The Water Bill and water affordability

On Monday 25 November MPs will debate the Water Bill, a major piece of legislation that will reform the water sector and have implications for customer bills and the environment.

Amongst other things, the Bill will enable all non-household customers to choose their water and sewerage supplier and enable more companies to provide water and sewerage services. The Government believes that these competition reforms could deliver £2 billion in benefits over 30 years, with additional environmental benefits from the more efficient use of water.

While there is general support for many of the aims of the Bill, there have been growing calls for amendments to the Bill to reduce water bills in the short term.

Many people struggle to pay their bills

While average water and sewerage bills in England and Wales cost a little over £1 per day, the National Audit Office (NAO) recently calculated that 12% of households may be at risk of being unable to afford their bill. Affordability problems are likely to have grown with real-term increases in water bills of almost 50% over the past 20 years. Since 2009 average bills have risen largely in line with inflation.

There could be further significant increases in water bills in coming decades due to the need for additional investment in infrastructure, although Ofwat, the regulator, estimated that bills could reduce somewhat from 2015 to 2020.

While some support is currently available to those struggling to pay bills, it is recognised that these do not fully address the problem. Additional measures introduced under the Labour Government, and put in place by the current Government, may help by permitting water companies to introduce social tariffs.

However, the success of this approach depends largely on the willingness of other water customers to fund it through increases in their water bills. There could also be disparities across England and Wales as social tariffs will be decided regionally – three companies have put tariffs in place so far.

The Water Bill: calls for short term measures

There have been growing calls by those inside and outside of Parliament for amendments to the Bill. Many of these proposals reflect growing concerns about corporate practices by water companies and the fairness of their profits, dividends and tax arrangements.

The Government has stressed that it is already working to reduce water bills by supporting industry efforts to address bad debt and improve governance standards. Ofwat has initiated a project to improve governance and customer representation in the sector and it has indicated that it would be willing to force water companies to act if they do not comply.

Whether these actions will appease MPs is not clear. A Commons debate on 5 November 2013 indicated the strength of feeling on this issue and the cross-party nature of concerns about the sector. It seems likely that during the passage of the Bill some MPs may call for a number of actions, such as:

  • commencing provisions in the Flood and Water Management Act 2010 that would require landlords to pass their tenants’ details to water companies, as a way of reducing bad debt in the sector. Bad debt adds around £15 to the average bill;
  • a windfall tax on water companies;
  • a levy on dividends, which is payable to customers;
  • a “social responsibility” clause requiring companies to report clearly on aspects of their business including tax arrangements and research and development spending;
  • mandatory annual customer meetings to enable customers to raise concerns;
  • a requirement that the regulator first consider non-profit companies when restructuring companies that have gone into administration;
  • mandatory social tariffs;
  • corporate tax reforms to reduce the use of debt by water companies, which it has been claimed has been used to avoid tax; and,
  • giving Ofwat greater powers to lower customer bills when water companies make unexpectedly high profits or pay out high dividends.

More information about these issues can be found in our briefing on the Water Bill.

Author: Oliver Bennett