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Major investments desperately needed to prevent pollution from antiquated sewage systems.

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• Public Accounts Committee

The water system has been left to sink for too long, with hikes in customer bills now required to update and expand the failing infrastructure. In a report on the water sector, the Public Accounts Committee (PAC) is calling for the government to act with urgency to strengthen oversight of the sector in order to rebuild trust and force the sector to improve its poor past performance. 

Water bills are expected to rise at their fastest rate in 20 years, at a time when customer trust in the sector is at an all-time low. Over the next five years, customer bills are expected to increase by an average of £31 a year. The PAC’s inquiry found that 20% of people are struggling to afford their water bills – yet companies are implementing these huge increases without explaining why, or how the money will be spent. Ofwat must set clear expectations for companies to explain where customer money is being spent, why bills are rising and what improvements customers can expect for their money, in the next six months.   

A key element damaging consumer trust is the pollution resulting from decades of underinvestment in antiquated sewage systems. The Environment Agency (EA) says there are too many offences to prosecute every wastewater company for their poor environmental performance. Companies are expected to spend around £12bn in the next 5 years to update the system, but this will only fix around 44% of overflows. Defra created an £11m fund for environmental improvements from water company fines in 2024, but has still not distributed the money. The report recommends Government disburse the amounts promised by the end of the year, and for regulators to work urgently to ensure money raised from fines is reinvested into improving the system. 

The PAC warns that there appears to be no single guiding mind balancing the need for improvements with the impact on bills and as such in the past, the wrong approach has been taken. It is calling for the government to plug the gaps in regulator responsibilities (highlighted in the attached graphics) and be explicit on the trade-offs between the need for improvements, water supply needs, and the impact on bills. 

Based on current usage rates, England faces a daily shortfall of 5bn litres of water by 2050. Water companies now need to build 10 new reservoirs to avoid this shortfall, with none having been built in the last 30 years. This is not the only infrastructural issue -if work to replace the ageing water mains continues at the current rate, it will take 700 years to replace the entire network.  

The financial failings of water companies are well documented, with payments of excessive dividends worsening trust in the sector. With 10 companies unable to generate enough income last year to cover their interest payments, the PAC is calling on Ofwat to review its powers and capabilities to ensure it can act to improve the financial resilience of the sector. It should also set out what is likely to happen, and importantly, who will bear the costs in the event of a company insolvency.  

Chair comment

PAC Chair Sir Geoffrey Clifton-Brown said: “The monumental scale of work required to reverse the fortunes of failing water companies is rivalled only in difficulty by the efforts needed to repair customers' faith in the sector. In the face of looming water shortages, steps must be taken immediately if the Government is to set the sector back on the right path. The good news is that our inquiry heard that the quality of our drinking water is some of the best in the world. 

“Customers are being expected to shoulder the burden of water companies’ failings, without being told why or on what their money will be spent. The fines imposed for the environmental harms caused by neglected infrastructure must be diverted to fund improvements, and we must know what will happen in the event of company insolvency. Reports of Thames Water's impending insolvency are deeply concerning. It is past time that we had a low risk, low return water sector, from its current farcical state of overly complex, sometimes unregulated companies, and a culture of excessive dividends and borrowing. There is also a lot to be done in the regulatory sphere, with a pressing need to improve and streamline the existing regulatory regime. 

“More must be done to stem the flow of pollution entering our waterways, as it poses a serious risk to human health and continues to degrade the quality of our lakes and rivers. However, regulators are overwhelmed by the number of prosecutions and appear unable to deter companies from acting unlawfully. Government must act now to strengthen regulators and support their efforts to hold companies to account.”