Water industry woes make future challenges harder to fix
Thousands of customer service complaints, millions of litres of sewage leaks, and billions of pounds of debt have disgraced the UK’s water industry, lowering public trust in a vital utility.
Regulator Ofwat brought its latest charges against suppliers last week, finding that the vast majority had fallen foul of expectations to ramp up customer service, environmental protections, and investment pledges to fix hundreds of miles of creaking, leaking infrastructure.
Collectively the industry now has to pay £114m back to customers after flunking performance reviews, with no supplier considered ‘leading’ in its performance – with ten labelled average and seven deemed to be ‘lagging.’
The wall of shame includes the UK’s largest water supplier Thames Water – which has to pay back over £100m to households.
It has suffered its own company drama this year, with chief executive Sarah Bentley dramatically stepping down in the summer with the company creaking under a £14bn debt pile.
But it is not the only supplier in trouble, with other laggards including Anglian Water, Bristol Water, Dŵr Cymru, South East Water, Southern Water, and Yorkshire Water – collectively representing multiple millions of customers.
Overall, the Big Nine water and wastewater companies collectively are burdened under a £54bn debt mountain, following chronic underinvestment and mass dividend taking from shareholders since privatisation three decades ago.
This is by no means the first bad report card for the industry with Ofwat revealing only last year 14 suppliers underspent their budget on improving their water network and eight companies underspent their budget for improving their wastewater network between 2020 and 2022.
Meanwhile, Ofwat and the Environment Agency still have 11 suppliers in their crosshairs, water and wastewater companies, with live enforcement cases on six companies for potential failures on sewage discharges into the environment.
While the public will now have some costs shaved off their bills, ultimately this burdens households with higher costs – with the costs of upgrading the UK’s water network spiralling, and Thames Water leaking a quarter of the water it supplies.
Customers face higher bills
Earlier this year, industry body Water UK organised suppliers together to pledge tackling storm overflows with a £10bn funding plan.
What they were quieter about confirming was that this would ultimately come from customer bills.
This is not the only attempt to hike bills for customers.
Water suppliers are constrained by what they can charge by the regulator over five-year pricing windows, with a new period of pricing set to begin next year.
Suppliers are pushing for an up to 40 per cent hike in household bills for the next pricing window – as first reported by The Times – to fund vital upgrades to the network and ensure the sustained flows of water customers rely on from their taps, faucets and showerheads every day.
Naturally, this is a hard sell to consumers with such poor performance across the sector, chiefly driven by underinvestment caused by a laissez-faire approach to the industry from suppliers, regulators and government following the sector’s privatisation.
It seems morally questionable for suppliers to be footing the bill at customers for the improvements they have failed to oversee for years.
However, there are legitimate challenges that are going to need investment in the coming decades.
Water industry faces unpopular choices
As it stands, the UK is facing shortages to the level of nine million people over the next three decades, according to the National Infrastructure Commission.
It currently expects this to be partially met through fixing the country’s creaking and leaking infrastructure.
But solutions are also likely to include consumer behavioural changes regarding future usage – which could inconvenience people, from the mundane turning off the tap when brushing teeth, to using the kettle fewer times.
There will also be the need to do extensive work to fix people’s homes so they no longer contribute to the country’s Big Nine companies leaking almost 2.4bn litres every day.
Alongside new projects, this should meet two-thirds of the demand void – while transferring water from wetter regions and the few reservoirs that are finally approved will plug most the remaining gap.
However, with no new reservoirs being built in the UK for nearly three decades – there is also expected to be the need for recycled water, an increasingly controversial subject matter.
Recycled water involves putting sewage from treatment works through a further clean-up process, before releasing into rivers, lakes and reservoirs and being drawn back into treatment works, eventually coming out of taps across Britain.
This would be used for washing, cleaning, and even drinking.
The technology is already in use in developed economies such as Australia, Israel and Singapore – and water companies have presented 10 proposals for water recycling plants to the Environment Agency, which remain under consideration.
However, a backlash is seemingly inevitable following poor performance from suppliers.
If their failure to meet performance targets contributes to shortages requiring people to drink retreated sewage, it is only understandable people will lose trust in the sector – leading to calls for its nationalisation.
With higher bills and severe water challenges on the way – tough questions around water usage, planning obstacles, and solutions will be necessary.
But with suppliers performing so badly, it will become increasingly difficult to have them and make the decisions needed to secure the UK’s water needs.