Revealed: Government gave £450m in subsidies to sewage-dumping water firm
New documents show government handed taxpayer cash to South West Water while the company paid out billions to shareholders and dumped raw sewage into the ocean
The government has spent almost half a billion pounds subsidising bills at one of Britain’s worst performing water companies over the last decade, Democracy for Sale can reveal.
At the same time, South West Water’s owners paid its shareholders more than £1.5 billion in dividends.
Last week, South West Water pleaded guilty to fresh charges of dumping raw sewage into the ocean. It was fined £2 million in a separate prosecution in 2023.
South West Water has one of the worst water companies for pollution in recent years. The firm recently claimed that no-one has a right to swim in the ocean during a lawsuit.
But while South West Water has been dumping sewage in the sea, the Department of Environment, Food and Rural Affairs (Defra) has been giving the company an annual subsidy of over £40m a year since 2013, according to documents released to this newsletter under Freedom of Information legislation.
The subsidy has been used to pay the first £50 of each customer’s bill which were “significantly higher than bills in other regions…which led to a perception of unfairness” before the policy was introduced, Defra said in response to our FOI.
The payments, worth £453 million in total and not previously reported, were “not linked to any performance targets.”
Despite the subsidy, South West Water’s bills are currently the second highest in England and Wales, according to the regulator Ofwat, which recently approved plans to hike them by a further 13%.
James Wallace, CEO of River Action, said that our investigation showed that “the state is using taxpayers' money to subsidise private water polluters.”
“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?” James Wallace, CEO of the River Action campaign group, told us.
Water companies have paid more than £85 billion to shareholders, mostly international investors, since the industry was privatised three decades ago.
“Taking from a nation of taxpayers to enrich polluting international investors is a breath-taking carve-up,” Wallace said.
“This is precisely why the government must reform the regulators to send a clear message that breaking the law will no longer pay.”
On Tuesday this week, the Environment, Food and Rural Affairs Select Committee will quiz senior directors from Oftwat, the water regulator, over their handling of water companies’ finances.
The chair of the committee, Liberal Democrat MP Alistair Carmichael MP, told Democracy for Sale: "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.”
Water bosses have been accused of loading businesses with debt and failing to invest, leaving some on the brink of bankruptcy.
South West Water was heavily criticised by MPs earlier this year when the FTSE250 company announced that it was increasing its dividend payment days after a parasitic outbreak in drinking water in the south-east of England.
Last month, Ofwat found that South West Water had the worst record in the country for “serious pollution incidents” and ordered the firm to hand back £17 million to customers.
It is the third year in a row that South West Water has been forced to pay seven figure rebates to customers for its poor performance.
Although the £450million subsidy South West Water received was renewed annually for over a decade, the new water minister Emma Hardy has said the government will not continue with the policy beyond next April.
However, Defra does continue to pay a second subsidy to South West Water under a scheme to restore degraded peatland. Spending data shows Defra gave the firm £2.4 million in 2024 with £300,000 coming since Labour was elected to power.
Rob Abrams, of the campaign group Surfers Against Sewage, called for “radical reform” across the water industry.
“The government would have us believe they've got the water industry over the barrel when this story shows it's entirely the other way round,” Abrams told Democracy for Sale.
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 and one of a handful of water companies doing so.”
Defra did not provide a comment on the story.