Water Price Hike and Its Effects on the UK Economy

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Table of Contents

Introduction
Average Household Water Bill in 2015-2017
The Main Method of Calculating the Average Water Bill
Sewerage and Household Water Bills in 2017-2022
Conclusion
Recommendations
References

Introduction

In June 2016, after Brexit, the prices on products began to rise. Especially, it concerns household products such as clothes, drinks, and food. The prices are rising slowly but steadily, which gives a reason for Britons to worry. Thus, according to the survey, 85% of the population admit that soaring prices on goods and services bother them. Although Brexit accelerated most of the prices, in terms of water, the prices for it have been increasing for a couple of decades. The initial cause for it was the water privatization in 1989 in Wales and England, as a result of which, water companies began to make large profits, and around 30% of a household bill, which was approximately £110 per year, went on profit (Winch, 2013). Over the past decade, the price of the household water has increased by almost 70%, and in 2016, the household bill was approximately £400 per year and is continuing to rise now.

Average Household Water Bill in 2015-2017

Rising water bills is an issue that should be put under thorough supervision, as the process of increasing prices for water is two times faster than the increase in earnings. For the past two years, the water household bills have increased on average by £7 per year (Smithers, 2017). However, this tendency is observed not in all the water suppliers of the country.

Thus, the most expensive water supplier in the country is South West Water. Although for the past three years, the average price for its customers has dropped by almost one percent from £495 in 2015 to £490 in 2017, it remains the highest average price in the country. Additionally, it is one of the two suppliers who decreased the price of water for the past three years, though insignificantly. Wessex Water supplier is in second place with a price of £470 in 2017, which has actually increased by one percent from £465 in 2015. Dŵr Cymru or Welsh Water supplier is in third place with a price of £439 in 2017, which has decreased by only 0.2% from £440 in 2015. Two water suppliers occupy the next position with the price of £419, namely Anglian Water and United Utilities (Jordan, 2017). However, since 2015, the former has increased the price for water by almost 4% from £403, whereas the customers of the latter pay 2.4% more than they paid in 2015 when the average water bill was £409.

Southern Water supplier goes next with only one pound less than the previous two suppliers. Thus, its price for water in 2017 is £418, which has not changed since 2015. Northumbrian Water supplier is next in the rating with its £390 in 2017. In addition, its price for water has increased by almost 5% from £370 in 2015, which is the biggest index among all the water suppliers. Thames Water supplier goes next in the rating with its £374 in 2017. It has increased the price of water by 1.3% from £369 in 2015. The next water supplier, Yorkshire Water, is only one pound cheaper than the previous one. However, its price of water has increased by 2.8% from £363 in 2015 to £373 in 2017. Finally, Severn Trent Water supplier has the lowest price for water. Although it has increased its price by almost 3.4% since 2015, it is still much cheaper than the second water supplier in the rating, Yorkshire Water (Jordan, 2017). Thus, its customers’ annual bill for water is £341 in 2017, whereas in 2015, it was only £330.

However, even the cheapest price for water in the country is not comparable with a £100 water bill per year several decades ago. Overall, the average increase in the water price for the past three years is 2.05%, from £387 in 2015 to £395 in 2017, and it is estimated that it will continue to rise if certain measures are not implemented (Jordan, 2017). Additionally, taking into account the fact that the increase in prices has been hindered for the past several years due to deflation, and now, after Brexit, there is a higher risk of inflation, the rate of soaring water prices will also increase.

The Main Method of Calculating the Average Water Bill

In general, personal water use is not necessarily connected with a personal water bill, especially in those people who do not have a water meter. In this case, a person’s water bill consists of a fixed charge which is based on an average value of water that this person’s home can use (“Reality check: Has privatization,” 2017). Basically, this is the evaluation by the local authorities of this person’s house’s rental value.

A disadvantage of such type of assessment is that it was created in the 1970s and has been not updated since. However, the main advantage of this system for consumers is that they can use a great amount of water, and the price will not change. Understandably, those, who do not use much water, do not like this system. Therefore, they usually turn to another system that presupposes having a water meter. In this case, people can control the water bill by means of regulating the volume of water they use (“Reality check: Has privatization,” 2017). This method is also good for those who want to save money on water.

Sewerage and Household Water Bills in 2017-2022

As it was mentioned above, the average price for water in the UK is almost £400 in 2017. According to the water suppliers’ future plans, after their consultations with consumers and confirmation of these plans by the Water Services Regulation Authority (Ofwat), the prices for water will be decreased by 2020. Thus, those plans presuppose that companies deliver at least a 5% drop in water prices in the period from 2015 to 2020 (“Household water,” 2017). In addition, sewerage and water suppliers will invest £45 billion on the improvement of their services, the achievement of better stability, and making certain environmental changes.

Thus, their primary goals include saving 380 million liters of water per day by means of eliminating any leakages, thereby increasing efficiency; reducing the interruptions in the time by 35%, thereby improving the water supply, and reducing the number of properties that are flooded by water from the sewers by 33%. Apart from investing the investment, water suppliers will continue to provide support for consumers who need assistance with their water bills (“Household water,” 2017). Overall, it is estimated that the water suppliers will have provided their help for nearly 2 million consumers by 2020.

Currently, almost every water supplier in the country has social tariffs that help in the reduction of prices for households with low income, in some cases by nearly 95%. Every water supplier also provides a set of other measures, the price for which is nearly £50 million per year, in order to support consumers who do not have enough resources to pay the bill or are in debt and give financial advice (“Household water,” 2017). The water suppliers also claim that they are willing to deliver their promises and fulfill their plan, thereby keeping the prices for water as low as possible.

Conclusion

In general, as can be seen from the statistics, the problem of soaring water bills in the UK is far from being new, as it started after the privatization in 1989. During all these years, the prices for water have been slowly rising, but only recently, they have become a major concern. First of all, people want to understand why the prices are rising for such a long time, especially when taking into account several years of deflation in the country where most of the prices were decreasing. Apart from that, Brexit that started in June 2016 also caused certain economic challenges for the country, which are not easily and quickly overcome, thereby creating a favorable environment for the water prices to rise further. Nevertheless, the strategies developed by water companies and approved by Ofwat are primarily aimed at the reduction of water prices. Thus, according to this plan, water suppliers will make certain investments in order to improve their overall service, provide assistance to low-income households who are either in debt or do not have enough money to pay water bills and try to decrease the water prices by at least 5% for the next five years.

Recommendations

Certainly, the developed strategies have great potential to demonstrate a good result. However, it will take time for these changes to come into effect, and only if these strategies are successful. Therefore, it is imperative to create certain methods now in order to alleviate the pressure on consumers, especially those who struggle to pay. Thus, the program called the Watersure (for those who live in Wales, it is called Watersure Wales) was created by the government (Munbodh, 2017). This program allows citizens with certain medical conditions or those who have more than two children to install a water meter that ensures that they do not pay more than the average price in their area.

In addition, for those who have a gross household income of less than £16,000 and whose bill for water is more than 4% of their net household income, this program is very beneficial and will help reduce the price for water by 50% (Munbodh, 2017). As for people who simply cannot pay the water bill for some other reasons, there are several programs like Southern Water’s NewStart or Thames Water’s Customer Assistance Fund, which can provide assistance to such people and allow them to use a direct debit scheme, or to change their payment plan, or to switch to a cheaper package.

Another recommendation for people who have difficulties in paying their water bills is to have some other bills such as fuel or rent paid directly from the benefits payments. In addition, there are some devices that can help significantly reduce water usage, for example, some attachments to a water tap, toilet, and shower (Munbodh, 2017). Thus, the application of all these recommendations can help considerably reduce the price of water for those who have difficulties to pay high water bills.