Water Industry: Financial Resilience

Baroness Hayman of Ullock Excerpts

Tuesday 4th July 2023 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

My Lords, back in December last year, Ofwat outlined concerns about the financial resilience of several water companies, and now we see that the ratings agency S&P has negative outlooks for two-thirds of the UK water companies that it rates because they are overleveraged and beholden to too much debt that was taken on in an era of low interest. How does the Government’s assessment of the overall resilience of water companies compare with that analysis? Have the Government looked at the impact on customers of these financial deficits, and how will they encourage investment into much-needed infrastructure in order to secure reliable and sustainable water supplies for the future?

[The Minister of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)]

I thank the noble Baroness for her questions. First, this will not impact on customers. Their bills are regulated by agreement with the regulator, Ofwat, and we do not expect any reduction in service—that is also strictly monitored. We think that investment by water companies into our water sector infrastructure is important, which is why we have agreed that there will be the largest-ever investment—£56 billion—to see our infrastructure further improve.

Since privatisation, £190 billion of capital investment has been made. In real terms, that is twice what was happening at the same rate prior to privatisation. We have also seen improvements in the provision of water for customers, and we want to see that continue. We look very carefully at, and work with, Ofwat and the water sector on concerns about leverage—I share the noble Baroness’s concern about some of the companies’ degree of leverage. It is interesting that the level dropped last year from 72%, where it was in 2021, to 68%, which was roughly the same as it was in 2005, having risen from 37% when the previous Government were in position. However, Thames Water in particular has a much higher leverage rate, which has rightly caused concern for the Government and the regulator. That is why we are working with it to make sure that it is viable. We believe that with £4.4 billion of liquidity in its business, it can trade through this.