Water companies’ £800m windfall not passed on to consumers, says watchdog

However it has also placed the industry under a spotlight, as questions are asked why the excess profit was retained by water companies rather than passed on to United Kingdom households. A further £410m would have been saved if Ofwat had forced companies to cut bills in line with cuts to corporation tax, which fell from 28 per cent to 21 per cent over the five-year period under review.

The National Audit Office (NAO) said OFWAT’s price cap regime between 2010 and 2015 meant household providers in England and Wales had been able to take advantage of low borrowing charges and tax cuts.

The head of the NAO, Amyas Morse, said: “Customers have not seen enough of the benefits of companies” unexpected financial gains from factors such as falls in corporation tax rates.

Water companies have pocketed an £800m windfall because of poor regulation, the spending watchdog has said. “Had interest rates gone up between 2009 and 2014, that amount of money would have gone straight on customers’ bills”. However, it concedes that the companies could have made a loss if interest and tax rates had been higher than expected.

It said that the regulator, Ofwat, needed to act to ensure customers saw more of the gains when the companies benefited from developments that were outside their control.

However, there have been major improvements in water quality as a result of regulatory framework for the water industry and this latest report also found that there has been marked improvement to most measures of service quality, including the quality of drinking and bathing water in the United Kingdom, since the industry was privatised in 1989.

The report acknowledged the companies would have lost out if taxes or interest rates had risen, but said the balance was weighted too heavily in favour of the companies. The United Kingdom has to date not had to pay fines for failing to comply with European Union water directives, unlike other member states, it said.

“Bills have stabilised since but still represent an important component of household spending”. Between April 2015 and March 2020, Ofwat expects the water sector to spend £44 billion on improving water services, improving resilience and protecting the environment.

He said although water quality and service has improved since privatisation in the Eighties, customers no longer received “value for money”. It says customers were protected against potential increases in costs, but that the NAO has not “balanced the risks” between companies and consumers.

Trade body Water United Kingdom said the report contained “no real suprises”.

Severn Trent shares were down 0.2% to 2,213.00 pence per share on Wednesday, whilst United Utilities shares were up 0.8% to 973.75p.