Thames Water bills will rise by more than a third to an average of £588 over the next five years despite its dismal record on pollution and leaks.
Water regulator Ofwat said the UK’s biggest water supplier will be allowed to hike it bills by £152, or 35%, by 2030 from £436 currently. The figures, equivalent to increase of just over £30 a year, are before inflation and the rise in cash terms will be considerably higher.
The biggest annual increase will come next year when bills will go up by around 20% in real terms before a series of smaller hikes in the late 2020s.
The decision puts Ofwat on course for a possible legal clash with the heavily indebted utility to help it survive its financial crisis.
However, Ofwat final determination decision is a softening in its stance. In July its said that its preliminary view would be to allow Thames to increase bills by 22%, equivalent to a £99 increase in the average bill to £535 by 2030.
Thames has said it needs to increase bills to spend heavily to maintain its ageing assets, prevent leaks and tackle pollution.
In another blow to Thames Water, Ofwat also fined the company £18 million for breaking rules on payment of dividends. It is the first time the watchdog is taking action against water firms that do not link payouts to performance.
The price determination comes after Thames Water earlier this week won court approval for a £3 billion cash lifeline from some of its biggest creditors.
The decision, which covers a complex debt-restructuring effort, was essential to ensure the company has enough money to continue functioning. Without it Thames could have faced a liquidity crunch within weeks triggering an emergency nationalisation.
Ofwat’s chief executive David Black, said: "Today marks a significant moment. It provides water companies with an opportunity to regain customers' trust by using this £104bn upgrade to turn around their environmental record and improve services to customers.
"Water companies now need to rise to this challenge, customers will rightly expect them to show they can deliver significant improvement over time to justify the increase in bills. Alongside the step up in investment, we need to see a transformation in companies' culture and performance. We will monitor and hold companies to account on their investment programmes and improvements.
"We recognise it is a difficult time for many, and we are acutely aware of the impact that bill increases will have for some customers. That is why it is vital that companies are stepping up their support for customers who struggle to pay.
"We have robustly examined all funding requests to make sure they provide value for money and deliver real improvements, while ensuring the sector can attract the levels of investment it needs to meet environmental requirements. This has seen us remove £8 billion of unjustified costs compared with companies most recent requests. In addition, our approach to setting a rate of return has saved customers £2.8 billion."
On the Thames Water fine Black added:: "Ofwat's £18 million penalty and clawing back the value of £131 million in unjustified dividend payments is a clear warning to the whole sector: We will take action against companies who take money out of these businesses, where performance does not merit it."
Secretary of State for the Environment, Food and Rural Affairs, Steve Reed, said: “Under the Conservatives, our sewage system crumbled. They irresponsibly let water companies divert customers’ money to line the pockets of their bosses and shareholders.
“The public are right to be angry after they have been left to pay the price of Conservative failure.
“This Labour Government will ringfence money earmarked for investment so it can never be diverted for bonuses and shareholder payouts. We will clean up our rivers, lakes and seas for good.”
Tom MacInnes, director of policy at Citizens Advice, said: “These price rises will hit many households hard. While it’s encouraging to see help for customers increasing, the current dysfunctional approach to bill support in this industry means that people will continue to miss out.
“Ending the postcode lottery for water social tariffs - cheaper rates for those who need them - is an essential step to shield those struggling to keep pace with rising bills.
“We found that more than two fifths (42%) of those likely to be eligible aren’t aware that water social tariffs exist. The government and suppliers must work together to ensure that no one is missing out on the support they’re entitled to.”
