Careful consideration should be given to the future affordability of water bills, the Consumer Council for Water (CCW) has told the Competition and Markets Authority (CMA). Steve Hobbs, Senior Policy Manager, reflects on the latest hearing.
In a late-scheduled second hearing on 17 November, CCW was invited to provide additional evidence to the CMA, giving us a final opportunity to speak up for consumers ahead of final decisions being made. At this hearing, we called for the CMA to carefully consider the implications of its proposed price changes on the affordability of bills, particularly given the ongoing backdrop of the financial uncertainty caused by Covid-19.
While the average bill increases proposed in the CMA’s Provisional Findings were relatively modest in relation to Ofwat’s Final Determination, any year-on-year increases can cause problems for households who are already struggling to afford their water bill, and could be the final straw pushing those who are ‘just about managing’ into debt.
We are already seeing that the Covid-19 pandemic is affecting household finances, and is impacting the ability of customers to pay their water bills. Given the wider economic situation and the extension of the furlough scheme, we do not yet know the full implications of Covid on affordability. However, we do know that it is highly likely that we will see a surge in customers struggling with their water bills and seeking support. If this coincides with a bill increase, the consequences for consumers’ finances could be devastating.
At times like these, providing clear and tangible value for money is more important than ever. As such, it’s difficult to see how consumer views were taken into account by the CMA in its decision to allow greater returns to water company shareholders by increasing the cost of capital (WACC) to a level higher than seen recently in other regulated sectors. In the past, the over-generosity of Ofwat on the WACC has led to significant windfalls for companies, which we know has had a negative impact on consumers’ perceptions of value for money and the fairness of bills. In this price review, Ofwat has been far less generous, and the CMA’s decision to reverse this for the four appellant companies appears to come at the expense of customers, while delivering no material benefit to consumers.
Our most important message for the CMA is that there is still time to improve on its Provisional Findings by reconsidering the potential impact of its proposed bill increases. There are many aspects where we support the CMA, but if we were to change one thing, it would be the WACC. Reconsidering this would make the biggest positive difference to water consumers and reduce the potential for long-term financial implications.