Will Ofwat Reduce Sewage Fines To Help Ailing Water Suppliers?

Wastewater management - H2O Building Services


In April last year, it was announced that water firms in England would face unlimited fines for illegally discharging untreated sewage into waterways around the country in a bid to crack down on pollution and improve the natural environment.


This was, of course, welcome news at the time, given the deepening water quality scandal and the increasingly vehement public outcry on the matter.


However, it seems that despite these more stringent measures, water firms are yet to get the memo, with the latest Environment Agency figures for 2023 showing that there was a 54 per cent increase in the number of spills seen in England compared to the previous year.


And it appears as though little is likely to change in this regard any time soon, with a news report in the Times last month (May) revealing that industry regulator Ofwat has plans in place to slash fines for companies discharging sewage if they’re facing financial challenges, as is the case with Thames Water.


The suggested proposals would see a recovery regime drawn up, the Guardian reports, which would see debt-laden firms like Thames Water, Southern Water, Yorkshire Water and South East Water face fewer fines or none at all for issues like sewage leaks and water outages.


Instead, they would be encouraged to make investments in infrastructure and upgrades, with lower targets in place to reduce leaks, discharges and outages, but more stringent regulatory oversight for periods of up to five years.


This is something that the sector has been calling for in recent times, arguing that handing down bigger penalties makes it harder for water suppliers to make the required investments to deal with the serious challenges they face.


However, the move has drawn criticism from many quarters, such as from Tim Farron – Liberal Democrat environment spokesman – who said: “Any attempt to let these polluting giants off the hook would be an utter disgrace. This plan is proof Ofwat should be scrapped.


“The Conservative government has allowed this toothless regulator to stagger on too long. It is time someone finally stood up to these water firms.”


And Ash Smith, from Windrush Against Sewage Pollution, made further comments, saying: “The industry captured regulators long ago and is frightening politicians with debt mountains and the results of 34 years’ damage from what has been shown by expert analysis to have been no more than a financial scam.”




Privatisation of the water sector in England was pushed through in 1989, with the different suppliers set up as regional monopolies based on river catchments – and, crucially, without any debt behind them.


Since then, the industry has gone on to amass some £60.3 billion in debt, according to Guardian analysis, with nearly 20p in every pound paid by customers going towards paying this down, which inevitably means that there’s less left over to make essential infrastructure upgrades and for customer services.


This significant debt pile has been associated with dividend payouts being made to shareholders, with £53 billion paid out between 1990 and 2023. While water firms suggest that they’ve taken on this debt in order to invest in service provision, experts say that this is not the case, but rather to pay out “huge returns for shareholders”.

The fact that the £53 billion in shareholder dividend payouts is close to the £60.3 billion debt pile seems to go some way towards supporting this assertion.


Another issue worth focusing on is that there are many water companies out there paying record dividends to shareholders, while failing to hit the targets agreed upon with Ofwat to reduce sewage discharges into waterways and to repair water leaks across the network.


Ofwat is now calling on the industry to make its largest-ever investment in water and sewage infrastructure to the tune of £96 billion between 2025 and 2030, which is almost double the current levels.


This will see leaks slashed by over a quarter by 2030 compared to the start of the decade, as well as ten new reservoirs built and £11 billion invested to reduce overflow spills.


However, it’s expected that these critical investments will be funded by bill increases, rather than by reducing dividends. Late last month, the Consumer Council for Water (CCW) revealed that water companies were looking to hike bills by between 24 per cent and 91 per cent over the next five years.


Southern Water – which has one of worst environmental pollution records of all the suppliers – has asked that it be allowed to increase bills by 91 per cent.


According to the BBC, suppliers say these increases will go towards funding £100 billion of spending between 2025 and 2030, replacing ageing pipes and reducing sewage discharges into waterways.


Chief executive of the CCW Mike Keil said: “People do want to see improvements, they do understand that it takes investment, but I think the scale of what’s being proposed here is going to come as a real shock and this is why water companies have doubled down on their efforts to explain what people are getting for their money.”


And yet, the intention of privatisation was surely to stimulate investment without having to rely on taxpayer money or to borrow from the government in order to operate successfully.


As emeritus professor of financial economics Andrew Mullineux suggests in a blog post for the University of Birmingham, although substantial investment has been seen over the years, this privatisation of public utilities that enables “substantial stakes” to be built by private equity funds, pension funds and overseas sovereign wealth is perhaps an indication that the sector has, indeed, been over-privatised.