Water companies have outstanding borrowing of almost £54bn accrued since privatisation.
When the Conservative prime minister Margaret Thatcher sold off the water industry in 1989, the government wrote off all debts amounting to £5bn and granted the water companies a further £1.5bn of public money, known as a “green dowry”. As of this year net debt of the main water and sewerage companies was £53.9bn.
Customers are paying on average £80 or 20% of their water bill towards servicing debt and rewarding shareholders, according to the Competition and Markets Authority (CMA).
They have been running ratios of debt to capital value from 60% to more than 80%, according to Ofwat data, raising concerns about their financial stability as interest rates rise.
The main water and sewerage firms in England have paid dividends to shareholders of £65.9bn up to 2022.
More than 70% of all water companies in England are owned by international investment funds, private equity, banks, the super-rich, and in some cases businesses registered in tax havens.
David Hall, visiting professor at the Public Services International Research Unit at Greenwich University, who has updated groundbreaking research by Karol Yearwood, said the evidence suggested the high level of gearing was being taken on in order for the companies to pay dividends, rather than to fund investment.
“It is very different from a more traditional company structure, where the operating expenditure comes out of the flows of revenue from customers but the investment in plant, machinery etc is paid for by investing capital from shareholders and creditors. Dividends are then paid out of the company’s profit, as a return on their capital investment
“With the water companies, since day one there has been hardly any shareholder capital put into the companies. Customers pay for everything, and the companies are borrowing to pay the dividends often to themselves, because their shareholders are parent companies.”
Ofwat is belatedly trying to curb the excesses of the water companies and question whether a regulator is able to control an industry now managed in the interests of offshore investors, not the public and the environment.
Dr Kate Bayliss, of the department of economics at Soas University of London, said: “I can’t see that regulation is going to manage it in the interests of society and the environment when you have these very powerful interests making returns for their investors. The assumptions of the regulator are really quite limited compared to the financial sophistication of these investors.”
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