Affordability & Bills

Background

Since privatisation in 1989 Water and Sewerage bills have risen faster than inflation. This has funded extensive investment to maintain and improve the networks and to meet higher EC standards for drinking water and the environment.

The average annual household water and sewerage bill in England and Wales is £342 (Ofwat 2009-10 figures) – around 94 pence per day. Ofwat sets price limits in England and Wales for five-year periods. Today’s prices were set in 2004 for the period 2005-2010.

There are considerable regional variations in bill levels, reflecting local circumstances and investment requirements. These can be driven by a number of factors such as the availability of raw water supplies, local environmental sensitivity and the nature of the area served (urban/ rural).
 
The Government previously tracked water affordability under a sustainability indicator. Customers whose water and sewerage bills exceeded 3% of their disposable income (before housing costs) were considered to face problems with affordability. The latest available data suggests that by 2006 14.5% of customers were already spending more than 3% of their income on water and sewerage services. This figure is thought to be as high as 30% in the South West where bills are highest.

The Government currently provides no direct assistance for customers facing water affordability problems. They do however require companies to offer a WaterSure tariff to those metered customers who are on low incomes and have large families or a medical condition which requires extra water usage. Under the scheme metered charges are capped at the average bill level in order to protect such customers against the risk of high metered charges. The loss of revenue associated with the scheme is rebalanced across other customers. This currently adds less than £1 to bills on average.

An independent review of charging carried out for Government by Anna Walker in 2008/9 acknowledged the growing problem of water affordability. Among the recommendations included in the final report were options to offer lower charges to low income metered customers to help address the impact of more widespread metering, particularly larger families who may see bills increase significantly under metering. Options to reduce bills in the South West region, where significant environmental improvements funded by a relatively small population have led to high charges, were also outlined. However in both cases Walker has left it for Government to decide whether this help should be paid for through public funding or through customer bills.

We will be pressing Government to respond to the report with measures which help both measured and unmeasured customers across England and Wales and which take account of customers’ opposition to cross subsidies through bills. However they have already taken steps to introduce an amendment to the Floods and Water Management Bill currently progressing through Parliament. This would allow companies to introduce social tariffs which offer reduced charges for some customers funded by increases to the bills of others. A link to our briefing note on this proposal can be found here.

Our Position

For most customers, water and sewerage charges are still a relatively small proportion of income. However they are becoming unaffordable for some low-income households, particularly in the context of rising household costs and declining income growth.

Customers on low incomes either fall into arrears (generating increased debt recovery costs) or continue to pay their bills by making sacrifices elsewhere (eg food, heating etc). This could be seen clearly in our research ‘Living with Water Poverty’ (2009).

Companies face a number of further cost pressures including further environmental investment, increased metering and the adoption of private drains. More widespread metering may also have an impact on levels of affordability.

Our customer research has indicated that customers do not support the introduction of social tariffs to assist low income households. There is also a danger that such tariffs would simply move the problem around – increasing affordability problems for customers who have not applied for, or just miss out on qualifying for financial support.

We are acting on the issue of affordability in 3 ways:

• Lobbying Government to address the problem using the tax and benefit systems.

We believe that the existing tax and benefits system should be used to deliver a solution which allows any costs to be recovered with regard to peoples ability to pay.

• Encouraging Companies to consider options to help low income households without increasing the cost burden for other customers.

For example Wessex Water operate a cost neutral affordability tariff which is self-financing in that Wessex Water now collects more revenue from customers who benefit from the reduced tariff than it previously collected from the same group.

• Raising awareness of ways customers can cut their bills.

Highlighting the savings which some customers can achieve by having a meter installed, being water efficient, claiming a reduction where surface water doesn’t drain to a sewer or applying for the WaterSure scheme.

Facts and figures

Overall since privatisation water bills are around 50% higher in real terms (over and above inflation).

At £489 the average yearly bill in the South West is £147 more expensive than the average bill across England and Wales.

Only 39% of consumers would support an increase of cross subsidy from £1 to £2 to enable charges to be reduced for vulnerable customers; and just 19% would support an increase to £5 (CCWater Charging Research 2007)

48% of respondents identified Government as needing to play a role in funding solutions to the problem of water affordability. (CCWater Charging Research 2007)

In 1988 allowances in Income Support covered 80% of water costs. By 2004 this had fallen to 58%

Only around 29,000 customers are currently on the WaterSure Scheme. Defra estimates that as many as 300,000 households could be eligible. CCWater’s work to re-brand the scheme and introduce a standard simplified application form has helped boost uptake of the scheme by 77% since 2007.

Andrew White has responsibility for this area - 0161 236 6112

Last updated: 8/02/10