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Water bills set to rise more than expected Commission to tackle 'broken water infrastructure'
(about 9 hours later)
Water bills will go up by more than initially expected over the next five years to fund higher costs and more investment, the BBC understands. Former deputy Bank of England governor Sir Jon Cunliffe will chair an independent commission designed to deliver the largest review of the water sector since privatisation in the 1980s.
The regulator, Ofwat, is in the process of deciding how much customer bills will be allowed to rise. The Independent Water Commission will report by the middle of next year on how best to tackle the tide of problems threatening to engulf the sector.
In July, Ofwat provisionally agreed to allow bills to rise by an average of £19 per year between 2025 and 2030 - totalling a £94 increase, or a 21% rise, over that period. Fury has mounted in recent years over the UK's polluted waterways and crumbling infrastructure that is struggling to cope with the challenges of a rising population and climate change.
The UK and Welsh governments said the the commission would pave the way for tougher regulation and boost investment to rebuild the UK's "broken water infrastructure".
Almost all options will be considered, including reforming or abolishing the current regulator, Ofwat.
However, the government has ruled out nationalisation of the sector, as too costly and slow.
Instead, the private sector will need to provide the investment needed to upgrade pipes, sewers and reservoirs. But in order to attract private capital into the sector, it is likely that customers will face higher bills.
The BBC understands that Ofwat is already preparing to allow water companies to raise bills by more than originally agreed.
In July, Ofwat provisionally said bills would rise by an average of £19 per year between 2025 and 2030 - totalling a £94 increase, or a 21% rise, over that five year period.
It is unclear by how much more bills will rise instead, but the watchdog will make its final decision at the end of the year.It is unclear by how much more bills will rise instead, but the watchdog will make its final decision at the end of the year.
Later this week, the government will also announce plans that are expected to lead to the biggest overhaul of the water industry since privatisation in the late 1980s.
The aim is to protect customers from the impact of rising bills, while also finding funding for the huge investment that is required to deal with population growth, the impact of climate change and an ageing water infrastructure.
While the entire sector is facing challenges, the increases previously proposed by Ofwat in July , externalvaried greatly from company to company.While the entire sector is facing challenges, the increases previously proposed by Ofwat in July , externalvaried greatly from company to company.
The highest agreed rise of 44%, was for Southern Water, and the lowest was a bump of 6% for Affinity Water.The highest agreed rise of 44%, was for Southern Water, and the lowest was a bump of 6% for Affinity Water.
Bill rises previously forecast by OfwatBill rises previously forecast by Ofwat
Average proposed bills in 2029-30Average proposed bills in 2029-30
Thames Water, the UK's largest water company, was given the go-ahead to lift bills by 23%. It has since said it needs to raise bills by 59%, in order to keep operating as normal. In July Thames Water, the UK's largest water company, was given the go-ahead to lift bills by 23%. It has since said it needs to raise bills by 59%, in order to keep operating as normal.
Thames Water shareholders refused to inject promised funds into the company earlier this year as they said it would be impossible to make any profit at proposed bill levels.Thames Water shareholders refused to inject promised funds into the company earlier this year as they said it would be impossible to make any profit at proposed bill levels.
One of the reasons that Ofwat is considering permitting bigger bill increases is to reflect higher financing costs, the BBC understands.One of the reasons that Ofwat is considering permitting bigger bill increases is to reflect higher financing costs, the BBC understands.
On Wednesday, a new independent commission with a high-profile chair will be announced to advise the government on a "proper reset" of the industry to improve performance and bring in new investment. The commission will seek to address these competing demands by taking input from a wide pool of stakeholders including customers, environmental bodies, investors and engineers whose interests are not always aligned.
The commission's review will seek input from a wide pool of stakeholders including customers, environmental bodies, investors and engineers whose interests are not always aligned. Environment Secretary Steve Reed, said the commission's findings would "help shape new legislation to reform the water sector so it properly serves the interests of customers and the environment".
Sir Jon said his previous experience working for the public sector, the Treasury and at the Bank of England had had shown him that "the regulation of private firms can be fundamental to incentivising performance and innovation, securing resilience and delivering public policy objectives".
'Doom loop''Doom loop'
Customers have been furious at the scale of spills and pollution while investors have claimed the bills they have been allowed to charge are insufficient to attract the investment needed to fix the problems.Customers have been furious at the scale of spills and pollution while investors have claimed the bills they have been allowed to charge are insufficient to attract the investment needed to fix the problems.
Some companies have been caught in what one executive described as a "doom loop" - with underperforming companies fined for sewage discharge and leaks leaving them with even less money to fix the very problems they have been fined for.Some companies have been caught in what one executive described as a "doom loop" - with underperforming companies fined for sewage discharge and leaks leaving them with even less money to fix the very problems they have been fined for.
Investors have also been condemned for the dividends and executive pay they have paid out while pollution and leaks have risen.Investors have also been condemned for the dividends and executive pay they have paid out while pollution and leaks have risen.
In short, no-one is happy with the current set up.In short, no-one is happy with the current set up.
Ofwat is expected to welcome the plans to establish the new commission. Ofwat, which has been criticised for its track record in regulating the industry, welcomed the plans for the new commission.
However, many see it as a reflection of widespread dissatisfaction with the way the industry has been regulated, with some claiming that Ofwat got the balance wrong between keeping customer bills low and encouraging investment. "We are ready to back record investment, the challenge for water companies is to match that investment with the changes in company culture and performance that are essential to rebuilding the trust of customers and the public," Ofwat chief executive David Black said.
The new commission is not expected to report back until after Ofwat has made its final decision on how much bills may rise by 2030. Campaigners also welcomed the move. River Action said the commission should "deliver a fully funded national action plan to end pollution for profit, enforce laws, and reform regulators".
However, Matthew Topham at We Own It said the "root cause" of the problem was privatisation and described the strategy as the "re-privatisation" of the water industry.
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