Millions of customers will see their annual water bills drop by £34 after the competition watchdog rowed back on how much it will allow investors in suppliers to make in returns.
The Competition and Markets Authority (CMA) announced its final decision on price controls for Anglian, Bristol, Northumbrian and Yorkshire water firms after a tense dispute between the companies and the regulator.
The CMA had been under fire from consumer groups last autumn for over-ruling the water regulator Ofwat, saying it had been too strict on how much water companies could invest in resilience and reducing water leaks, and instead deciding to put more money in the pockets of shareholders.
But in an apparent compromise, an independent group at the CMA has now set a headline rate of return for investors at a less generous 3.2%.
It said this was 32% lower than the last price control period, 9% lower than the CMA’s provisional findings and around 12% lower than the rate proposed by the water companies.
Ofwat’s original plans would have seen customers save around £50 on their annual bills.
While the CMA’s decision will see a smaller reduction, it will still mean customers spend £34 on average less on their water bills than in 2019/20.
Consumer group Citizens Advice said the deal was a step forward, but “should have gone further”.
Kip Meek, chair of the CMA’s independent group, said: “In coming to our decision, we have sought to balance keeping bills low with the need to maintain a good quality of service and to invest in critical infrastructure for the future.”
The CMA said the move should also allow the companies to finance their activities and invest in long-term infrastructure, also providing increased allowances to pay for improvements in priority areas such as security of supply and leakage.
Alistair Cromwell, acting chief executive of Citizens Advice, said: “Today’s announcement is progress and a better deal for consumers than the CMA originally proposed.
“However, the CMA should have gone further in cutting back the excess profits made by water companies.”
Ofwat said it was clear the CMA had listened to its concerns on the provisional plans put forward last September.
Rachel Fletcher, chief executive of Ofwat, said: “Overall, the CMA has supported the ambition we have for the industry.
“Crucially, the CMA has backed the principle we have been advocating, that investors must work hard for their returns, bringing customers better, more resilient services and a healthier environment for generations to come.”
Thirteen of the UK’s 17 water networks had accepted Ofwat’s original findings.
The four that appealed to the CMA said Ofwat had not given them enough funding to improve resilience, did not allow investors a “reasonable level” of return, and increased the risk to the companies.
Bristol and Northumbrian said they would be reviewing the CMA’s final conclusions.
A Yorkshire Water spokesman said: “We can now draw a line under the last price review and start to work collaboratively with government and regulators to ensure that we restore the balance to the sector and deliver long-term resilience whilst protecting customer interests.”