Every five years in England and Wales, a price review is conducted by the water regulator, Ofwat, to determine the allowed levels of investment and operating costs for the wholesale water companies for the next review period, and the level of household and non-household charges required to deliver that investment. The PR24 price review, which covers the 2025-2030 period, has now been concluded (subject to appeals).
The new, required investment levels proposed by the wholesalers, and agreed by Ofwat, will mean that prices will increase from 1 April 2025, and quite significantly for many customers.
We recognise that these increases come at a time when many businesses are already facing increased cost pressures, which is why we want to help our customers to prepare for the forthcoming changes and work with them to identify opportunities to reduce the amount of water they use, so that they only pay for the water they need.
What happens during a price review?
The regional wholesale water companies have a statutory responsibility to ensure that there is a secure supply of water to meet demand within their region for at least the next 25 years. As part of the price review process, each water company submits its proposed business plan to the regulator, which includes proposals on the level of investment they think is required to deliver safe and reliable water and wastewater services. These plans are then scrutinised by Ofwat to ensure they meet environmental improvement targets; address key challenges; and deliver value for money for customers. Following this assessment, Ofwat publishes its draft determinations, which were published in July 2024.
Although the draft determinations included provision for the largest investment programme since privatisation (£88billion over the five-year period), the amounts allowed were significantly less (£16billion lower) than the wholesale water companies asked for. A consultation period subsequently followed, which provided an opportunity for wholesale companies to respond to Ofwat’s draft determinations.
Ofwat’s final determinations for each wholesaler region were published on 19 December 2024 and include provisions for £104billion of investment to support the delivery of better outcomes for customers and the environment. While wholesale companies can appeal, which could impact charges in the future, we now know how the price review will impact customers’ bills from 1 April 2025.
What does this mean for businesses?
Each water wholesaler in England has now published their final wholesale charges for 2025/26 providing retailers with details of the upcoming price increases within their region. You can find wholesaler percentage increases and links to each wholesaler website at business-stream.co.uk/wholesale-price-increases-England.
The scale of the investment, and the increased cost of financing it, means bills will rise, by an average of 42% (excluding inflation) for non-household customers over the five-year period.
There are however huge discrepancies between regions. Southern Water, for example, is proposing an average increase of 45.8% (before inflation) for combined water and waste water services within the first year (2025/26) to match their planned profile of asset investment, while in other regions the price increases are significantly lower.
As a retailer, we do understand the predicament that wholesale companies are in, and that prices need to increase to help address the current challenges impacting the sector; however, we also recognise the significant impact this will have on many of our customers.
Following the publication of the draft determinations, we wrote to Ofwat to raise our concerns about the impact these increases will have on affordability for our customers. In their response they stated that the increases will be phased to minimise the overall impact on charges over the five-year period, which is reassuring, but we still feel more can be done to mitigate the impact.
We have been urging wholesale water companies to consider the impact of these increases on businesses that are operating in what is already a challenging economic environment. Following the publication of the draft determinations, we wrote to each wholesaler asking them to avoid bill spikes by phasing the price rises evenly across the five-year price review period, with annual price increases capped at no more than 10%. And we also called for additional provisions to be put in place for those customers likely to be most impacted.
We’re continuing this dialogue with some of the water wholesalers, to discuss ways in which we can work together to try to mitigate the impact of the price increases on businesses. And there are early signs that wholesalers are considering options to lessen the impact on customers. Southern Water, for example, have agreed to pause the unwinding of their large user tariff, which historically enabled large-water users to pay less for their water, to help protect customers from additional increases in the first year of the new price review period, other wholesalers are proposing temporary support schemes to help retailers manage the impact of the price increases.
What can business customers do - and how can we help?
The reality is that substantial investment will be needed to address the current water infrastructure challenges; manage the impact of climate change; address water scarcity concerns; reduce pollution; and improve service levels, and as a result customer charges will increase. To help mitigate this impact, we’d recommend that businesses consider what they can do to reduce their water costs – and we’re here to help with that.
There is scope for customers to reduce costs by lowering their consumption. The average business in the UK uses around 30% more water than it needs to – suggesting that there’s a real opportunity for businesses to reduce their water use and reap the benefits of doing so. In addition to softening the blow of increased wholesale prices and reducing both water and energy costs, it is also environmentally responsible and can help support companies’ sustainability targets and environmental stewardship programmes.
We can help customers to understand their water use by installing water tracking devices, such as Automatic-Meter Readings (AMRs) and using sophisticated data analytics to help identify opportunities to make savings. And we can deliver savings by working with our customers to detect and address any consumption spikes and by installing the right technologies to reduce water use.
Water efficiency isn’t a new concept, but it’s never been more needed. It’s an effective solution to lessening the impact of the forthcoming price increases while also helping to address one of the biggest environmental challenges we’re facing. We would encourage all of our customers to take action before the new prices come into effect. We’re here to help and will continue to do everything we can to support our customers.
February 2025