Water bills: is the tide rising?
Updated on 23 July 2009
As Ofwat announces proposals that would reduce the average water bill, Neil Macdonald asks if higher water costs are not inevitable in the long term.
We all need water. Other goods and services go up and down in price - and to some extent we can choose whether to buy them or not - but with water, there is literally no alternative. So today's announcement on water prices from the industry regulator Ofwat is of interest to every family in England and Wales.
Unlike many other privatised businesses, water remains a monopoly so the price that the water companies can charge is set by the regulator. Bills have been rising over the years because the industry has been spending huge amounts - notably on repairing our deteriorating Victorian mains and improving the water quality of our beaches.
The water industry wants another round of price increases over the next five years - under their proposals the average bill would hit £349 before inflation in 2015. That's an increase of eight percent on top of inflation. The industry says that will help to finance £24 billion of capital projects. Today's verdict from Ofwat is a draft decision - it's final ruling comes in November - but it gives us a pretty clear idea of where the regulator is going.
The regulator has had to decide three main issues: is all this investment spending really necessary? Could the water companies deliver all this work for less money - by making themselves more efficient? And what can the consumer - that's you and me - really afford?
That last question is a particular concern for the Consumer Council for Water - who try to represent the interests of the bill payer in this process. The Council has been taking readings from the general public and found about a third of us don't regard the price increases as acceptable. And its survey was conducted before the recession hit, pushing up unemployment, so its likely that the public appetite for water price hikes has fallen further.
Ofwat’s decision to propose limits on water bills might not necessarily be good news in the long term for consumers. It could lead to a scaling back of investment schemes that in practice we would all benefit from. Alternatively, it could tell water companies to deliver all the improvements but not allow them to raise prices as much as they want to pay for it. That could backfire if the water companies can't cut their costs sufficiently to make the sums add up.
And beyond this price review lurks the bigger issue of water meters. The Environment Agency recently argued that meters should be put into most houses across the country over the next two decades - the reason is to explicitly encourage people to cut their water consumption. The Agency fears that climate change alongside a growing population will make water an increasingly scarce resource.
The problem for the water companies - and the government - is that meters are likely to mean bigger bills, particularly for large families. But if we're determined to cut leaks and improve quality while expecting to see increasing shortages, then one way or another we may have to get used to paying more for our water.
