What 'once-in-a-generation' water reform report will mean for your bills

Yahoo

21-07-2025

Water industry regulator Ofwat is to be abolished following a major review into the state of water companies in England and Wales.
The Independent Water Commission had been commissioned by the UK and Welsh governments to carry out the largest review of the sector since privatisation, amid a backdrop of widespread public anger over increasing pollution of rivers and seas, rising bills and bosses' bonuses.
The report, released on Monday morning, outlined 88 recommendations to turn around the ailing industry. Shortly after it was published, the UK government announced it will scrap Ofwat, and bring the functions from four different regulators into one "powerful" new watchdog.
Sir Jon Cunliffe, the author of the Independent Water Commission's final report, also warned that "bills are going to rise by 30% over the next five years".
"There are some inescapable facts here," he told BBC Breakfast, explaining that the rising cost of producing water and dealing with wastewater, climate change, higher environmental standards and demographic pressure means infrastructure needs renewal.
'The problem comes when you suddenly go from not investing for a long period, to massive investment in order to catch up. That's really what's driven those huge bill increases that we've seen," he added.
What the report says about bills
The average water bill in England and Wales is forecast to rise to £603 in 2025/26, equating to approximately £1.65 per day.
This would be an increase of 26% from the average of £480 last year, although there is regional variability in how much customers are charged for their water.
"While in comparison to other utilities this is relatively low, there are concerns over the impact of significant increases in customer bills when set against the backdrop of cost-of-living challenges," the report says.
It notes, however, that water companies in England have made a commitment to make bills affordable for all households by 2030 and develop a strategy to eliminate water poverty (households who spend more than 5% of their net income after housing costs on water).
Having declined in real terms for a decade, water bills will "rise markedly" over the next five years in line with a "huge step-up of investment in the water sector", the report says.
With Ofwat estimating bills rising to £2,000 a year by 2050, the commission says national social tariffs will be needed to help poorer households. Social tariffs are currently offered by individual water companies.
How have bills gone up over the years
Figures from Ofwat show a substantial increase in bills in the first decade after privatisation in 1989.
This, according to trade association Water UK, was largely due to new environmental requirements and the addressing of "systemic underfunding" under the previous water authorities.
Bills dipped in the early 2000s (to roughly the same as 2023 levels accounting for inflation), and rose through the second half of the decade.
Average water bills peaked again in 2010, and have been falling since then, with the size bills not reflecting the surge of inflation we saw during the cost-of-living crisis of 2021.
However, according to Ofwat's projections, we can expect a sharp uptick in the coming years as water companies attempt to make up for underinvestment in new infrastructure and poor asset maintenance in the face of rising demand and environmental challenges.
In its report, the commission suggests that while other factors were at play, pressure from the government and regulators to keep bills low between 2009 and 2024 could explain a sudden surge in investment.
Last year Ofwat approved a quadrupling of investment for the water sector over five years in a bid to tackle rising sewage pollution.
What do water bills get spent on?
Evidence provided to the Independent Commission by Ofwat provides a breakdown of how water bills are spent by companies on average.
As shown in the chart below, a large proportion is spent on operating costs, which are the day-to-day expenses of providing water and sewerage service.
Capital charges, the cost of borrowing money to buy or improve infrastructure, buildings and equipment, also takes up a significant portion of people's bills.
Allowed return - an amount set by the regulator to determine how much money a company can make on its investments - also accounts for a significant portion.
This is a way of controlling how much water companies collect from their customers in bills, but Ofwat does not have control over profits.
This can be higher if a company performs efficiently, but many firms have been accused of putting profit over pollution, by neglecting their infrastructure.
Large bonuses for executives of failing water companies has left many consumers angry in recent years, particularly those of Thames Water, the worst-performing in a recent Environment Agency report on pollution.
Thames Water awarded bonuses worth £2.5m to senior staff this year, despite suffering an annual loss of £1.65 billion while struggling with a debt mountain of £16.79bn.
However, rules introduced by Ofwat in 2023 allow the regulator to prevent water companies from using customer money to fund bonuses if they cannot show that the payouts are linked to performance.
Read more
Majority of Brits scared of wild swimming because of sewage (The Independent)
Pledge to halve sewage pollution after 'brutal truth' of serious incidents by water companies revealed (Yahoo news)
Water pollution incidents in Wales hit ten-year high (WalesOnline)