirements. This has seen us remove £8bn of unjustified costs compared with companies’ most recent requests. In addition, our approach to setting a rate of return has saved customers £2.8bn.”

In response, Dŵr Cymru said: “Ofwat’s announcement today responds to our submission for record investment over the next 5 years in order to deliver significant improvements to the services we provide.

“We welcome the fact that Ofwat have responded to the representations that we made after Draft Determination to allow more of what we had requested in our business plan, recognising that there are some very challenging performance targets including reducing leakage and spills from storm overflows.

“The Final Determination published this morning would see customer bills increase notably ahead of inflation. Any price increases are never welcomed, and we have always sought to keep these to a minimum, however, bill increases have not kept up with inflation over the past 15 years.

“Whilst Ofwat has challenged us hard on our plans and on efficiency, we – like the rest of the sector – would not be able to finance the needed increase in investment in a sustainable manner without increasing bills. We will ensure, however, that we continue to provide the most financial support we
can to customers who struggle with their bills.

“We are keen to deliver against our long term objectives to improve performance, adapt our networks to the climate crisis to better cope with high volumes of rainwater in sewers, and do more to protect our rivers and seas.

“Throughout the process, we have been committed to working with Ofwat, as well as stakeholders such as CCWater, the Drinking Water Inspectorate, Natural Resources Wales and our Independent Challenge Group, to ensure that we are able to deliver a plan that meets the needs and expectations of our customers. This will continue to be the case as we consider the detail and full implications of Ofwat’s Final Determination.”

New investment

The 2024 Price Review (PR24) final determinations will see a quadrupling of new investment over the next five years, providing companies with the funding needed to transform performance, ensure supplies for future generations and to deliver cleaner rivers and seas.

Key elements of the investment package, which also reflect the UK and Welsh Governments’ stated priorities for the sector, include:

* £12bn on 2,884 projects reducing spills from storm overflows;

* £6bn of upgrades to combat nutrient pollution for around 1,000 sites and catchments;

* £3.3bn on nature-based solutions and increasing biodiversity;

* £2bn of development funding to unlock £50bn investment for 30 major projects designed to secure water supplies including nine new reservoirs and nine large-scale water transfer schemes;

* £456m of extra funding on day-to-day allowances to increase the rate at which water mains are replaced, with 8,445km set to be improved over the next five years.

The increase in investment needs is driven by delivering on the statutory standards and regulatory requirements set out by the Environment Agency (EA), Natural Resources Wales and the Drinking Water Inspectorate. These relate to a range of programmes such as reducing spills from storm overflows, improving wastewater treatment standards and raising further the quality of drinking water.

To help finance this essential investment programme, bills in England and Wales will increase by an average of £31 per year (36%) before inflation between now and 2030. This annual average increase compares with a £39 increase requested by companies in August 2024 (44%).

Ofwat

Ofwat said its role, as economic regulator, is to ensure customers benefit from new investment, so they are not charged twice for work companies should have already carried out and that they only pay the efficient costs of new investment.

Ofwat does not determine the level of environmental investment, which is set out by agencies such as the EA. Ofwat’s job is to scrutinise the cost of proposals in company business plans to make sure all investment is good value for money, and then to hold companies to account for that investment.

Ofwat sets an allowed return that provides a reasonable return for the risks that investors face for their investment. There are opportunities for investors to earn enhanced returns where companies deliver great levels of service to customers and the environment, and the incentive mechanisms ensure investor returns are lower than the allowed return where performance is poor.

In setting the rate of return, Ofwat has to also take account of current market conditions including recent increases in the cost of finance. This has seen the allowed return for the sector increase to 4.03% compared with 3.72% at draft determinations.

This reflects a cost of equity of 5.1% and debt of 3.15%, underpinned by a gearing ratio of 55%. This will allow investors in an efficiently-run company to earn a reasonable return on their investment.

In addition, Ofwat forecasts that companies will need to raise levels of finance that significantly exceed the levels raised in any previous regulatory period. Companies have forecast a need for around £7bn of new equity; we consider that the equity financing requirement is likely to be higher than this. We have used a figure of £12.7 billion when assessing the financeability of company plans.

The average bill increases by £157 (36%) over the next five years. The average bill increase in 2025-26 will be £86 (20%), excluding inflation, with smaller percentage increases in each of the next four years.

Ofwat has removed £8bn (7%) of costs from companies’ business plans and reduced the allowed rate of return on investment compared with companies’ requests.

This has led to a reduction in bills for most companies, compared with their most recent proposals; companies proposed bill increases of 44%. For example, in comparison with proposed 2029-30 bills, Southern Water’s bill has been reduced by £126 (16%), Thames Water by £79 (12%), Hafren Dyfrdwy by £73 (12%) and Wessex Water by £44 (7%).

Bills have been set at a level which is fair for current and future customers, with steps taken by companies to increase support for customers who need it, meaning more than a doubling in the proportion of customers that will receive help with their bills from 4% to 9%.

In parallel, Ofwat has ensured measures are in place to safeguard customers so money is spent where it needs to be spent; companies are responsible for delivering their investment programmes, and where companies fail to do so, funding will be subject to a claw back mechanism which will ensure money not spent on investment is returned to customers through lower bills.

Companies have also not been allowed to charge customers for work that has already been funded, such as investment to bring storm overflows into compliance with their existing permits.

Targets

Targets have been set for companies across 24 key areas of performance. If the targets are not met, there will be automatic penalties for companies, with money returned to customers through lower bills. But if companies exceed the targets, they will be allowed to increase bills in return for the extra benefit customers have received.

Ofwat said: “Through securing our future water supply, we will boost the economy by supporting new housing and business development. We will allocate £2bn development funding to unlock £50bn of investment for the biggest package of water supply projects in decades.

“Over the coming decades, nine new reservoirs will be created, including in Lincolnshire, Cambridgeshire and Oxfordshire, to create enough additional capacity to serve the daily needs of 2.5 million households. In total, the 30 major infrastructure projects will provide enough water to meet the daily needs of around a third of England and Wales’ population. This will help us adapt to climate change, build resilience to drought and leave more water in the natural environment.

“The Ofwat Innovation Fund, which is being doubled to £400m and the introduction of the £100m Water Efficiency Fund will help address sector-wide challenges. The Innovation Fund will continue to encourage fresh approaches; the Water Efficiency Fund will use a range of water efficiency approaches to stimulate a sustained and measurable reduction in water demand across England and Wales.”

“Travesty”

Responding to today’s announcement by Ofwat of massive water bill rises, chair and founder of River Action Charles Watson said, “It is a travesty that customers are now being forced to pay higher water bills, especially when these increases are directly the result of years of under-investment by the water industry.

“Shareholders in the water companies must be laughing all the way to the bank. With customers now being forced to foot the bill to repair and upgrade the water industry’s crumbling infrastructure, the very people who have already benefited for years from huge dividend payments, will see the value of their assets increase in thanks to this customer funded investment.

“The real question remains staring us unanswered in the face: when will those who have profited so rapaciously from decades of operational neglect, causing horrendous environment damage in the process, finally be held accountable and made to pay up for their totally irresponsible custodianship of these essential public services?”