Water boss blames 15 years of keeping bills low for industry woes
The boss of under fire Southern Water has told MPs that 15 years of "flat bills" is the reason for the industry's struggles with sewage spills and supply outages.
Lawrence Gosden said while giving evidence to the environment, food and rural affairs committee's inquiry into the water industry that a historic regulatory priority on keeping bills low meant there was a "lost opportunity" for investment.
He was speaking following a backlash against inflation-busting hikes to bills due to come into force from April, with the industry accused of laying the foundations by putting shareholders above customers in the past.
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The company is being allowed, by Ofwat, to impose a 53% rise in customer charges over the next five years as part of the recent business plan settlements granted by the industry regulator.
Ofwat's determinations, which remain subject to possible appeal, will see bills across England and Wales go up by an average 36% over that time.
Southern was granted the highest percentage increase as it grapples to recover public trust following anger over repeated service outages and sewage spills.
Mr Gosden told the MPs that Southern's performance had been "unacceptable" but insisted that previous bill settlements with the watchdog meant that money for urgent repairs and new infrastructure had not been in place.
"We should have fought harder for the money that we needed", he told the committee, insisting that Southern had paid no dividends to its shareholders since 2017.
He did not rule out an appeal to the Competition and Markets Authority relating to the 2025-30 settlement offered by Ofwat.
"I would say this is a very serious moment and, as water companies, we do need to stand up to the investment that the country needs, albeit at the same time being sensitive to how we could support those who will struggle to pay for those bill increases through between a 45% to a 90% discount, which is our support scheme for customers," he added.
The committee earlier heard from the boss of the body that represents firms.
Chief executive of Water UK, David Henderson, accused Ofwat of failing to allow the sector to keep pace with the demands made of it.
That was despite, he said, a 20% rise in population growth since the 1990s when the last new reservoir was built and intensifying pressure from climate change.
"For too long, we've had not enough investment in our system and that is the principle reason, in our view, why performance is not what it should be.
"We've had investment cut, in real terms, by Ofwat the regulator since 2010 and last December we have had, finally, the recognition that we need to now play catch up by increasing tremendously the amount of investment that we see to drive further improvements in environmental performance and greater resilience in our network."
On the subject of storm outflow pollution, he added: "We're going to see the halving of the activation of combined sewer overflows, which is one of the things that most people are rightly very keen to see addressed."
He also complained that the business plan review process was too slow and costly, estimating that firms collectively spent £250m over the 14 months.
An Ofwat spokesperson said in response to the bosses' comments: "Companies must take responsibility for the lack of progress on improving their performance on investment.
"Ofwat has not blocked justified investment and backed all companies' statutory environmental projects at the last two spending reviews. On top of that, in 2023 we approved more than £2bn of investment being brought forward earlier than planned.
"There needs to be a continued focus on company culture and performance to realise the positive impact of the significant investment into the sector."
