Water investors have withdrawn billions, says research

Shareholders in some of the UK’s largest water companies have taken out tens of billions of pounds but failed to invest, new research claims, with firms planning to raise household bills to fund future spending.

Investors have withdrawn £85.2bn from 10 water and sewage firms in England and Wales since the industry was privatised more than 30 years ago, analysis by the University of Greenwich suggests.

Companies are under pressure following sewage spills and water leaks, which critics have blamed on under-investment in the country’s infrastructure.

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

“While we agree wholeheartedly with demands for companies to change, the facts are there has been huge investment in the sector of over £200bn,” a spokesperson said.

Water UK, which represents the industry, said investment in the sector was “double the annual levels seen before privatisation”.

Water and sewage firms want to increase customers’ bills by an average 33% over the next five years to fund improvements in the services for households.

But David Hall, visiting professor at the Public Services International Research Unit at the University of Greenwich, claims that water companies have invested “less than nothing of their own money” and are “treating their customers like a cash cow”.

The University of Greenwich examined the company accounts of the top 10 water and sewage companies in England and Wales including Thames Water, United Utilities and Severn Trent.

It said that between privatisation in 1989 and 2023, money invested by shareholders in the largest firms shrunk by £5.5bn when adjusted for inflation.

Over the same period, the amount of “retained earnings” – profits left over once things like dividends have been paid out, that can be used to invest in a business – had dropped by £6.7bn in real terms.

Meanwhile, the total amount that these firms paid out to their shareholders in dividends grew to £72.8bn, when taking inflation into account.

Ofwat said the dividend figure was “simply wrong”.

“[It] does not represent the true total given it is inflation-adjusted. Ofwat offers the figure since privatisation as £52bn,” the regulator said.

Taken together, the fall in shareholders’ investment and retained earnings – or profit – and rising dividend payments mean that, according to the University of Greenwich, owners have withdrawn £85.2bn.

Water and sewage firms want to spend around £100bn over the next five years.

They argue that they need more money to improve their infrastructure to help limit leaks.

But Prof Hall said: “You put the prices up because you can and you get more money out of the customers, and then you pass it on to the shareholders because the business you’re in is providing a good return to your shareholders.

“That’s why the companies do what they do and we shouldn’t expect anything different.”

A spokesperson for Water UK said: “Investment requires financing through dividends.

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

“We now need Ofwat to give us the green light to get on with it.”

There were 464,056 sewage spills in 2023, according to the Environment Agency, a 54% increase on the previous year.

Sewage is defined as anything that goes down a household drain. That includes from the toilet, personal washing or domestic cleaning such as from a washing machine or doing the dishes.

It also includes run-off from roads. A warmer winter and wet weather has meant that many roadside grills have been overwhelmed.

The next few weeks are key in determining by how much water companies can raise customers’ bills.

Ofwat will meet in the coming days to scrutinise water firms’ spending plans and proposed price rises which would affect bills between 2025 and 2030. Ofwat’s draft proposals are set to be published on 12 June.

Water companies can appeal if they do not agree with Ofwat’s recommendations.

But Prof Hall said there needed to be a fundamental change in the way that the water industry is run. “This is a service that matters 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 in the public sector.”

A spokesperson for Ofwat 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 been holding companies to account and have imposed penalties of over £300m in recent years. We want to see a transformation in companies’ performance and will be setting out our plans to deliver this in mid-June.”

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