River Action raises Ofwat regulation concerns over use of funds from higher water bills

The campaign group warns that millions of pounds intended for infrastructure improvements may be misused to cover past failures to keep sewerage systems fit for purpose rather than enhance them beyond legal compliance.

As a result, customers may pay twice (once through payments towards past maintenance programmes and again through payments towards new funds) for infrastructure upgrades that water companies should have already delivered through routine maintenance and previous allocations of funds for major projects. 

In a pre-action protocol letter to Ofwat, River Action (RA) argues that the regulator has failed to set out a mechanism to ensure that any extra investment allocated to water companies will not be used to help them achieve compliance with existing permit conditions. 

RA raises concerns with Ofwat’s 2024 price review, and points to issues with the allocation of funding to United Utilities (UU) for improvements at sites around Lake Windermere. 

In August 2024, UU requested enhanced funding to be used on extra improvements to water treatment works and pumping stations in the Windermere area. This was granted by Ofwat, apparently due to the proposed sites fulfilling the requirement to be already fitted out to comply with regulations.  

However, RA argues that the approach Ofwat took in this decision was unreasonable, and failed to adequately address all the relevant information.  

The campaign group says that Ofwat’s modelling of performance by water companies does not reflect the reality of their performance, and argues that UU has not adequately demonstrated that it is compliant with the criteria for the extra funding. 

The group also raises concerns over Ofwat’s ability to claw back enhanced funds from water companies, and its reliance on doing so, if these have incorrectly been used to bring sites into compliance with existing permit conditions instead of to make improvements.  

In its letter, RA calls on Ofwat to review of its 2024 price review process, threatening judicial review should this not happen.  

 Emma Dearnaley, head of legal at River Action, said: 

“We believe Ofwat has acted unlawfully by approving these funds without ensuring they are spent on genuine improvements to essential infrastructure. Instead, this so-called ‘enhanced funding’ is being allowed to be used to cover up years of failure. 

“Effectively, Ofwat has signed off on a broken system where customers are being charged again for services they have already funded—while water companies continue to mark their own homework and pollute for profit. 

“This scandal must be addressed. The cost of fixing the UK’s crumbling water infrastructure should fall on the companies and their investors—not on the British public.” 

Leigh Day solicitor Ricardo Gama, who represents River Action, said: 

“Ofwat has said again and again in public that it won’t let price rises be spent on fixing historic issues which are leading water companies to breach their permits. They’ve said in black and white terms that customers won’t be expected to pay twice. But in documents seen by River Action it looks like Ofwat hasn’t done its homework in checking whether the money it’s letting United Utilities take from customers will actually be used for that purpose. River Action believes that this is reflective of a broader lack of due diligence by Ofwat over the decades, which has led to money not being spent on infrastructure improvements and instead being diverted to investors’ pockets.” 

“River Action is calling for immediate regulatory action to ensure water companies stop passing the cost of failure onto customers — and start taking responsibility for the environmental damage they have caused.”