Water companies in England and Wales have been told they will not be allowed to impose the hikes to bills they have demanded, the industry regulator has said in an interim verdict on their business plans for the next five years.
Ofwat declared that it was minded to slash, by a third, the combined increases that the 16 companies had submitted.
It left the average bill, the watchdog said, set to rise by £19 a year or 21% over the period.
Ofwat chief executive David Black said: “Customers want to see radical change in the way water companies care for the environment.
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“Our draft decisions on company plans approve a tripling of investment [to £88bn] to make sustained improvement to customer service and the environment at a fair price for customers.
A final ruling will be made in December.
All firms sought hefty increases to bills between 2025-30, with Southern Water leading the way with a proposed rise of almost 73%.
As Ofwat’s report suggested, their wishes – including the 42% hike demanded by crisis-hit Thames Water – are unlikely to be met following final consultations on the plans at a time when the industry is under such heavy fire from many sides.
It said companies’ business plans proposed increases averaging £144 over five years.
Thames Water’s proposed increase of £191 by 2030 had been reduced to £99, Ofwat said, while Severn Trent’s proposed increase of £144 had been cut to £93.
The industry has long been accused of prioritising bonuses and shareholder dividends over investment in key infrastructure, systems that widely date back to the Victorian era.
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Sky News revealed on Wednesday that the new environment secretary Steve Reed had summoned bosses for an urgent meeting, when his plans for tougher regulation will be spelled out later on Thursday.
These “initial steps” include customer panels to hold company boards to account and significantly higher financial penalties for failures.
Ofwat said that both Thames and Southern were to face additional processes, with the country’s biggest supplier set to come under a new oversight regime that could lead to an independent monitor being appointed and given full access to its financial information.
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Thames Water under threat
Thames Water covers 16 million customers and could yet have to be placed in a government-controlled special administration as investors in its parent company baulk over fresh investment demands due to Ofwat’s resistance to the company’s proposed bill increases.
Ofwat’s report stated that firms would face a target of reducing storm overflow spills to an average of 16 per year each by 2029.
Such numbers will alarm the companies, given recent industry performance.
Environment Agency data showed discharges of untreated sewage in 2023 doubled from 1.8 million hours to a record 3.6 million.
The number of individual spills also soared by 54% to 464,000.
The data only covers the spills that were actually picked up and campaigners say the problem is far worse than has been acknowledged.
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Thames was judged by the regulator to have performed particularly poorly.
The company effectively held a gun to Ofwat’s head this week when it warned it would run out of cash by next May and would need a good business plan outcome to attract the investors it needs.
It said in response on Thursday: “We believe our plan is ambitious, deliverable, financeable and investible.
“Ofwat’s draft determination understandably challenges us on efficiency and delivery.”
Its statement added: “We are in any case taking stock of our turnaround plan under our new leadership and reflecting on our progress to date.
“We will consider all of Ofwat’s proposals as we go through this process.”
Shares in listed water firms reacted positively.
United Utilities and Severn Trent opened up by around 2%.
Those of Pennon, the company behind South West Water, were more than 6% higher.
However Water UK, the industry body, was less cheerful.
A spokesman said of the interim determinations: “Today’s announcement is the biggest ever cut in investment by Ofwat.
“If it doesn’t put this right Ofwat will be repeating the mistakes of the past.
“As a direct result, more housing will be blocked, the recovery of our rivers will be slower and we will fail to deal with the water shortages we know are coming.
“Water companies proposed to invest £105bn because it is the minimum needed to meet the legitimate concerns we’ve heard from the public about our environment and our economy.”
The Consumer Council for Water raised fears that the bill increases Ofwat was planning would overwhelm more households.
It estimated that two million properties were already unable to meet their commitments.