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On 1 April each year, the businesses involved in the supply of water and sewerage services revise their rates. In April 2022, an exceptional increase will impact the business water market to protect business water suppliers against failure due to COVID related bad debt losses.
Our analysis shows that a small business consuming 300 cubic meters of water annually and paying £1,000 for water services today will pay £1,038 from April 2022.
Let’s look at why business water rates are increasing this year:
i. Underlying wholesale rates increase
The wholesale rate is the price charged by the local water network owner to business water suppliers for the maintenance and operation of the water network. Business water suppliers pass on the wholesale cost of water directly to their customers.
The wholesalers are a natural monopoly, so the regulators directly control price increases (Ofwat and WICS) each year. The price increases allow the wholesalers to continue to provide a high-quality water supply to both households and businesses while investing in the infrastructure needed for future population growth.
The final wholesale charges increase will depend on inflation figures, but wholesalers’ current disclosures suggest a 3-4% increase. The exact wholesale increase will vary from region to region.
In the Thames Water wholesale region, the small business in our analysis is indicated to pay an additional 3.4%.
ii. Planned retail price control increase
The retail fee is the price charged by business water suppliers in addition to the pass-through of the underlying wholesale costs.
For small businesses consuming less than 5,000 cubic meters of water annually, the regulator carefully controls the retail fee charged by business water suppliers on the default tariff.
The regulator allows an annual increase of the retail fee in line with the consumer price rate of inflation. In October 2021, the reference date for price increases, inflation was 3.8% higher than in recent years, driven by a higher cost of Energy.
The planned retail fee increase adds an additional £2 (0.2%) to the small business water bill in our analysis.
iii. Bad debt market adjustment
Ofwat has introduced an additional fee increase corresponding to 0.31% of total water bills in the English non-household water market.
During the COVID-19 pandemic, the number of business failures has increased, burdening the business water suppliers with higher than expected levels of bad debt.
The regulator has allowed business water suppliers to increase overall default rates by 0.31% to avoid supplier failures, like those seen in the Energy markets. For our hypothetical small business, this equates to an increase of £3.
Avoiding the price increase
The planned retail price control and bad debt price increases will impact the default tariff prices offered by business water suppliers.
In the deregulated water market, your business can avoid suffering these default price increases by switching to a lower rate offered by other water suppliers. Find out how much your business can save with our free business water comparison service.
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