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Government backs Ofwat’s announcement on water company dividends

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There has been widespread coverage today of Ofwat’s announcement of enforcement measures against water companies that pay out dividends to their shareholders despite failing to meet the required performance standards.

The story has been covered in The Times, iNews, Press Association, The Daily Telegraph, The Guardian, Reuters, Evening Standard and This is Money.

The changes will require companies to: take account of environmental performance and customer delivery when deciding whether to pay dividends; hold a strong credit rating; and stop paying dividends if their financial health is at risk. If a company falls short, Ofwat will be able to take enforcement action.

The reforms have been made possible by the government’s Environment Act 2021, which gave Ofwat new powers to change water company licences without their consent.

The government has confirmed its support for the changes, the majority of which will come into effect by 17 May 2023.

Water Minister Rebecca Pow said:

It is wrong for water companies to be responsible for environmental damage and poor performance but not face the penalties. It has been happening too often and it needs to stop.

These new powers, made possible through our Environment Act, will enable Ofwat to clamp down on excessive cash pay-outs and make sure companies put customers first. This will apply when a company is not meeting expectations on performance or is facing questions over its financial resilience – and ultimately means we go further in holding water companies to account.

Chair of the Environment Agency Alan Lovell said:

The announcement that companies must take environmental performance into account when deciding whether to pay dividends is necessary to restoring trust in the water sector.

As climate change and population growth increase the risks of flood, drought and pollution, the public are sceptical of profit going to shareholders. Ofwat’s decision will help water companies better demonstrate stewardship.

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  1. Comment by David Carey posted on

    So since 1989, for the last quarter of a century of water privatisation, the companies supplying drinking water to our houses have NOT been required to take either the environment or their customers into account before deciding their shareholders' dividends. Thank you OFWAT for your unstinting care over the interests of the British people and the total commitment of your guardianship of the natural environment that we all live in.

  2. Comment by John W. Baxter posted on

    I find these statements an affront to my intelligence, knowing that the privately held water companies have shareholder employees who are not going to vote against profit generation, and if the company indebtedness which has been allowed to increase under the watchful eye of OFWAT becomes unserviceable, the British public can always be relied upon to bail out the incompetent parties……not unlike the situation generated in the energy sector.
    As far as the Environment sector goes, the water companies have been laughing all the way to the CSO or the waste water overflows from treatment works as the EA became dormant…….long before 2021 ……asleep at the real time monitoring ,and nonexistent, quality monitoring station that cost so much to install!.