In a damning report into UK water companies, the watchdog found that the Department for Environment, Food and Rural Affairs (Defra) and water regulators have failed to drive necessary investment for the sector, which now faces significant environmental, supply and infrastructure challenges.
The report, Regulating for investment and outcomes in the water sector, is heavily critical of water firms and regulators over sewage failings.
Publication of the report coincides with a new law coming into effect that means that water bosses who cover up illegal sewage spills could be imprisoned for up to two years.
The NAO found that regulatory gaps have enabled overspending on infrastructure building, while not improving sewage works. Some of the infrastructure costs have been added to customers’ bills, with water bills set to rise by an average of £123 this year – with further increases over the next four years.
Several water firms have appealed to the Competition and Markets Authority (CMA) because they want the regulator to allow them to increase bills even further.
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The need for investment coincides with a period of weakening financial performance, declining public trust, and falling investor confidence. In 2023/24, Ofwat was concerned about the financial resilience of 10 of the 16 major water companies.
Poor performance by water companies has led to a record low in consumer trust. The highest profile cause of environmental harm is the use of storm overflows, where companies release untreated sewage into rivers and seas.
Gareth Davies, head of the NAO, said: “Given the unprecedented situation facing the sector, Defra and the regulators need to act urgently to address industry performance and resilience to ensure the sector can meet Government targets and achieve value for money over the long term for billpayers.”
Mike Keil, chief executive of the Consumer Council for Water (CCW), said: “Restoring customer trust in the water sector is a monumental task, which depends not only on effective regulation but also water companies delivering on their commitments. Companies are now being entrusted with an unprecedented amount of customers’ money to tackle many of the challenges laid bare in the NAO report and there will be no hiding place for them if they fail to deliver the step change in performance people expect.”
