Water firms could be forced to restrict shareholder payouts, Ofwat warns

Water firms could be barred from making shareholder payouts under new measures unveiled by the industry regulator to ensure they remain financially robust and protect customer interests.

Ofwat outlined plans for a common set of standards designed to strengthen water utility firms’ financial resilience – including committing to maintaining an investment grade credit rating.

The watchdog wants firms to sign up to the standards that mean, if they are at risk of losing their investment grade rating, they could be prevented from making payouts to shareholders or removing money or assets from the business.

These so-called cash lock-up conditions would provide “greater clarity of expectations” from water firms, the regulator said.

Rachel Fletcher, chief executive at Ofwat, said: “Water companies must provide resilient services to their customers.

“To do that, they need to be financially resilient.

“To help secure that, we want to introduce clearer, consistent requirements and protections.

“These protections will give greater assurance to customers about all water companies’ financial stability and long-term resilience.”

It comes as water firms face the threat to potential re-nationalisation if Labour comes to power, with the party recently revealing plans to bring the industry under state ownership.

Labour wants to transfer the existing water and sewerage companies to new Regional Water Authorities.

Ofwat also last week warned four water companies that it has “substantial concerns” over their business plans for the next five years.

The UK’s biggest supplier, Thames Water, alongside Anglian Water, Yorkshire Water and SES Water had received letters from the watchdog calling on them to review their cost proposals.