Surge in water bills sparks business backlash

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Water prices for businesses in England and Wales are set to rise nearly 30 per cent, a steeper hike than that being imposed on households, fuelling complaints from industries already hit by sharp cost increases.

Water charges for non-residential customers, which also include hospitals, schools and charities, are expected to rise by an average of 27 per cent before inflation in the five years to 2029-30, according to a letter from Ofwat seen by the Financial Times. 

The increase outlined by the regulator in the letter to the Federation of Small Businesses would be higher than the average 21 per cent rise Ofwat has indicated it will allow water companies to impose on households in the same period. 

A final decision on prices for households and businesses is expected from Ofwat in December.

The regulator is allowing price rises to encourage water companies to upgrade creaking water and sewerage infrastructure. But it is having to balance them with customer anger over the pollution of rivers and beaches, and financial strain from high inflation and soaring energy bills since 2022. 

“Small businesses are being targeted . . . with much steeper rises in their bills than domestic households,” said Craig Beaumont, chief of external affairs at the FSB. 

“Local, small firms will now pay the price for poor water company management, decisions and performance,” he said, urging the government to “take a fresh look at regulated quasi-monopoly industries, providing unavoidable services” and create new protections that would treat small businesses as consumers. 

Mike Keil, chief executive of the Consumer Council for Water, said the scale of the increases was a worry for small businesses.

“There is a perception among some business customers that water companies have put profit and dividends before investment in the past, which is why they are now faced with these substantial bill increases,” he said.

MOSL, the industry-funded company that operates the business water market, previously said it would like to see more detail on Ofwat’s reasons for allowing a bigger increase in wholesale bills than for households, “as well as reassurance that these charges are fairly apportioned”.

About 30 per cent of the water supply in England, or roughly 3bn litres a day, is used by the non-household market. Some of the customers that use the most water can negotiate bulk tariffs, where water companies charge a lower price per unit.

But MOSL has questioned the use of bulk tariffs, especially in areas where water supply is under pressure.

The business water market was opened to competition by the government and Ofwat in 2017 in an attempt to mimic the energy sector, where the wholesale and retail markets were split in the 1990s.

Retailers were licensed to handle billing, customer services and meter readings across England and Wales, although water is still provided by the regional monopoly. But the market has suffered high levels of complaints and poor quality services, and the government abandoned a plan to extend competition in household billing to domestic users.

In its letter to the FSB, Ofwat said it anticipated “that over five years average wholesale charges for non-household customers would increase by around 27 per cent before inflation”.

Ofwat said in a statement that it did “not calculate average non-household bills” because of the variety of business customers.

“It’s not possible to make a direct price comparison between household and non-household customers,” it said. “This is because the allocation of costs between the two customer segments is determined by each water company, working within the charging rules laid out by Ofwat.”

The Department for Environment, Food and Rural Affairs said: “Whilst we expect Ofwat to scrutinise water company business plans to ensure companies deliver for customers and the environment, we will also be carrying out a review to fundamentally transform how our water system works.”