The water industry got itself into a mess – why should customers pay the price?

The water industry regulator’s website crashed this morning as it announced by quite how much the privatised water companies will soon be able to rinse its customers.

To pay for a £104 billion upgrade of the industry, average household bills in England and Wales will increase by 36 per cent over the next five years.

Bills from the largest of the companies, Thames Water, will rise to an average of £588 – in spite of its dismal record on sewage pollution, leaks, grotesque shareholder payouts, and on top of an eye-watering £18m fine for having broken dividend rules.

What an absolute shower. Why should customers pay the price?

Despite Thames Water declaring it had made “solid progress” on its transformation and turnaround, it’s not exactly clear what “progress” means in this instance.

Companies like to report several different measures of profit, and Thames Water – which, remember, still needs to find £3bn to survive past March – says its earnings before interest, taxes, depreciation, and amortisation (EBITDA), increased by 14 per cent to £715m, when compared with the same period in 2023. It also declared an “underlying” profit after tax of £190m, after throwing £427m of “exceptional costs” into the mix.

However, it is when you get to the statutory number (the real number with nothing left out) that reality bites. Thames Water lost £190m – a marked deterioration from the previous year’s £172m profit.

But that’s not all: the company also reported a stunning 40 per cent increase in total pollution incidents, blamed on “record rainfall”. As we live in a country where it rains a lot, though, it should not come as a surprise – least of all to a water firm.

The company also complained about its “ageing” assets on four separate occasions, neglecting to mention that they are only ageing because it hasn’t invested sufficiently in their modernisation.

Here’s something that isn’t even darkly amusing: it paid out £770,000 in bonuses.

Improvement to “average” in regulator Ofwat’s performance rankings was somehow classed as a “highlight”. All this, and £16bn in debt at the end of the period, which will increase to £19bn if the company secures that £3bn. The interest on that £3bn is expected to come in at around 10 per cent. So expect more creative measures of profit with the next results.

Severn Trent is, at least so far as the watchdogs are concerned, a “good” water company. The Environment Agency rates it as the industry’s star performer, having been granted a tip-top, four-star rating for four years on the trot – the only water company to achieve such a distinction more than twice.

Despite this, a recent BBC’s Panorama discovered raw sewage being pumped into a watercourse. Just a quick Google search will bring up various, less-than-glowing headlines about exposed sewage in Staffordshire and the Cotswolds.

If that’s what an industry-leading performance looks like, what of the laggards? Remember, too, that Thames Water has been rated “average”.

As for the financial side, Severn Trent may be in better shape than Thames Water (most of them are), but it still somehow felt the need to use a complicated web of companies to create £1.7bn of value. The latter finding by Panorama may be startling but it is not so surprising when you look at the way utilities like this were instrumental in the creation of a new professsion: the “financial engineer”.

These people helped load corporate balance sheets with debt with a view to pumping dividends to shareholders at an accelerated rate.

For the record – no one is alleging anything illegal on the part of Severn Trent when it comes to its £1.7bn. It told the BBC that the use of accounting to create it via a paper company known as “Severn Trent Trimpley” was simply a means of finding “flexibility”.

“The allegations made by Panorama are completely inaccurate, misleading, and misrepresentative of how we operate as a UK-listed and highly regulated business,” the company fulminated. “We are consistently held up as sector leaders, being repeatedly recognised at the highest level for our environmental performance over the last five years.”

Water companies are monopolies. They are paid for the provision of clean drinking water and for the treatment of sewage, and there’s little evidence the latter has been properly provided.

This is simply unconscionable – and customers are being held to ransom. Just imagine the response was this to be the case, say, across the Channel. The French would be on the streets – and rightly so.

It is simply not good enough. Small wonder that nationalisation polls so strongly. If they want our money, it is time these companies did the jobs they were paid to do. And it is time their regulators forced the issue.

Why we should have to put up with anything less is hard to fathom.