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

To ask the Secretary of State for Environment, Food and Rural Affairs, what steps she is taking to help tackle levels of debt in the water industry.

Water companies are allowed to raise debt to fund the delivery of the services, and it is for companies to decide their finance structure. This is normal practice across all parts of the private sector.

Debt levels significantly increased in the 2000s as it was a cheaper way to raise finance. At sensible levels, debt can be an appropriate way to fund investment for essential infrastructure over the longer term, avoiding sharp increases in customer bills in the immediate term.

However, both Government and Ofwat recognise that levels of debt at some companies in the sector are too high. There are measures in place through ring fenced license conditions to improve the financial resilience of the sector and to protect customers. These were introduced in 2007 and were strengthened this year, following new licence modification powers that this Government gave to Ofwat via the Environment Act 2021.

As part of the new tougher measures, Ofwat now has additional powers to stop water companies making dividend payments earlier if a company's financial resilience is at risk, and has set a requirement for stronger reporting and governance of companies’ credit ratings.

Ofwat has encouraged water companies to de-gear and the average gearing level across the sector fell by 4% from 2020 to 2021.