Leaking money. The finance costs of privatised water and regulation in England and Wales: Scottish public ownership shows potential savings

• The financial costs of the privatised water and sewerage companies of England and Wales averaged 35% of company revenue from customer bills in 2023-24 o These costs are the return on capital to private shareholders and the interest (and index-linking) on the bonds and loans from creditors o These financial costs mean that over one-third of customer bills pass straight through the companies without being used for water and sewerage services o All companies have high finance costs, including Welsh Water: despite being owned by a ‘non-profit’ company, it loses 41% of bills to finance costs – the same as Thames Water • By contrast, the financial costs of publicly owned Scottish Water represented only 8% of revenue in 2023-24: less than a quarter of the costs in England and Wales o This is partly due to not having to pay dividends to private shareholders o Scottish Water has also taken on far less debt than the E&W companies • Scottish Water has on average invested about £180 per household per year since 2022 – about 50% more than the average in England and Wales over the same period, which is about £120. • The high financial costs of the private companies are reinforced by the regulatory system. Almost half of the 35% price increase planned by OFWAT for the next 5 years 2025-30 is based on doubling the return on capital/financial costs, from £11.1bn in 2019-24 to £22bn. in 2025-30 o OFWAT’s price decisions represent the largest real price rises in any 5-year period since privatisation. Prices in 2030 will be double, in real terms, what they were at privatisation • OFWAT assumes that the companies will pay off none of their existing debts over the next 5 years – they are expected to replace expiring debt with new, more expensive debt, which will increase financing costs – as well as taking on further debt. • Under any assumption about compensation levels, taking the English and Welsh water companies into public ownership could save £3bn-£5bn in annual financing costs. This could increase new investment, or reduce the average annual water bill by £100-£160 per annum.