Consumer watchdog CCW is warning Ofwat that proposed price increases to help fund the 2025-30 investment programme will be unaffordable for most customers.
Consumer watchdog CCW is warning Ofwat that proposed price increases to help fund the 2025-30 investment programme will be unaffordable for most customers.
The warning comes in a new report published by CCW this morning setting out its findings in an analysis of the water companies’ AMP8 business plans published at the beginning of October 2023.
The culmination of this work is CCW's review of water companies' 2025-30 business plans which has been submitted to Ofwat to help influence and inform its decision making ahead of the regulator’s draft determinations in June.
The review says that much of the 63% increase in proposed expenditure for PR24 (compared to the 2019 final determinations) is required by legislation. The Water Industry National Environment Programme for England (WINEP) and the National Environment Programme for Wales (NEP) are significantly higher than equivalent programmes in previous price controls, reflecting new UK and Wales legislation.
Investment and the environment - reduction in Nature Based Solutions
CCW says in the review it is “disappointed to see that nature-based solutions have been taken out or reduced in some water companies’ plans in favour of building hard asset-based solutions.”
The review states:
“It’s quicker to produce concrete tanks than it is to design and install sustainable drainage solutions or partnership-based catchment management. Yet these nature-based solutions improve the environment and reduce the pressure on treatment processes. From CCW’s consumer research, we know that customers do support the use of nature in managing water - and they are happy to pay extra for it. Yet nature-based solutions have been taken out of many PR24 plans in favour of building concrete tanks. Ofwat should scrutinise the reasons behind the companies’ choices about how they plan to reduce the number of storm overflow spills.”
“Majority of people say bill is either unaffordable now; will be in the future; or don’t know if they will be able to afford it”
As part of PR24 water companies tested their business plans among customers for acceptability and affordability. All but one used prescriptive guidance set by CCW and Ofwat, meaning the results from different companies are directly comparable.
The review says the water companies’ own consumer research which did broadly show that customers do want to see the outcomes that the WINEP and NEP should deliver, with an average of 68% of customers finding the PR24 plans acceptable.
However, CCW goes on to warn that the results also show the average level of customers who say they can afford the bill increase was very low at 16%, commenting:
“The majority of people said that their bill is either unaffordable now; will be in the future; or they don’t know if they will be able to afford it.”
Average PR24 price rise is 40% after inflation
Under PR24, water companies are proposing considerable bill increases - the average rise is 40% after inflation.
The review says the highest planned increases are Southern Water (70%) and Thames Water (56%) once inflation is added, pointing out that “both these companies are currently performing poorly against targets for delivery of water and wastewater services.”
It also highlights that some companies (Yorkshire Water, Dŵr Cymru Welsh Water and Hafren Dyfrdwy) are proposing to load more of the bill increases into the first year of the price control period (ie 2025).
Any spikes early on in the five-year period need to be fully justified, the review says, commenting:
“CCW’s view is that if customers’ bills increase, they need to see what they are getting in return for their money.
“Given that cost-of-living pressures are likely to still be high in 2025, Ofwat should consider smoothing out the impact of the bill increases to help customers’ budgets.
“Water companies must demonstrate to Ofwat that they need the money upfront rather than have it spread over the five years 2025-2030. They must also prove that they are prepared to spend that money as quickly as possible after it’s taken from bill payers. Money should not be sitting in water companies’ accounts if they’re not in a position to invest it quickly.”
“PR24 investment programme is massive - but it must be deliverable and it must get delivered”
According to CCW, the PR24 investment programme is massive - but it must be deliverable and it must get delivered. The review says:
“CCW questions the deliverability of some of the larger programmes proposed in PR24. Some water companies have not managed to deliver the programmes they committed to in PR19 - most notably, Southern Water, Thames Water and United Utilities. Customers must see tangible improvements for their money.”
The consumer watchdog is calling on Ofwat to require the water companies to explain to the people they serve what actual benefits they or the environment will get in return for increases in their bills.
Deliverability for Thames Water and Southern Water over 2025-30 “extremely challenging”
CCW is also voicing its concerns in the review about some companies’ ability to deliver the large programmes of work they are planning for PR24, commenting:
“In the current price control period (PR19), we already see companies struggling to meet their commitments - and this is with much smaller programmes of work.
“Thames Water and Southern Water are currently performing poorly on several key metrics that are important to customers. So delivering the scale of improvement in their plans over the 2025-30 period seems to us to be extremely challenging.”
CCW has made a number of key recommendations in the review for Ofwat ahead of the regulator’s publication of its draft determinations, including:
CCW wants to see all the water companies doing everything they can to eliminate water poverty
Via Water UK, the water companies (except Dŵr Cymru Welsh Water) have all made a Public Interest Commitment to make bills affordable for all households with water bills more than 5% of their disposable income by 2030.
Ofwat should require all the water companies which are not committing to end water poverty to offer greater financial support to their customers in the draft determinations. Ofwat should place a regulatory commitment on companies to use a proportion of future outperformance to fund affordability assistance.
CCW wants Ofwat to set companies challenging performance commitment targets for 2025-30
These should reflect customers’ expectations for improvements and make poor performers improve. Performance commitment targets must also reflect where bill payers’ money is being spent - in some business plans, the high level of investment proposed does not translate into ambitious targets in those areas of service.
Consumers must be assured that they are not being asked to pay twice
CCW says there must be strong protections in place to return their money to them in the event of failure to deliver. Customers should not have to pay higher costs due to inefficient financial decisions a company made in the past.
The review says consumers may be concerned that a large investment is needed just to ‘catch up’ on asset resilience, especially for Thames Water. They may question why costs permitted in previous price controls have not delivered the required resilience improvements. Customers must not pay twice. Ofwat needs to assure customers that any 2025-30 allowances do not include schemes to address asset resilience that should have been delivered under earlier cost allowances.
Ofwat should not be held to ransom by companies
CCW also says Ofwat should not be held to ransom by companies saying that they cannot deliver improvements for customers and the environment without exceptional costs being allowed that may be inefficient or unjustified.
Ofwat should not allow higher cost allowances for companies seeking to decrease risks in the WACC, ODI rates, performance commitment targets and other financial incentives or efficiency challenges to mitigate losses caused by past structural financing choices. Customers should not have to pay higher costs due to inefficient financial decisions a company made in the past.
The review says:
“The starkest example of this is Thames Water, whose plan appears to be dependent on Ofwat allowing it some leeway to accommodate its perilous financial position due to high debt and uncertainty over its future equity funding.”
CCW calls for single social tariff to end water poverty
The review says the context for the PR24 price settlement for the water sector is a cost-of-living crisis, a changing climate and a strong focus on the environment and that consumers need to see the outcome from PR24 as being “affordable, sustainable, and delivering a noticeable change in service or environmental protection.”
However, while “CCW is pleased” that many water companies have secured agreement from their customers to increase their social tariff for PR24, some water companies’ customers haven’t agreed to support an increase in the in-company cross subsidy – eg South Staffordshire and Cambridge Water.
The review reiterates the consumer watchdog’s previous call for a single social tariff which would end water poverty by providing a single funding pot that would offer “guaranteed financial support across England and Wales.”
According to the National Institute for Economic and Social Research, falling real wages and rising bills and debt levels have hit households in the bottom half of the income distribution hardest, leading to a shortfall in their real disposable incomes by up to 17% over the period 2019-2024.
The review says:
“So increased bills will hit customers harder in 2025-2030 than they would have done in previous price reviews. It is paramount that customers see tangible improvements for their money.”
Consultancy warns "eye-watering proposed price hikes will bring panic to many that pay their water bills religiously"
Commenting on the CCW review, Anita Dougall, CEO and co-founder of leading data insights consultancy Sagacity said:
"These eye-watering proposed price hikes will bring panic to many that pay their water bills religiously. It's unfair for water companies to service their debt by raising bills for paying customers, when there is another way to recoup revenue for desperately needed infrastructure upgrades.
Inaccurate occupier data means countless properties in the UK are not billed for their water supply, leaving black holes in companies' budgets. While switching off the taps isn't an option, suppliers can ensure those who can pay do. By gaining a better understanding of who is consuming water and their personal situation, suppliers can both protect vulnerable customers, and recover rightful revenue to keep price rises to a minimum.
"To do this, Ofwat needs to step up and collaborate with both suppliers and watchdogs like the Consumer Council for Water. Random price rises across the country will simply damage consumer trust further. We need a consortium to ensure that everyone has the same experience and fair access to water at an affordable price. This strategy benefits all: suppliers can claim the money they’re owed, while helping bill payers keep their heads above water."
Click here to download CCW’s review of water companies’ 2025-30 business plans
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