In the past year, small business owners grappled with the repercussions of the energy crisis. Those who have managed to endure these challenges now face another impending issue – a substantial increase in their business water and wastewater service rates.
This guide provides an overview of what small business owners can anticipate in terms of water rates for 2023 and offers guidance on how to protect your business against future price hikes.
Yes, as of April 1, 2023, the majority of businesses experienced a substantial spike in their business water rates.
Business water rates saw an average increase of 14.4% in April 2023.
Two factors are contributing to the escalating costs of the business water bill. Let’s delve into each of them:
The energy crisis and various other factors have driven UK inflation to its highest level in four decades. Consequently, the operational expenses associated with business water supply and with maintaining water infrastructure have seen a significant rise. As a result, in April 2023, wholesale water rates experienced an increase, and this cost is being passed on to households and businesses that use water.
Water UK, a membership organization representing the water industry, has projected a 7.5% inflation-driven increment in water bills for April 2023.
The second factor contributing to the substantial hike in default water rates, which most businesses pay, is the reassessment of the default price cap calculation comparing business water suppliers by Ofwat, the regulator. This reassessment has led to a 30% surge in the retail rates charged by business water suppliers.
On average, this alteration results in an overall increase in water bills of 6.4%, excluding the effects of inflation.
Businesses are billed for water and wastewater services through two distinct charges:
This comprises the fee levied by the local water supplier for supplying potable water and managing the local water infrastructure.
These are additional charges imposed by business water suppliers. They cover customer services, meter readings, and billing services provided to their clients.
The foundational wholesale rates within water bills are likely to rise due to the escalating costs associated with operating the water supply infrastructure, driven by inflationary pressures.
Business water suppliers have the flexibility to set their retail rates, provided they remain below the default rates price cap set by the regulatory body, Ofwat.
Since the implementation of deregulation in 2017, businesses have been allowed to opt for alternative business premises water suppliers and establish a fixed, lower retail rate with any available business water suppliers within the market.
The majority of businesses in England, however, have not exercised this choice of business water supplier, resulting in them being subject to what is known as “default water rates” offered by the business water suppliers in your specific region.
These default rates, which the primary business water suppliers in each region make publicly available online, are closely regulated by Ofwat, the governing authority. Ofwat places a price cap on these default retail rates to safeguard businesses that compare business water suppliers have never made the switch.
Typically, the default water suppliers tend to charge the maximum amount permitted under the established default price cap. Consequently, the determination of this cap has a direct and significant impact on business water comparison and on the majority of businesses.
The Retail Exit Code establishes maximum rates applicable to two business water customer groups on the default contract:
(comprising 85% of the market) – customers with an annual consumption of less than 500m3, totalling 1,049,000 businesses.
(constituting 14% of the market) – customers with an annual consumption ranging from over 500m3 to less than 50,000m3, totalling 170,000 businesses.
This Retail Exit Code offers protection to 99% of businesses in the commercial water market. The only exception is high industrial users, who are expected to manage their water expenses independently of water suppliers.
The calculation of maximum retail business water rates under the Retail Exit Code is as follows:
Ofwat has finalized its decision on non-household water price increases for 2023. However, substantial industry disagreement persists regarding the role of the water price cap. Let’s explore the different perspectives:
Business Energy Comparison serves as a third-party intermediary (TPI) within the realm of commercial water, facilitating switching business water suppliers from across the market. Our mission involves assisting businesses to switch business water suppliers and transitioning to more cost-effective tariffs.
Start your business water comparison and switch business water suppliers with Business Energy Comparison today.
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