Water bills set to fall in Ofwat's £51bn industry shake-up

Water regulator Ofwat on Monday pledged to slash average customer bills by £50 as part of the biggest crackdown on water company returns since privatisation.

The regulator unveiled a £51 billion package of measures to restrict billing and spending by the UK’s 17 water and waste monopolies over the next five years.

Bills will fall by about 12% before inflation between 2020 and 2025. The companies will have to spend about £13 billion of the £51 billion tackling climate change.

The water companies said they would review the measures amid fears they are too strict. They have two months to decide if they want to refer the new package to the Competition and Markets Authority.

Ofwat has changed the return on capital shareholders, which include large pension funds, are allowed to enjoy to 2.96% from 3.2%, the lowest level since water firms were privatised in 1989.

That is because the cost of debt water companies take on, based on the UK gilt yields, has fallen over the period to 2.1%.

“Companies are paying less on their cost of debt so these benefits are being passed on to customers,” said Ofwat senior director David Black.

Jefferies analysts said the rules were a “negative” for the UK’s three listed water companies, United Utilities, South West Water owner Pennon and Severn Trent. However, their shares rose between 0.8% and 1% today.