Quarter of UK water groups underspend investment allowances as network creaks
Utilities failed to use maximum allowed despite arguing that higher bills were needed to fund improvements
A quarter of the UK’s privatised water companies underspent their investment allowances between 2010 and 2025 despite industry arguments that a failure to improve infrastructure was caused by customer bills being too low.
Water regulator Ofwat sets out every five years how much the utilities can raise prices, with the proceeds used to run their businesses and improve an ageing network. The companies have long said a focus on keeping bills low has constrained spending on infrastructure.
But Ofwat data showed that four out of the 16 water and sewage companies in England and Wales — Anglian Water, Northumbrian Water, South Staffordshire Water and Wessex Water — spent less cash than they were entitled to between 2010 and 2025.
Five others failed to spend all their cash in at least one five-year period during that window.
The findings, obtained by the FT under the UK Freedom of Information Act, come amid public anger and political scrutiny over the under-investment in infrastructure, which contributed to water outages, sewage spills and drought warnings.
Some customers are set to be hit with price rises of more than 50 per cent by 2030 compared with 2025 levels, the biggest increases since privatisation more than 30 years ago.
The average combined water and sewerage bill in England and Wales has risen by 373 per cent since 1990-91 including inflation, according to the Consumer Council for Water, which represents customers.
David Hall, visiting professor at Greenwich University, said water companies had “obvious incentives to underspend as it boosts profit margins, helping them to receive larger returns and the regulatory system makes it easy for them to do so”.
In some cases the groups underspent their allowances despite boosting dividends. Anglian Water paid out £2.5bn in dividends to investors between 2015 and 2020. In the period its spending was £383mn below its regulatory allowance, according to the FOI data, which was provided in 2013 prices.
The company said the £2.5bn included “payments made within our group structure to repay the debt raised to fund infrastructure investment” that did not leave the group. “Nonetheless dividends remain the best accounting term to use.”
Between 2015 and 2020 South West Water underspent its investment allowance by £255mn in 2013 prices. It paid out £781mn in dividends in that period. Its owner, Pennon, said: “The underspend in the regulatory framework reflects both capital and operational efficiencies, not just unspent investment.”
Since 2020 the water companies have increased their expenditure significantly as complaints over sewage pollution intensified. All but one used their entire allowance for 2020-25, with four companies overspending by more than £1bn each. The exception, South Staffs Water, underspent by £12mn.
Despite this, a National Audit Office report last year showed that critical performance metrics had not significantly improved and that some of the overspending was due to above-inflation cost increases, including for labour and energy.
Water mains were being replaced at an annual rate of 0.14 per cent between 2020 and 2024, which, if maintained, would mean the entire network would only be replaced once every 700 years, the NAO added.
Several water companies are financially stressed after the 16 utilities raised a total of £82bn in debt and paid out £85bn in dividends between 1991 and March 2025, according to research by the FT.
Industry body Water UK said water companies had overspent their allowances by 5.8 per cent since 2010. “No new reservoir has been built in more than 30 years because Ofwat and previous governments blocked them,” it said.
Ofwat said: “We have approved a record £104bn investment programme which will strengthen infrastructure, improve resilience and support cleaner rivers and seas.”