Question to the Department for Environment, Food and Rural Affairs:

To ask the Secretary of State for Environment, Food and Rural Affairs, whether she is taking steps to help ensure that improvements to sewage treatment are paid for from profits made by the water companies over the last decade.

Water companies must maintain and replace water and sewerage assets and infrastructure with significant ongoing investment. Companies seek funding from financial investors, to smooth the cost of investing and to spread the bill impact over a longer period of time to prevent short term ‘bill-shock’ to consumers.

If a company did not pay dividends, it would struggle to get access to finance to fund investment and this would limit the level of investment and impact on service for future customers. The water sector has invested more than it has paid in dividends every year over the last decade and bills have also remained stable throughout this period.

Water companies are monopoly providers of an essential service. It is therefore important to customers that decisions on dividends reflect service delivery for customers and the environment. Government has been clear that it is unacceptable for companies to profit from environmental damage.

Through the Environment Act 2021, the government has given Ofwat improved powers to modify water company licenses. Ofwat has introduced a new measure that will enable it to take enforcement action against water companies that do not link dividend payments to performance for both customers and the environment. This licence condition came into effect on 17 May 2023.

When water companies pay fines for their poor environmental performance the cost is borne by their shareholders, not by charging customers. In addition, Ofwat’s outcome delivery incentives ensure that where companies do not meet their performance targets, they must reimburse their customers through lower water bills in the next financial year.