Newspaper article The Journal (Newcastle, England)

Water Customers Fail to Tap into Windfall; INDUSTRY

Newspaper article The Journal (Newcastle, England)

Water Customers Fail to Tap into Windfall; INDUSTRY

Article excerpt

Byline: GAVIN CORDON business@ncjmedia.co.uk

THE privatised water companies have picked up an unexpected windfall of at least PS800m, the Whitehall spending watchdog has disclosed.

The National Audit Office (NAO) said water companies in England and Wales had gained from tax cuts and lower-than-expected borrowing charges over the past five years.

However, customers failed to see the benefits on their water bills as the regulatory regime failed to "appropriately balance the risks" between the companies and consumers, the NAO said.

It said that the regulator, Ofwat, needed to act to ensure that customers saw more of the gains when the companies benefited from developments that were outside their control. The NAO estimated that between 2010 and 2015, the companies gained PS410m from reduced corporation tax rates and a further PS840m from lower-than-forecast rates of interest. Over the same period the companies absorbed costs and provided water bill discounts worth up to PS435m, leaving them with a net windfall of PS800m.

The NAO acknowledged the companies would have lost out if taxes or interest rates had risen but said the balance of risks in Ofwat's price cap was weighted too heavily in favour of the companies and had not achieved proper value for money.

The head of the NAO, Amyas Morse, said: "Customers have not seen enough of the benefits of companies' unexpected financial gains from factors such as falls in corporation tax rates.

"Ofwat made significant improvements in 2014, but its price cap regime is not yet achieving the value for money that it should."

Overall the NAO found that by most measures, the services offered by the companies had improved markedly since privatisation in 1989. However prices have increased by 40% in real terms over the period - with the biggest rises coming between 1990 and 1995. …

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