Water companies have pocketed an £800m windfall because of poor regulation, the spending watchdog has said.
The National Audit Office (NAO) said water companies in England and Wales had benefited from tax cuts and cheaper finance costs over the past five years.
However, customers’ bills had not fallen because Ofwat had not properly “balanced the risks” between water companies and consumers, the NAO said.
Ofwat rejected criticism of its price control regime.
The NAO estimated that between 2010 and 2015, water companies gained £410m from lower corporation tax rates and a further £840m from lower than expected interest payments.
Over the same period the companies absorbed costs and provided water bill discounts worth up to £435m, leaving them with a net gain of £800m.
The watchdog said Ofwat’s price cap was weighted too heavily in favour of the companies and had not achieved proper value for money.
Ofwat chief executive Cathryn Ross said its approach had given customers “certainty about the cost of their water bills”. She told Radio 4’s Today programme it would not have been right to pass on to customers the risk of changes in financing costs.
“What that would have meant was that had interest rates gone up between 2009 and 2014, that amount of money would have gone straight on customers’ bills. I don’t think that was the right thing to do,” Ms Ross said. The regulator had also rejected requests from water companies to raise bills when faced with higher than expected costs. “There are swings and roundabouts here,” she said.
Water prices will fall by 5% in real terms over the next five years, Ofwat said earlier this year.
Bills have risen by 40% in real terms since privatisation in 1989, with the biggest rises coming between 1990 and 1995.
Water bills accounted for about 2.3% of average household spending in 2013 and more than 5% for the poorest households.
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