‘The whole thing stinks’: water firms to pay £15bn to shareholders as customers foot sewage bill

English water companies will pay an estimated £14.7bn in dividends by the end of this decade, while making customers pay for new investment to stem the tide of sewage pollution in seas and rivers, analysis for the Observer has revealed.

Liberal Democrat MP Tim Farron denounced the billions going to shareholders as “absolutely scandalous” while families struggling with the cost of living would be facing increases in bills to pay for the sewage cleanup.

“The whole thing stinks,” said Farron, Lib Dem spokesperson on the environment. “This is their mess, they should be the ones to clean it up – not hard-working families.

“The Conservative government needs to stop sitting on their hands and force water companies to use their unearned and unjustified profits to fix the sewage crisis.”

According to analysis by David Hall, visiting professor at the public services international research unit at Greenwich University, dividend payments by the nine English water and sewerage companies, based on 2022 prices, will cost customers £624 each by 2030.

Hall examined annual dividends paid by companies between 2010 and 2022, which average £1.83bn a year. He said all companies have stated policies to reassure investors that they would get good dividends every year. “That implies a total of £14.67bn would be taken in dividends between 2023 and 2030.”

After intense criticism of water companies from campaigners and politicians over the routine dumping of raw sewage into rivers and coastal waters over many years, the industry body, Water UK, last week made a public apology on behalf of England’s privatised water industry.

“We have listened and have an unprecedented plan to start to put it right,” said Ruth Kelly, the new chair of Water UK. “This problem cannot be fixed overnight, but we are determined to do everything we can to transform our rivers and seas in the way we all want to see.”

Companies promised a tripling of investment this decade to £10bn to cut sewage spills, upgrade treatment plants and build new storage facilities. But the plan was criticised by campaigners after Water UK admitted the entire cost of the project would ultimately be borne by customers.

Kelly defended what she said would be modest bill increases as the companies looked to recover the costs of the investment over time. She said the money had to come from somewhere.

Hall’s analysis shows that, on average, 23.5 million householders will pay £425 more to 2030 to pay for the investment to fix the sewerage system. This is on top of an increase of £624 to fund dividend payments in the same period.

Ash Smith, of the campaign group Windrush Against Sewage Pollution, said: “The captive customers of the monopoly companies appear to be the only true investors and are simultaneously used as a donor to shareholders who treat them as cash machines.

“Privatisation has just been a scam that successive governments have failed to stop, possibly because bills were relatively low set against the other rip-off industries, like power.”The industry regulator, Ofwat, has to approve bill increases to cover the new investment to the end of the decade. Ofwat said: “Water companies must explain how their proposals will be funded, the proposed impact this will have on bills and their expected return to shareholders and lenders. It is important that companies continue to engage clearly with the public on how this proposed investment will benefit communities and improve quality of life.”

Alastair Chisholm, director of policy at the Chartered Institute of Water and Environmental Management, said the high-profile announcement of massive investment in pipes, treatment works and water storage was a lot of spin. It had been forced on to water companies as a result of public outrage, which has driven the government and the regulator to take tougher action.

“The scale of this investment was known about, water companies know they have to vastly increase investment in storm overflows and treatment works to stay legally compliant because of the regulatory response to the public outcry,” said Chisholm.

“And it is the bill payers who are going to pay this huge amount.”

A spokesperson for Water UK said dividends acted as a return on overall investment into things like leaks and new supplies of water. They said the dividend yield in 2021-22 was 3.8%, below Ofwat’s assumption of 4%.

“If dividends weren’t paid then there would be no return and so no investment across all those things.

“Most companies have been paying significantly lower dividends than expected – many are paying no dividend at all at the moment, and net cash injections into companies equals more than returns over the last two years.

“We know how tough things are for many people at the moment, so whatever the bill impact, water companies will continue supporting more households with paying their bill than ever before – over a million households are already receiving support.”

Environment Agency figures earlier this year showed there were a total of 301,091 raw sewage discharges from storm overflows into rivers and seas in 2022, an average of 825 a day. Overflows are meant to be used only in exceptional weather, but have become a routine part of how water companies manage their network.

cover photo:A paddle boarder at the Surfers Against Sewage stage a protest in Brighton on Saturday. Photograph: Peter Flude/The Observer