UK Government to Make Unprecedented Intervention in Setting of Water Bills, Ordering Companies to Bring Down Costs

The UK government is to make an unprecedented intervention in the setting of water bills, directing company bosses to bring down costs and prioritise investment to stop leaks and sewage overflows.

Environment Secretary Angela Eagle has told suppliers in England and Wales that she plans to intervene in the next price review conducted by the water regulator, Ofwat — a process expected to conclude in 2029.

There has never been government intervention in the five-year review process before. 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.

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 begin making decisions before the next price-setting process.

Eagle has written to regulators and water company chief executives saying 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 says companies must focus on investment in new technology to save money, and on early intervention on leaks and sewage. It also calls for far better communication, and for decision-making power to be 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.' It says the public is clear about what the industry's objectives 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 this 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 intends the move to be the first in a series of changes on the water industry to be announced in the coming months, calling the sector 'one of the clearest symbols of public frustration with Britain's infrastructure.' One source said the intervention was a down payment on bigger changes, and that Eagle would take a much more bullish approach to telling companies and regulators what is expected of them.

The intervention comes as the government continues to explore more radical options for the stricken company Thames Water. Burnham is reported to have told officials to contemplate options 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 he 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 in 2024 led to highly controversial bill rises after Ofwat authorised a £104bn modernisation programme, funded in large part through progressive annual 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 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.'

Campaigners for public ownership, however, have warned the move will do little in practice to reduce bills or the environmental impact of sewage and leaks. Sophie Conquest, lead campaigner at We Own It, said the 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. In her view, if water companies cannot function without siphoning more money out of households' pockets, the government should let them go bust and bring water affordably into public hands, putting people and the environment ahead of faraway shareholders and hedge funds.

All told, with bills rising, water pouring from leaks and sewage spilling into rivers, the announcement that Britain's water sector will be placed under direct government direction has opened a major debate about its future. How far the transformation goes will become clearer when the 10-year plan is published.