In November, inflation hit a 40-year high, reaching 11.1%, a large portion of which has been caused by rising energy costs.
Unlike electricity and gas supplies, water rates have remained relatively stable in the last few years. However, on 1 April 2023, water prices will be revised for both households and businesses.
Here’s our prediction of what to expect for the 2023 water price increase.
Underlying wholesale costs of water
In Britain, regional water companies operate and maintain the water infrastructure that supplies homes and businesses.
Ofwat carefully regulates how much the water companies charge their customers on a cost-plus model, which takes into account the costs incurred to invest in and maintain the water networks.
The water companies, like everyone, are affected by the rising cost of energy and wage inflation. We expect that Ofwat will allow a significant rise in the amount water companies charge to offset their rising cost base.
The water market for supply to households is regulated, so the local water companies bill homeowners directly.
Expected rises in Retail Water rates
In the deregulated English commercial water market, companies pay business water suppliers for their water and sewerage services.
Business water suppliers earn a ‘retail fee’ on top of wholesale water rates for their role in taking meter readings, providing customer services and billing.
The organisations in the water market are currently engaged in a dispute about the size of increases in retail water rates in April. The UK Water Retailer Council are pushing for a 55% increase in the retail rates paid by the smallest companies that make up 85% of the English market.
In contrast, Ofwat, the regulator, proposes an incremental increase above inflation. There is currently a wide gap between the different parties on how default retail rates should be regulated.
Our prediction of water price rises
The inflationary pressures being felt across the water industry will inevitably be reflected in bigger bills next year for water consumers.
This may well be exacerbated for businesses that may also be hit with significant increases in default business water rates.
Ofwat is due to finalise its determinations on water price increases in December 2022.
Read our full report on the 2023 business water price increase.