Research by the Guardian has revealed that water companies are using up to 28% of billpayers’ money to service their debts.
Analysis carried out by the media organisation looked into the amount of debt held by the country’s biggest water companies, before calculating the proportion of their customer’s bills that are swallowed up by servicing those debts.
The shocking data revealed that on average, almost a fifth of the money handed over to England’s 14 suppliers was spent on interest and fees associated with debt.
For the three companies that had the highest amounts of debts – Thames Water, Southern Water and South East Water – the cost of servicing debts is closer to a third of the revenue generated through bills.
The Guardian’s analysis comes hot on the heels of recent bad press for the country’s private water companies over their poor finances and accumulating debts.
This data will do nothing to quell the growing contempt the public and regulator Ofwat have shown for their questionable behaviour, while some will feel this money could be better spent improving the country’s ageing and deteriorating infrastructure.
In contrast, the research showed that Scottish Water, which is publicly owned, spent just 10% of its revenues on financing debt in 2023. This will do nothing to silence the growing calls for the UK’s water to be taken back into public hands.
Richard Murphy, who’s a professor of accounting at Sheffield University Management School, told the Guardian: “Water companies are simply becoming mechanisms to impose massive interest charges on ordinary people when their job should be to supply water at the lowest possible cost for everyone.”
Thames Water has faced a deluge of criticism in recent months, with the supplier in the news on a seemingly daily basis. However, despite the Guardian’s data adding to the avalanche of bad press, the supplier came out swinging.
A spokesperson for Thames Water said: “Customers’ charges are set according to Ofwat’s notional company and not versus its actual cost of debt. It is for the company to manage the revenues it receives, to cover operating costs as well as investment in the business, debt servicing and dividends.
“We are committed to maintaining our prudent financing strategy, which includes diversifying our sources of capital and pre-funding liquidity requirements.”
Likewise, South East Water also defended itself, saying the 25.8% of bills used to cover its £1.2b debt were largely down to the rise in inflation.
Chief financial officer, Andrew Farmer, said: “The rise in inflation has affected numerous companies in a similar way, both in the water sector and in other industries where a proportion of index-linked debt is the norm.
“This does not have a material impact on the level of cash interest paid, and we remain confident that South East Water can continue to service its financial obligations.”
And joining its competitors in defending its actions, Southern Water said that it would be unfair to expect water companies to operate without borrowing capital.
A spokesperson said: “Just as homebuyers borrow to buy a home, through a mortgage rather than savings from household incomes, it would be entirely impractical and inefficient to try and fund investment to build new assets solely from revenue – customer bills would be far too high and unaffordable without this model of funding being used.”
Ofwat has come under fire in recent months for its apparent inaction over water companies’ bad finances. However, the regulator appeared to be taking a firmer stance recently with multiple investigations into various companies’ financial dealings.
However, despite the Guardian’s analysis highlighting the water companies’ preference to pay out to their shareholders, Ofwat appears to have defended the behaviour
A spokesperson said: “The regulatory system protects customers from a company’s financing choices by ensuring that all customers pay the same interest cost on debt, regardless of which company provides their water and sewerage services.
“Borrowing plays an important part in a company’s being able to fund improvements for customers and the environment. It means the cost to customers is spread over the long term, rather than paying for investment up front, which would result in substantially higher bills than at present.
“It is investors, rather than customers that bear the consequences where a company’s financial health is threatened through its own decision making.”
If you’re a customer of any of the companies mentioned in the Guardian’s research then you may well be concerned. After all, you want to know the company you’re handing your hard-earned cash over to is using it to provide a quality service, rather than to service debts despite making huge profits.
Here at SwiftSwitch, we believe news like this merely highlights the importance of comparing water suppliers to ensure you’re partnering with the best company possible.
When it comes to finding a water supplier, some are more reliable and financially sound than others. Customer service and performance may also be important for you as a business owner, and these should all be taken into consideration when switching water suppliers.
At SwiftSwitch, we offer detailed information on many different water suppliers including how they’re performing, so you’ll have all the info you need to make an informed choice.
Another benefit of using a broker like SwiftSwitch is we stay informed about all of the latest market developments, so if you’re keen to partner with a company that’s providing a reliable service then we can find the deal for you.