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Nine of the UK’s 16 privatised water companies are receiving special oversight amid concerns over their financial resilience, regulator Ofwat said.
Thames Water, which is struggling under the weight of its £20bn debt, remains the most troubled water company and is at risk of renationalisation by government. But Southern Water and South East Water will also need to take further action to stabilise their financial future, Ofwat said on Wednesday.
Six other companies — Affinity, Northumbrian, Portsmouth, Wessex, Anglian and Yorkshire — are also in a category “where we consider there to be financial resilience risk (including potential risk) that warrants enhanced monitoring and may require action to redress”, the regulator added.
Water companies are raising debt at more expensive rates, while also facing higher costs for chemical, labour and energy, Ofwat said. However, they are also set to receive a record 36 per cent increase in bills over the period to 2030, the largest since privatisation more than 35 years ago. Once inflation is included, many of the bill increases are higher than 50 per cent.
PJ McCloskey, analyst at MCC Economics, said: “Ofwat may monitor financial resilience, but ensuring it is another issue entirely. The water companies are free to expose themselves to whatever level of financial risk they so wish.”
“The easy solution to poor financial resilience is to raise bills and raise returns, but that’s probably the worst solution for rebuilding the record-low levels of consumer trust.”
UK water companies are facing unprecedented public anger for loading up the balance sheets with debt, while paying dividends to investors and bonuses to their executives despite failures such as pollution and water outages.
Ofwat claimed it had stopped water companies, including Thames Water, from paying a total of £4mn in bonuses last year after the introduction of new regulations on performance-related pay.
Thames Water’s creditors, which include hedge fund Elliott Management, are in discussions with Ofwat to formally take over the utility but need to agree concessions over regulatory targets and fines. The creditors have provided a controversial £1.5bn loan, which is expected to keep the company running until mid-January, with a further £1.5bn available to last until September next year if certain conditions are agreed.
Thames Water, the UK’s biggest water company, has agreed with Ofwat to postpone an application to the Competition and Markets Authority for higher bill increases while it negotiates the terms of its recapitalisation process. The CMA has initially approved bill increases for five other water companies, although a final decision is expected early next year.
Ofwat said total net debt among water companies had increased to £82.7bn in the year to the end of March 2025, up from £74.5bn the previous 12 months, more than half of which was inflation-linked. Declared dividends totalled £645mn, down from £1bn the previous year.
However, this excludes dividends paid by companies, including Severn Trent and South West Water, that were declared after March 2025.
Gearing — a measure of net debt to regulatory capital — averaged 69 per cent across all 16 companies, just below the 70 per cent threshold the regulator had previously considered necessary for long-term financial stability. Ofwat has since lowered this threshold to 55 per cent.
Thames Water said the restructuring of its balance sheet was “both complex and large in scope”.
Affinity Water said: “Following Ofwat’s final determination, shareholders committed £150mn in new equity before March 31 2026 to achieve and maintain gearing at around 70 per cent.”
Southern Water said it had “strong shareholder support with new equity being invested into the business”, while Yorkshire Water said it was “continuing to reduce our regulatory gearing and bolster our financial position”.
Five other companies flagged by Ofwat did not immediately respond to requests for comment.
Letter in response to this report:
So this is how water groups reward good behaviour! / From Paul Secher, London N6, UK