Millions Face Extra £29 Water Bill

Millions of households are facing an extra £29 on their bills after Britain's biggest water company said it had endured a "tough time" financially.

The proposal by Thames Water is likely to spark anger just months after it emerged that the firm, whose revenues rose to £1.8 billion in the last financial year, paid no corporation tax.

And it comes as families suffer a fall in real earnings while Thames's bills rose by an inflation-busting 6.7% in the last financial year.

If its application to regulator Ofwat is successful the price rise will apply from next year although the company has asked if it can spread out the charge over more than one year to avoid a spike in bills.

A spokesman for the company, which is ultimately controlled by Australia's
Macquarie Group, said: "We have had a tough time financially as a company because of increased costs."

Profits fell by a fifth in the last financial year but chief executive Martin Baggs still received a pay rise to £450,000 plus a £274,000 bonus.

Today, the business said it was asking Ofwat to allow the increase in 2014/15 to cover additional spending as well as the bad debts of customers who have failed to pay their bills.

Ofwat said it would challenge the proposals and "question the company strongly" on the reasons behind it. The regulator will announce a decision by November.

The extra charge would normally be added to the final year's bill but the company is asking Ofwat to allow it to be spread over a greater period.

Thames Water is subject to a five-year price control period that runs out in 2015 but said it needs to ask customers for more to cover costs that could not be quantified at the time this was set in 2009.

It said the biggest item was £273 million spent acquiring land for the Thames Tideway Tunnel, a major new sewer development.

Thames Water said it was absorbing much of the extra outlay, which also included increased Environment Agency charges and the costs of operating sewers transferred to it by the Government in 2011.

A break-down of the £29 surcharge showed that £16 of the extra amount customers may be asked to fork out is accounted for by increases in bad debt - when other customers failed to pay their bills - blamed on the economic downturn.

Thames Water, which serves 14 million customers, says its average bill is £354 and that after the adjustment it would remain among the lowest in the country.

Stuart Siddall, chief financial officer, said Ofwat's five-year price limits were based on the best information available at the time.

"However, at the beginning of a five-year period there are always a small number of potentially significant costs and revenues that can clearly be identified but not quantified.

"These are set out at the time of the price review and either the company or Ofwat can seek an adjustment, upwards or downwards, once the actual costs and revenues are known. That is what we are doing now."

Underlying pre-tax profits at Thames Water fell 20% to £144.9 million in the year to the end of March - blamed on the freezing weather and rising levels of bad debt.

Thames Water is owned by Kemble Water Holdings, whose main investors are ultimately controlled by Macquarie.

Much of Thames Water's income was spent on servicing huge debts, with interest payments of over £400 million over the year as borrowings increased from £7.8 billion to £8.4 billion.

It says its taxable profits are reduced by allowances on its £1 billion a year investment programme.

Ofwat chief executive Regina Finn said:

"We know that household incomes are becoming ever more stretched - nobody wants to see any unnecessary increase in bills.

"We will challenge these proposals and question the company strongly on their reasons. Proposed increases will only be allowed if they are fully justified."

It said any revisions to price limits would not apply to customers' bills before April 2014.