Ritika Janiya
Labour’s big plan to build 1.5 million homes is facing a major hurdle: water bills. According to David Henderson, the CEO of Water UK, unless water companies are allowed to raise their bills significantly, they won’t be able to support the government’s ambitious housebuilding target. He explained on BBC Radio 4’s Today programme that without enough funds, water companies won’t be able to help build the new homes or address the ongoing issue of sewage spills into the sea.
Henderson stated, “Unless we get that full investment amount, we won’t secure economic growth, build the 1.5 million homes we desperately need, or stop the sewage flowing into our seas.” The companies are asking for a substantial increase in water bills to fund essential infrastructure like sewage pipes and reservoirs, which are crucial in water-stressed areas.
Water companies in England and Wales recently submitted their investment plans to the regulator, Ofwat, requesting permission to spend £104.5 billion in the next investment cycle. This would result in an average household water bill increase of £144 over five years. However, Ofwat’s initial response was not entirely supportive. In its “draft determination” last month, Ofwat suggested a budget of £88 billion, capping the average bill increase to £94 over the same period. Ofwat will review the submissions and make a final decision in December.
The stakes are high, as water companies argue that without these funds, they can’t expand or improve the water system needed to support the housing boom. Henderson also pointed out that investment is necessary not just for new homes but also for environmental protection, including reducing sewage spills into the sea.
There’s also a financial twist to this story. Research by the Financial Times showed that water companies in England and Wales have paid £2.5 billion in dividends and added £8.2 billion to their net debt since 2021. Since the industry was privatized in 1991, companies have paid out £78 billion in dividends—nearly half of the £190 billion spent on infrastructure in that time. This has led some to question whether dividend payments have taken priority over necessary infrastructure investments.
However, Henderson dismissed these concerns, saying, “Questioning whether dividend money could have been spent on infrastructure instead is neither here nor there.” He argued that investors need to see returns on their investments to keep pouring money into the UK water sector. “If you want investors to put their money into the UK, you need to see a return. We are not allowing our system and economy to grow as it should because of a lack of water. Arguing about dividends is not going to solve the problems we have for the future,” he added.
Investors have also voiced their concerns, threatening to pull out of water companies unless they are allowed to increase bills more sharply. Henderson stressed the importance of investor support, saying, “Investors are telling us they have choices, and if we want them to put their money into the UK, into the water system so it can be expanded and upgraded, then they need to see a modest return. And the return being proposed by Ofwat is simply not enough to allow the improvements to occur.”
The debate over bill hikes is also tangled up with public outrage over pollution and high executive bonuses. Tim Farron, the environment spokesperson for the Liberal Democrats, criticized the situation, saying, “It’s an absolute outrage that British families face sky-high bills that continue to rise, while water firm CEOs pocket millions of pounds in bonuses, and all the while filthy sewage continues to destroy our seas and rivers. It’s clear to see that the current regulator Ofwat is not fit for purpose, and it’s high time they were replaced.”
Ofwat, on the other hand, has received a wide range of responses to its proposals. A spokesperson for Ofwat said, “We have received responses from many organisations, including water companies, customers, environmental and consumer organisations, and investors. Inevitably, these reflect a diverse range of views on the proposals we have made. We will consider all of these responses carefully over the next three months and set out our final decisions on 19 December.”
The decision ahead is a tough one. Balancing the need for more homes, cleaner seas, and investor returns with the public’s resistance to higher bills will be a challenging task for all involved. If no agreement is reached, the future of Labour’s housebuilding target—and the overall state of the water system—could be in jeopardy.
