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The British government’s “lack of leadership” risks continued under-investment in the water industry that will have “serious long-term consequences” for the environment and the security of supply, peers have warned.
In a letter to Thérèse Coffey, the environment secretary, the House of Lords industry and regulators committee said that ministers did not have a detailed plan as to how the regulated, privately owned water sector in England and Wales would attract the investment required to make much-needed infrastructure improvements costing billions of pounds.
Although the committee welcomed the government’s national strategy for the water sector published earlier this year it was concerned there was “insufficient policy or drive to meet the government’s targets and what appears to be a lack of leadership demonstrating deep-rooted complacency”, Lord Clive Hollick, chair of the committee, wrote.
The letter added: “The need for investment in the sector is huge. However, despite the publication of a national water strategy, the government has not clarified its view on how this should be paid for, beyond relying on the current regulatory system.”
As the water companies are regional monopolies with no competition, Ofwat, the water regulator, decides how much the companies can charge consumers to spend on infrastructure and services.
Water bills rose by an average of 7.5 per cent this year during the cost of living crisis and now average about £448 a year per customer. Companies are due to submit plans to Ofwat in October for the period from 2025 to 2030, with some asking for bill increases of up to 49 per cent above inflation to fund billions of pounds of investment.
The water consumer watchdog has warned the proposed increases risked pushing 1.1mn households into “water poverty”, which it defines as a household spending more than 5 per cent of its income after housing costs on water bills. In 2021 it estimated that about 1.5mn households in England and Wales were already affected.
The letter pointed to the government’s own estimate that it would cost the industry £56bn between 2025 and 2050 to meet targets to reduce sewage outflows. But Hollick said the ministers had failed to give Ofwat “clear guidance on the trade-off between much-needed investment and the level of customer bills”.
The letter said: “It is understandably difficult to make decisions that risk increasing bills in the current environment but continued under-investment will also have serious long-term consequences for the environment and the security of water supplies.”
The government needs to provide “firmer policy detail and greater guidance to regulators, who cannot be left to resolve these huge challenges by themselves”, the letter added.
Since privatisation in the late 1980s, water infrastructure and services have been paid for through customers’ bills or raising debt, which has increased to more than £60bn, up from almost zero in 1989. At the same time, investors have received more than £72bn in dividends, according to research by the Financial Times.
A number of water companies, including the largest, Thames Water, are struggling under the weight of their borrowings and Hollick warned that investor confidence in the sector had “deteriorated significantly and is most probably at an all-time low”.
The letter added: “We do not share the confidence of the regulator and the minister that the sector will be able to attract this investment under current regulatory arrangements.” It called for the government to set out what actions it planned to take to increase investment.