A first for the price review process

Ministers are preparing to step into territory no government has entered before: the five-yearly process by which Ofwat sets water bills. Environment secretary Angela Eagle has told suppliers in England and Wales that she intends to intervene in the next price review, writing to regulators and water company chief executives that bosses must bring down costs and stop leaks and sewage overflows.

There has never been government intervention in the five-year review process, which Ofwat runs by analysing companies' business plans and setting the charges customers pay. According to sources close to Eagle, immediate action is needed because companies are making investment decisions now, ahead of the next price-setting process, which is expected to conclude in 2029.

Eagle's letter says the process must meet government priorities, including much better value for money for bill payers - though it stops short of demanding bill cuts.

What the letter demands

The first priority, the letter says, is affordable bills. Eagle sets out what she says the public expects from the water sector, and tells bosses what the review must deliver:

• Affordable bills, with "a laser focus on value for money for customers"
• Investment in new technology to save money
• Early intervention on leaks and sewage
• Far better communication, with decision-making power handed to local communities and leaders

"They want clean rivers. They want reliable water services," the letter says of the public, adding that customers want money spent wisely and confidence that the system works in their interests. Eagle warns water company chief executives that this will "not be a business-as-usual price review", but the start of a long-term transition to a different model for the water sector.

Bill rises behind the frustration

The intervention follows the controversy over the 2024 price review, in which Ofwat authorised a £104bn modernisation programme largely funded through annual increases averaging 36% over the second half of the decade.

The largest rise was allowed for Southern Water, whose customers will pay 53% more by 2030 - an average of £642 per year. Over the summer, several major suppliers asked for permission to charge billions more to cover mounting capital costs and debt obligations, angering campaigners and politicians including Andy Burnham. The prime minister criticised those requests, warning that bill payers must not be treated as a "blank cheque" or a "bottomless source of funding for other people's failures".

A step toward a 10-year plan and the Thames Water question

Defra sources framed the letter as a down payment on bigger changes to come. Andy Burnham's 10-year water plan, expected to follow next week's budget, would hand the government more robust powers to lower bills and direct local investment, the sources said.

One Defra source described the water industry as "one of the clearest symbols of public frustration with Britain's infrastructure", adding: "Angela will take a much more bullish approach to telling water companies and regulators what is expected from them." Another called the move "the start of a journey to a very different water system".

The government is also exploring more radical options for Thames Water, including steps previously considered infeasible even with taxpayer money and court action. Burnham has previously said he would nationalise the company, which is running out of cash and recently asked creditors for an additional £2.4bn. He is struggling to find a route to nationalisation that avoids spending billions, a lengthy court battle, or both.

Campaigners remain unimpressed. Sophie Conquest, lead campaigner at We Own It, said: "These proposals are yet more reshuffling of the deckchairs on the Titanic", arguing they fall short of Burnham's promise to end 40 years of neoliberalism. If water companies cannot function without taking more money from the public, she said, the government should let them go bust and bring water into public ownership.

The current price review is expected to conclude in 2029, with Burnham's 10-year water plan expected after next week's budget.