Why do customers' bills increase when shareholders are paid high dividends?
We set price limits at a level which will enable an efficient company to attract the finance it needs to implement the required capital programme. We have no formal powers to control dividends. Water and sewerage companies have to implement very significant capital programmes. In order to raise the necessary finance for these programmes they must provide a reasonable return to capital providers (i.e. through dividend payments to shareholders and interest to debt providers). We have taken the view that our approach to setting price limits should create conditions under which the funding for additional investment required could come from debt or equity. To rely wholly on debt could force the sector into an unsustainably brittle structure to the ultimate detriment of customers. However as the regulator we aim to ensure that the level of return allowed on the capital employed is no more than necessary for an efficiently run company to maintain access to the capital markets. Only if companies are efficient will they be able to pay shareholders an adequate return.
Customers' bill increases
