Business Water Price Increase 2024
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The last twelve months have proved challenging for the British water industry, which has attracted significant media scrutiny due to water companies discharging wastewater into rivers during times of sewer overflow.
In response to this escalating issue and the ongoing challenges posed by a warming climate, water companies are committing unprecedented funds towards enhancing the British water infrastructure.
To finance this additional investment, British businesses will face an above-inflation increase in water costs starting from 1 April 2024.
While the default business water rates have yet to be announced, our experts anticipate an average rise of 8% for small businesses, but with significant regional variations. Continue reading to learn more.
💡Your business can avoid the 2024 water price rise and achieve immediate savings by agreeing to fixed water rates through our business water comparison service.
The individual default business water suppliers have yet to publish their rates for 2024. We anticipate these will be announced in mid-March.
Based on the increases in wholesale and retail fees discussed above, our experts expect that the average small business on a default contract will face an 8% increase in water rates.
As these rates are made available, our business water experts will summarise the impact on a small company paying default water rates based on an annual usage of 120 cubic metres of water (approximately the same as the average household).
[FINAL APRIL 2024 BUSINESS WATER RATES PENDING DEFAULT SUPPLIER ANNOUNCEMENT]
In compiling the above data, we will assume:
Ofwat, the economic regulator for the water sector, plays a pivotal role in the process of determining business water price rises, imposing strict limits on the charges that business water suppliers can apply to default contracts.
Within the water industry, several groups hold differing opinions on these price controls. Let’s explore each perspective.
Ofwat recognises the absence of effective competition in the business water market, particularly for small businesses.
Given this lack of competition, Ofwat argues that the current price cap mechanism is both appropriate and essential. This is to ensure that smaller business customers are protected from paying prices that do not accurately reflect the costs or the quality of service they receive.
This report suggests that the maximum price cap for Group One should be significantly raised. It posits that the costs incurred in serving the smallest customers far exceed the retail fees that can currently be charged under the existing framework.
Consequently, the Council recommends a revision of the Retail Exit Code to allow for a 55% increase in the Allowed Retail Cost per Customer.
The Strategic Panel is a group formed of representatives from Wholesalers, Business water suppliers, Independents and representatives from Ofwat and MOSL that seeks to provide strategic direction to improve outcomes for non-household customers.
The Strategic Panel has previously set out its view that “current price caps are, in all regions, set too low to allow competition for Group One customers with any retailer.” The Strategic Panel recommends a loosening or lifting of REC price controls for group one customers.
The Panel further states that the current price controls are increasing the risk of incumbent business water supplier bankruptcy as margins for suppliers for Group One customers are so low.
AquaSwitch operates as a third-party intermediary (TPI) in the commercial water market. We work with suppliers from across the market and have helped thousands of companies compare business water suppliers and switch to a cheaper tariff.
Ben Brading, founder of AquaSwitch, provides his view on the current price control for Group One customers:
In a well-functioning market, suppliers compete for new customers by providing the best service at the lowest price.
“In a well-functioning market, suppliers should be vying for new customers by offering the best service at the most competitive price. However, for the 85% of the market comprising smaller businesses, this dynamic is absent.
Many incumbent business water suppliers exert minimal effort to attract Group One customers, primarily because serving them is not financially viable under the existing price controls.
When the goal is neither attracting new customers nor retaining existing ones, service levels inevitably decline.
We concur with the Strategic Panel’s recommendation that easing the price controls for Group One customers is essential to realise the full advantages of water market deregulation.”