Water companies in England and Wales made windfall gains of at least £1.2 billion between 2010 and 2015 from bills being higher than necessary, a new report has found.
In its findings in the Fifteenth Report, the Public Accounts Committee (PAC) accused the water services regulation authority, Ofwat, of “consistently over-estimated water companies’ financing and tax costs when setting price limits”.
Other concerns raised by the Committee included customers in areas of water scarcity paying to develop expensive new capacity, when water trading with other companies might be more cost-effective.
Among its recommendations, the Committee urged Ofwat to review its approach to setting allowances for the cost of debt and corporation tax, and report publicly on what actions it intends to take to improve its performance.
PAC called on the regulator to use comparisons with other sectors and international suppliers to develop a “clearer picture of what services should cost if provided efficiently”.
Meg Hillier MP, chair of the PAC, said: "This approach must be reviewed as a priority. We are also calling for greater transparency over windfall gains made by water suppliers, and more effective action to see these gains passed on to customers.
“There should be consistent financial support for people who struggle to pay their water bills, which can amount to a significant chunk of household spending, and accompanying measures to ensure those people know what help is available.”
At the end of last year Ofwat released a report that £2.2 billion is outstanding in unpaid water bills in England in Wales (read WWi article).
Responding, to the PAC report, Cathryn Ross, chief executive of Ofwat, said: “PAC’s comments on gains relate to decisions Ofwat made six years ago. Since 2012, we’ve stressed that customers are having a really tough time, and stepped in to claw back £435 million from companies. We then challenged companies to reduce bills further, resulting in £3 billion of savings, which will mean bills fall 5% in real terms over the next five years. Service will continue to improve and we will have kept bills below inflation over two decades.
“Yet it’s no time for complacency. We’ve made changes so that companies become more transparent and resilient. And plan more changes to help create a sector customers can trust. That means making companies more efficient, more accountable and much better at responding to what customers want.”
Ross added: “In the last decade, we have clawed back £800m from companies’ shareholders, where they have let customers down. If companies don’t step up, we’ll step in.”
The water industry in England and Wales, privatised in 1989, now includes 18 large independent privately-owned companies who are monopoly suppliers to 22 million households and to most of the two million non-household customers.
The average household bill in 2014-15 was £396.