True cost of water companies

IT is costing upwards of £22 billion to keep the water industry privatised, an independent commission has heard.

Professor David Hall, of the University of Greenwich, was giving evidence to the People’s Commission on the water sector, which was held in Henley town hall on Tuesday.

He said that a quarter of the money customers pay in their bills is going straight to investors.

The commission was set up by members of the Sewage Campaign Network and is travelling across England and Wales to take evidence from sector experts and water users.

It has been established by academics and campaigners to rival the Independent Commission on the Water Sector Regulatory System, chaired by Sir Jon Cunliffe and established by the Government.

The event in Henley was the commission’s fourth hearing and the panel featured four academics.

They were Dr Kate Bayliss, research associate at the School of Oriental and African Studies, Prof Frances Cleaver, professor of political ecology at Lancaster University, Prof Becky Malby, visiting professor of health innovation at York University, and Prof Ewan McGaughey, professor of Law at King’s College London.

The group was gifted the use of the council chamber and refreshments were provided by open water swimmers and clean water campaigners, the Henley Mermaids.

Prof Hall told the commission that a big reason water bills are expected to rise was because the water sector is planning to double the amount of profit it makes from its investments.

Under the latest price review, regulator Ofwat has allowed the water sector in England and Wales to collect £90.5 billion from customers between 2025 and 2030. This is £23 billion more than they were allowed in the previous five years.

Between 2020 and 2024, Ofwat allowed £11 billion in returns to capital. This is the profit the company earns from the money invested in it by shareholders and lenders paid out to them as dividends or interest.

But under the new price review, that figure has nearly doubled to £22 billion for the 2025-2030 period, a 99 per cent increase.

The figures come from research conducted by the Public Services International Research Unit, based at the University of Greenwich in March 2025, of which Prof Hall is the former director. Prof Hall said: “In other words, Ofwat has, in its plans and in the prices we are paying, has given the companies a doubling in the target of their return on capital.

“That in itself accounts for just about a quarter of the price rise that we are currently paying. A quarter of the prices that we are paying are now going on the return on capital.”

Prof Hall said that in reality, the actual figure was likely higher, around £30bn as the total annual financial cost for the companies included headings such as “residential retail” and other also covers return on capital — profits for investors.

Responding to Prof Hall’s evidence, Prof McGaughey said: “So that £22bn figure there is Ofwat’s official calculation of what privatisation costs us.

“So, this idea that it’s going to cost billions to take water back into public ownership, the reverse is true. It costs £22bn to keep it in private ownership.”

Prof Hall’s figures challenge the claim from water industry lobbyists that it would cost £99 billion to nationalise our water sector.

This figure is updated from the Social Market Foundation in 2018, a think tank that was paid by Anglian Water, Severn Trent, South West Water and United Utilities to write a report, entitled “The cost of nationalising the water industry in England”.

Prof McGaughey, in a report published on Thursday last week by the thinktank Common Wealth, argued the figure used was misleading.

He said that it was based on something called the “regulatory capital value”, a number calculated by Ofwat to help decide how much companies can pay out in dividends.

However, Prof McGaughey pointed out that this figure does not include company debt and does not reflect the real market value of the companies.

The commission also heard evidence from independent academic and former retired audit partner Stanley Root.

Mr Root, who has worked for financial companies in both the UK and Russia, has created a website with summarised financial statements for all regulated companies and their parent companies for the last 34 years.

The evidence he presented to the commission argued that money for capital investments in the sector had come from money from customer bills rather than from shareholders.

Mr Root explained that according to analysis of the sector, investors didn’t invest back into the company, but instead extracted dividends, often more than the profits earned.

He calculated that between 1990 and 2024, a total of £38 billion was extracted from eight water companies in England and Wales, United Utilities, Severn Trent, Anglian, Thames, Southern, Yorkshire, Wessex and Welsh Water, in the form of dividends and loans.

This means that instead of investors putting money into the companies (as share capital), they were taking money out. Between this same period, these companies had a cash surplus of £23bn and had received enough cash from customer bills to cover all operational costs.

Mr Root said that, as a consequence, these companies didn’t need to borrow to finance capital expenditure. However, they did anyway, as it enabled them to pay generous dividends while using customer cash to pay for capital investment.

He said: “The only reason companies were faced with strongly negative cash flows was because they were borrowing money to pay dividends.

“So why didn’t they have £23bn in the account? They didn’t really need to borrow, but they did and borrowed £51 billion.

“It means for the last 34 years, for every £100 invested in infrastructure, there has been a £75 additional charge entirely due to privatisation.”

The full findings of the People’s Commission on the water sector will be published in a report. For more information, visit www.thepeoplescommission onthewatersector.co.uk