Small businesses say they are paying for ‘historic errors’ by water suppliers

Small businesses have accused water suppliers of saddling them with the cost of "historic errors" made by bosses in the scandal-hit industry, as it emerged their bills will rise nearly 30% by 2030.

The water industry regulator, Ofwat, has told businesses that it expects average wholesale charges for non-household customers – which include small firms, charities and hospitals – to increase by about 27% before inflation over the next five years, outstripping the anticipated rise in household bills.

In a letter to the Federation of Small Businesses (FSB), seen by the Guardian, Ofwat said water companies would be allowed to hike bills to enable a trebling of investment to ensure future water supplies and protect the environment, as the industry faces continued anger over discharges of raw sewage into waterways.

Shaun Kent, the director for the business retail market at Ofwat, wrote: "We have protected customers by keeping price increases fair for current and future customers, ensuring companies do not overcharge for this vital investment. Shareholders will also need to play their part and are expected to invest £7bn of new equity."

Ofwat's letter, first reported by the Financial Times, comes as the regulator examines how much to allow water firms in England and Wales to charge domestic customers over the next five years to pay for investment in everything from fixing leaks to new reservoirs.

In July, Ofwat said it would allow average household bills to rise by 21%, or £94 , to enable the investments. Water firms are pushing to be allowed to charge more, with a final decision expected in December.

Campaigners have argued that many customers have already paid for upgrades which have not been carried out, while some water firms have been loaded with debt and mined for dividends by owners.

Tina McKenzie, the policy chair at the FSB, said: "Historic errors in management, decision-making and performance targets by water companies are now being shunted on to small business and domestic household bills, at a time when the costs of doing business are already high.

"While investment and reform are absolutely critical to create a good water and wastewater system, there needs to be a better balance struck between how the necessary funds are raised, so unavoidable bills – like water – are affordable and the system works as it should."

Non-household customers use about 30% of the water supply in England. The increase in bills is expected to be felt harder by smaller businesses, as some larger companies are able to negotiate cheaper rates for using greater volumes.

In its letter, Ofwat said water suppliers had been tasked with reducing consumption by non-household users in England by 7.7% by 2030, compared with 2019-20 levels.

Ofwat has been approached for comment.