Customers already knew their water bills rose steeply in April. Now 14.7 million people in England supplied by five companies – Anglian, Northumbrian, South East, Southern and Wessex – will suffer steeper increases. That’s the bad news for them. The vague consolation is that the outcome could have been worse.
Strange as it may look at first glance, none of the five firms got close to what they wanted when they trotted off to the Competition and Markets Authority to complain that Ofwat, the economic regulator, should have whacked up bills even further.
Take Southern Water. Ofwat granted a mighty 48% increase in bills to £620 but the company thought £710 was needed; in the event, the CMA landed on £638. For Anglian and Northumbrian, the CMA’s top-up was a mere 1%, and even that increase seems to have owed everything to the application of updated market prices to calculate companies’ cost of equity (one of the three main considerations in the process).
In a way, the beleaguered Ofwat can chalk it up as a minor moral victory. The companies’ requests for extra funding were “largely unjustified”, said the CMA – it allowed only 21% of the extra money they wanted for spending. That still adds up to the large figure of £556m to come from household and business customers but, for the most part, Ofwat’s homework withstood the remark.
Yet the whole process feels surreal. First, note we’re not talking about an appeal but a “redetermination”. In other words, the CMA was not asked to act as a football-style video assistant referee and opine on whether Ofwat had made clear and obvious errors in balancing bills and companies’ funding needs. Instead, the competition regulator, in a sideline to its day job, had to rerun the entire price-control process of the specialist regulator – and do so in 12 months, whereas Ofwat gets four years. That makes little sense.
Second, the regulatory system is about to be ripped up anyway after a couple of decades of sewage scandals and financial engineering. The government has already said Ofwat will be abolished in a “reset” of a sector that has been “failing the environment, customers and investors”. In a last hurrah, the CMA had to ensure this “broken” system, as it applied to the five companies, was applied correctly.
The CMA’s findings are only provisional but, on the safe-ish assumption that the final figures resemble Thursday’s, a third absurdity possibly awaits. Remember that a request for a redetermination is a formal matter: the board of directors has to make a case that Ofwat has left them unable to meet regulatory requirements. So what do you do if, like Anglian’s directors, you asked for an extra 10% but got only 1%? Resign en masse? Unlikely. But if you don’t, aren’t you accepting that you didn’t need to go to the CMA in the first place?
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Still, the real drama in the sector remains at Thames, which (after being granted two extensions) has until 22 October to decide whether to go to the CMA. The deadline could become redundant if Thames sinks into special administration, AKA temporary nationalisation, or if the bondholders are allowed to take control, or if yet another extension is granted. If Thames does go to the CMA, a final decision may arrive in mid-2026 for bills that took effect in April 2025. This is water torture.
