Taxpayers shell out £453m in bill subsidy for one of UK’s worst performing water firms

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The £50 a year subsidy for each South West Water customer over a decade came as the firm paid out more than £1.5 billion to shareholders and was fined for dumping raw sewage

The taxpayer has spent nearly half a billion pounds subsidising bills at one of Britain’s worst performing water companies over the last decade, we can reveal.

At the same time, South West Water’s owners have paid out more than £1.5 billion to shareholders. Last week, South West Water pled guilty to fresh charges of dumping raw sewage, after it was fined £2 million in a separate prosecution in 2023. The firm recently claimed that no-one has a right to swim in the ocean during another lawsuit.

Meanwhile, the Department of Environment Food and Rural Affairs bailing out South West Water’s customers with an annual payment of over £40m a year since 2013. This subsidy has been used to pay the first £50 of each customer’s bill which were “significantly higher than bills in other regions” before the policy was introduced, according to Defra documents, “which led to a perception of unfairness”.

The lifetime value of the subsidy currently stands at £453m, Defra confirmed after an FOI request by the investigative newsletter Democracy for Sale. Despite this, South West Water’s bills are currently the second highest in Britain, according to the regulator Ofwat, which recently approved plans to hike them by a further 13%.

James Wallace, the CEO of River Action, said: “How can it be legal let alone ethical for Defra to funnel money into a water company that rewarded its investors for years of rampant pollution with multi-million pound dividends? This is precisely why the government must reform the regulators to send a clear message that breaking the law will no longer pay.”

Documents released under FOI show that the payment is “not linked to any performance targets.” The new water minister Emma Hardy has said the government will end the policy next April. The Environment Food Rural Affairs Select Committee will tomorrow quiz senior officials at the industry regulator Ofwat over its handling of water companies.

Alistair Carmichael MP, the committee chair, said: “The finances of water companies are rightly under close scrutiny at this time, together with the issue of these companies’ failings on sewage emissions and pollution of our waterways. This is an area which the EFRA Select Committee will be investigating, including in our evidence session with senior directors of Ofwat on 26 November.”

South West Water said: “Removing the £50 contribution across the South West is one of several tough decisions this government has had to make. We’re here for our customers, with a £200m support package, doubling down on our pledge to eradicate water poverty to 2030, one of a handful of water companies doing so.“

In October, Ofwat revealed that South West Water was the worst performing water company with an 80% rise in pollution incidents last year and ordered the firm to hand back £17 million in customer rebates. Several customers of the company were admitted to hospital after their drinking water was contaminated with dangerous parasites commonly found in human faeces earlier this year.

The latest case involves four incidents in 2019-20 in areas where South West Water says it is investing to prevent further issues. A spokesperson added: “We are absolutely clear that any pollution is unacceptable. While these incidents should never have happened, they did not occur because we don’t care, we do, and we have taken action to make sure they never happen again. Our teams care deeply about protecting the environment where we live, and they work around the clock to prevent incidents such as these from happening.”

A Defra spokesperson said: “This government has taken urgent action to end the taxpayer funded contribution to the water and sewerage bills of South West Water which would have been unnecessary and unjust to continue.
“That is why we have stopped this unjustifiable discount, saving over £40m each year in taxpayer money, whilst ensuring vulnerable customers are supported with their bills.”

South West Water said it saw two serious pollution incidents last year.