Water companies' £158m fine over sewage pollution prompts fresh calls for nationalisation

Water firms have been ordered to return £157.6m to customers in England and Wales, prompting calls for “urgent nationalisation” of the struggling industry.

Industry regulator Ofwat announced the rebate following its annual review of wastewater company performance. Firms are “falling further behind on key targets”, the watchdog warned, with nine out of 11 suppliers experiencing an increase in “pollution incidents” throughout 2023.

The findings are “stark evidence” that “money alone” will not bring improvement to the ailing sector, urged Ofwat CEO, David Black.

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“It is clear that companies need to change and that has to start with addressing issues of culture and leadership. Too often we hear that weather, third parties or external factors are blamed for shortcomings. Companies must implement actions now to improve performance.”

The rebate will see most customer bills fall by less than £10 over 2025-26. Meanwhile, water bills in England and Wales are set to rise by an average of 21% over the next five years.

“The rebates will just get swallowed up, from a consumer perspective, by the coming bill rises anyway,” said Eleanor Shearer, a senior research fellow at the Common Wealth think tank. “It is insufficient to tackle the problem. You cannot regulate your way out of the crisis of privatisation.”

Shareholders received more than £1.35bn in dividends in 2022/23, as their companies released sewage for more than 3.5 million hours last year. But they are calling for bill hikes to fund investment – evidence of the “tension at the heart of private ownership”, Shearer said.

“The harsher you go on the penalties, the less attractive it makes these companies as a private investment,” she added. “If you say to companies: give money back to bill payers, or if you levy harsher fines, or cap dividends. The more you do it, the less likely investment is.”

The answer is public ownership, she urged.

“The question really is: do you want, as a bill payer, for every pound that you pay into the system to go back into the system as investment? Or do you want a certain amount of your money to leak out of the system as dividends to shareholders?”

“The system currently incentivises profit, not providing clean water. So the answer for us is a systemic change to public ownership.“

Matthew Topham, lead campaigner at We Own It, urged the government to “wrest back control” of water from the private sector by using existing legislative powers of “special administration”.

Thames Water has already been put into unprecedented special measures as it struggles under £15.2bn of debt.

“Irresponsible owners can lose their firms to public ownership through special administration if they break their licence conditions – effectively for free as compensation for their failures, with debts wiped off,” he added.

Shearer predicted that at least one water company will go bust over the next few years and need a “public rescue package of some sort”.

“Then the key question becomes, does the government take that crisis as the opportunity to bring it back into public administration? So, using that existing legislation, are you transferring it to the ownership of a publicly run company? Or are you failing to learn the lessons of previous bailouts, where it is effectively money for shareholders, and you’re letting a new private company come in and take it over?

“I don’t know what happens there. So it is beholden on progressives to urge them to do it proactively and ahead of that moment of crisis.”

Water companies are not trusted by the public, said Mike Keil, chief executive of the Consumer Council for Water (CCW).

“Customers will rightly question why some companies should be trusted with more of their money for future investment, when they are struggling to deliver on their existing commitments,” he said.

Water UK – the trade association representing the water sector – has been contacted for comment.

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