Water companies are preparing to announce a significant increase in bills for customers, despite a torrent of criticism of their environmental records.
The 11 water suppliers in England and Wales have until the end of January to publish their new household charges, which will take effect from April. In early February, the industry body, Water UK, will then announce how much bills have increased by on average. Last year they went up by £31 to £448.
The announcement is likely to open the floodgates for a fresh round of criticism of an industry facing anger over sewage dumping, executive pay, debt levels and big dividends.
The companies have a tightrope to walk. On one hand, they will consider how much more their customers can afford to pay and whether their already damaged reputation can withstand a backlash over bills.
On the other, they need to spend large amounts on infrastructure to fix the country’s leaky pipes and bolster water resources to cope with the climate crisis. Meanwhile, a £10bn promise to improve infrastructure to tackle pollution – ultimately paid for by bill payers – has been delayed.
“There is an element of catchup here,” says Martin Young, an analyst at Investec. “The challenges for the water sector are clear for all. In the past, the level of the bill has been very high up the priority scale; as a consequence, some of the investment we would have liked to have seen as a country hasn’t been made.”
The exact rise in charges is determined by several factors. A significant driver is last November’s CPIH inflation figure (the consumer price index including owner-occupiers’ housing costs), used across the industry to calculate annual bills, which came in at 4.2%.
On top of this, the regulator, Ofwat, allows companies to charge more if they hit targets on pollution, leaks and customer service. In September, Ofwat ordered 12 underperforming companies to take £114m off bills from April, including £101m from debt-laden Thames Water. By contrast, Severn Trent was allowed to add £88m.
Industry sources believe nearly all suppliers plan to increase bills, most by November’s inflation figure or more. The north Wales water company Hafren Dyfrdwy is expected to make the largest increase, while Welsh Water could be the only supplier to reduce bills, as a result of penalties for supply interruptions and leakage during the last financial year, sources said. Thames Water, Britain’s biggest supplier, could increase at below the inflation rate, but its consumption figures were hard to assess due to problems with its stuttering smart meter rollout, a source said.
Limits on the amount companies can charge were set in 2019, as part of the twice-a-decade price review. Ofwat’s allowances were later made more generous after a challenge by some companies through the Competition and Markets Authority. The charges announced this month will apply to the final year of the current price period, and the regulator is now studying business plans which will cover 2025 to 2030 and detail further planned increases in bills.
“People get that there is a need for investment and that needs to be remunerated. But they want it to be fair and for water companies to deliver – there is no hiding place for them,” says Young.
Meanwhile, concerns are mounting over the ability of low-income households to pay bills. Plans for a standardised social water tariff were considered but later abandoned by the government.
Just over 1.3 million low-income households are on a piecemeal assortment of cut-price tariffs, largely funded by other customers. The Consumer Council for Water (CCW) has called on the entire industry to join the five companies that contribute some profits to social tariff support. “Water companies should be showing greater generosity and putting their hand in their own pocket to help bolster support even further,” said Andrew White, a senior policy leader at the CCW.
White cited harrowing cases such as a person who showered in their clothes to avoid using the washing machine, and those who said they were “scared” to ask for help. Water-bill arrears were often deprioritised by debt advice agencies, as indebted customers would not be cut off, White says. He is also concerned that a 2019 industry commitment to eradicate water poverty by 2030 has slipped off the agenda. “In the absence of action by the government, it’s back on companies to attempt to achieve that target.”
