Water companies' £800m windfall not passed on to consumers, says watchdog
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Version 0 of 1. Privatised water companies have picked up an unexpected windfall of at least £800m over the past five years, the spending watchdog has disclosed. The National Audit Office (NAO) said water companies in England and Wales had gained from tax cuts and lower-than-expected borrowing charges since 2010. However, customers failed to see the benefits on their water bills as the regulatory regime failed to “appropriately balance the risks” between the companies and consumers, the NAO said. It said the regulator, Ofwat, needed to act to ensure that customers saw more of the gains when the companies benefited from developments outside their control. The NAO estimated that between 2010 and 2015, the companies gained £410m from reduced corporation tax rates and a further £840m from interest rates. Over the same period, they absorbed costs and provided water bill discounts worth up to £435m, leaving them with a net windfall of £800m. The NAO acknowledged that the firms would have lost out if taxes or interest rates had risen, but said the balance of risks in Ofwat’s price cap was weighted too heavily in favour of the companies and had not achieved proper value for money. Amyas Morse, the NAO auditor general, said: “Customers have not seen enough of the benefits of companies’ unexpected financial gains from factors such as falls in corporation tax rates. Ofwat made significant improvements in 2014, but its price cap regime is not yet achieving the value for money that it should.” Overall, the NAO found that by most measures, the services offered by the companies had improved markedly since privatisation in 1989. But prices have increased by 40% in real terms over the period, with the biggest rises coming between 1990 and 1995. Water bills accounted for about 2.3% of average household spending in 2013, rising to more than 5% for the poorest households. |