Ministers will make an unprecedented intervention in water bills and how companies prioritise investment, directing bosses to bring down costs and stop leaks and sewage overflows.
Angela Eagle, the environment secretary, has told suppliers in England and Wales she plans to intervene in the next price review – conducted by the water regulator, Ofwat.
Sources at the Department for Environment, Food and Rural Affairs (Defra) said Andy Burnham’s 10-year plan, which will follow next week’s budget, would hand the government more robust powers to lower bills and direct local investment. But sources close to Eagle said there also needed to be immediate action as companies began to make decisions before the next price-setting process, expected to conclude in 2029.
There has never been government intervention in the five-year review process. It is run by Ofwat, which analyses companies’ business plans and determines how much can be charged to customers in their bills to fund investment and running costs.
Eagle has written to regulators and water company chief executives, saying that the process must meet specific government priorities, including offering bill payers much better value for money – though stopping short of demanding bill cuts.
The letter to companies and regulators says they must be focused on investment in new technology to save money, and early intervention on leaks and sewage. It also called for far better communication and decision-making power handed to local communities and leaders.
The first priority must be affordable bills, the letter says, adding: “Affordability means a laser focus on value for money for customers.”
The letter says the public is clear about what the objectives for the industry should be. “They want clean rivers. They want reliable water services. They want to know that their money is being spent wisely, and that bills are kept affordable. And they want confidence that the system is working in their interests.”
The letter warns company bosses that it will “not be a business-as-usual price review … it is the beginning of a long-term transition to a different model for the water sector”.
Defra sources said Eagle intended it to be the first in a series of changes that will be announced in the coming months on the water industry, calling it “one of the clearest symbols of public frustration with Britain’s infrastructure”.
A Defra source said the intervention by Eagle was a down payment on bigger changes that would come in the 10-year plan. The source said: “Angela will take a much more bullish approach to telling water companies and regulators what is expected from them. This is the start of a journey to a very different water system and one that delivers for the public.
“There are also things we want regulators and companies to be doing now and so Angela is using the levers she’s got to influence their investment decisions at an early stage and make sure they’ve got no excuses. As well as looking at ownership structures, there are other ways we can go further than what came before.”
The new intervention from Eagle comes as the government continues to explore more radical options for the stricken company Thames Water. The Guardian reported earlier this week that Burnham had told officials to contemplate options that were not previously considered feasible, even if that meant spending taxpayer money and going to court.
Burnham previously said he would nationalise Thames Water – which is running out of cash and recently asked its creditors for an additional £2.4bn – but is struggling to find a way to do so without spending billions of pounds, getting tied up in a lengthy court battle, or both.
The outcome of the last price review process in 2024 led to highly controversial bill rises, after Ofwat authorised a £104bn modernisation programme, funded in large part through progressive annual rate increases that will see average water bills surge by 36% over the second half of the decade. The biggest increase was allowed for Southern Water, whose customers will pay 53% more by 2030, at an average of £642 per year.
Over the summer, several major suppliers requested permission to charge billions more to cover mounting capital costs and debt obligations, sparking fury from campaigners and from politicians, including Burnham.
The prime minister criticised the decision, warning that bill payers must no longer be treated as a “blank cheque” or a “bottomless source of funding for other people’s failures”, saying ordinary households were being forced to plug massive corporate balance-sheet deficits.
However, campaigners for public ownership have warned the move will do little in practice to reduce bills or the environmental impact of sewage or leaks. Sophie Conquest, the lead campaigner at We Own It, said: “These proposals are yet more reshuffling of the deckchairs on the Titanic, and fall far short of Burnham’s promise to end 40 years of neoliberalism.
“This government should be intervening on behalf of households to stop bill hikes. If water companies can’t function without siphoning more and more money out of our pockets, then this government should let them go bust.
“From there, we can bring water affordably into public hands. Under public ownership, we can put people and the environment ahead of the interests of faraway shareholders and hedge funds.”
