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Last Updated: Thursday, 30 March 2006, 23:01 GMT 00:01 UK
Consumers face new water torture
Analysis
By Julian Knight
BBC News consumer affairs reporter

Water running from a tap
Water bills will rise so providers can meet environmental standards
On 1 April millions of households in England and Wales face the second year in a row of inflation busting water price increases.

Ofwat, the water industry regulator, decided in 2004 that average bills should rise between 2005 and 2010 by 18% above inflation.

Much of the pain for consumers was front-loaded. Average bills in England and Wales rose by 11.8% in 2005.

This time around, the average increase is 5.5%, roughly double UK inflation.

And in some parts of southern England and the South West Water region, local companies have been given the green light to raise prices by closer to 10%.

Infrastructure spend

We are currently relining thousands of miles of water pipes. Like much of the UK's network much of our piping dates back to Victorian times
Louise Bennett, South West Water

Ofwat authorised the price increase to fund investment in water infrastructure.

"Our role is to ensure that companies get the money they need for essential investment, while keeping prices as low as possible for consumers," Harbinder Babra, Ofwat spokeswoman, told BBC News.

Louise Bennett, communications officer at South West Water, describes some of the projects money is being spent on.

"We are currently relining thousands of miles of water pipes. Like much of the UK's network much of our piping dates back to Victorian times," Ms Bennett told BBC News.

As for why South West Water has to raise its prices by roughly double the national average, Ms Bennett said there were specific local factors at play.

"We have 30% of the coastline but only 3% of the population and over the last 15 or 16 years we have spent the best part of 2bn closing sewage outflows to ensure cleaner beeches and building new reservoirs," Ms Bennett said.

Ms Bennett added that investment in reservoirs meant that South West Water did not face a similar drought problem as the south east of England.

Directive costs

Water companies are spending money complying with EU directives as well as replacing rotten pipes.

For example, much of the money spent on replacing sewage outflows in the South West Water region was to comply with EU water bathing regulations.

One of the biggest expenses facing water firms is improving their infrastructure to comply with the EU's Water Frameworks Directive.

This directive has been described as the most significant water law change in a generation.

Between 2000 and 2015 the directive aims for the following:

  • Improvement of drinking water across the continent

  • Reduction in water pollution, in particular groundwater

  • Protect and enhance the status of wetlands and water ecosystems

  • Lessen the effects of flooding and droughts.

According to the Department for Environment Food and Rural Affairs (Defra) the directive is set cost firms, and ultimately consumers through higher bills, between 450m and 630m.

Soaring bills

For many consumers the latest water price rises could not have come at a worse time.

Millions of consumers are already struggling to cope with soaring domestic gas and electricity prices.

Extra investment spending has to deliver real value for money and better service for consumers
Teresa Evans, Consumer Council for Water

Ms Babra told BBC News that the regulator did not foresee UK energy rising as they have and that water prices, in real terms, were still lower in 2005/2006 than back in 1999.

The Consumer Council for Water (CC Water), an independent body representing the interests of consumers, warns that it is low income customers that are really feeling the pinch.

"Evidence suggests that many vulnerable consumers are paying more than 3% of income for water...this is a higher percentage of income than the government's own guidelines on what is right for them to pay," Teresa Evans, head of policy and strategy at CC Water, said.

Households that are in receipt of benefits or tax credits and have more than three children living in them can claim a water bill discount through the Water Industry Charges (Vulnerable Groups) Scheme.

However, Ms Evans said the scheme was "inadequate...It has not been well promoted and the take up is low."

Ms Evans called for water bills to be capped at 3% of customer's income.

As for increased use of water metering, the consumer body described the concept as fair but stopped short of supporting the compulsory installation of meters across the whole of England and Wales.

The onward march of the meter is just part of a bigger trend towards a pay-as-you-go society, from parking spaces to road space to sports on TV

Greater monitoring

CC Water also called for greater monitoring of firms to ensure that they are fulfilling their side of the bargain with the regulator and are spending the extra money they are getting from consumers, through higher bills, on infrastructure improvements; rather than filtering it off to shareholders.

When the five year deal on pricing was struck, Ofwat told firms what infrastructure improvements it expected them to carry out, particularly in the area of stopping leakage.

"We are one of the most heavily regulated industries anywhere," Ms Bennett said.

"The regulators works out where the money is going and what is the absolute minimum we can charge our customers," she added.

But from this summer the CC Water will go a stage further and start ranking individual water firms according to levels of customer service.

No pain relief

Longer term, there may be even more financial pain ahead for water customers in England and Wales.

The water companies are beginning to prepare their case for further rises to take effect from 2010.

And according to the CC Water, the costs of complying with the EU's Water Framework Directive will be mainly felt in water bills from 2009 onwards.

"Extra investment spending has to deliver real value for money and better service for consumers rather than just complying with EU directives," Ms Evans said.

Average annual water bill rises (England and Wales)
Water and sewerage company Increase to average bill Total percentage increase
Anglian 7 2.4%
Dwr Cymru 18 5.6%
Northumbrian 14 5.6%
Essex & Suffolk 9 6.1%
Severn Trent 15 5.7%
South West 39 9.4%
Southern 17 5.9%
Thames 12 4.6%
United Utilities 22 7.6%
Wessex 22 7.0%
Yorkshire 18 6.7%
Source: Ofwat (Essex & Suffolk does not include sewerage)




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