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When Do Business Water Rates Increase?

Business water rates are set to increase substantially on the 1st of April 2023. For businesses that have been open since the start of the energy crisis, this is nothing new. Throughout 2022 and into 2023, businesses small and large have suffered from exponential price hikes for energy. Specifically electricity and business gas bills.

Now, the main challenge that lies ahead is the upcoming rise in business water rates. The cost of water and wastewater services has changed in April of every year. Unlike other utility costs, the charge for monthly water rates is only modified once every 12 months. However, business water rates are set to undergo an unprecedented leap this April.

Worried about business water rates in 2023? We’ve created this guide for you to better understand the changes to your water bills. At Business Energy Comparison, we’re dedicated to finding you the best possible business electricity rates, gas, and water bills – we’re here to help you through this ongoing crisis.

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Will 2023 Bring Significant Business Water Price Rises?

From April 1st 2023, you’ll see a significant increase in your business water bills. This price hike has been caused directly by the wider energy crisis and the inflation it has brought with it.

Inflation is currently higher than it has been in four decades. The repercussions of this impact both households and small businesses. It also impacts the massive water companies that maintain the water infrastructure across the country. Inflation has driven up operating costs for water suppliers, which has led them to demand more for the water they produce.

This demand has led to an increase in the price of wholesale water, which will be reflected in your April water bill. Most water suppliers are set to impose a 30% increase in the price of wholesale water. This will increase your water bills by an average of 6.4%.

However, the exact amount your water bills will increase by depends on several factors. Specifically, it will depend on who your business water supplier is, what kind of tariff you’re on, and where in the country you’re located.

Wholesale rates and retail fees

The cost of water is determined by two stages in the water infrastructure: the wholesale rate and the retail rate. The wholesale rate reflects how much a water company charges for supplying water and operating the local water infrastructure.

The retail rates refer to additional fees charged by water suppliers to cover the costs of customer services. These customer services include things like meter readings and general maintenance.

In addition to wholesale rates, your business water supplier may also increase the retail fees associated with their water supply service. This rate still needs to be below a point determined by Ofwat, the Water Services Regulation Authority.

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Deregulation To The Benefit Of Businesses

Scotland was the first country in the UK to carry out a country-wide water deregulation. Since 2008, all Scottish businesses have had the option to switch to a business water supplier of their choice. In 2017, England and Wales followed suit.

Being able to freely switch business water suppliers has had massive benefits for businesses across the UK. For one, it means a business can shop around and find the best water deal for it. If a business feels as though it’s getting overcharged for water, it can simply end the contract and find a new supplier.

Additionally, business water suppliers have been forced to improve their services to increase customer retention. Customer relations have been improved, and additional maintenance services have been offered. Many water suppliers have also had to reduce the cost of their service to beat competitor rates.

On the other hand, it has also made picking a water supplier more confusing. Business Energy Comparison makes it easy to compare business water rates to help you secure the best deal for your business.

How Are Business Water Prices Calculated?

To better prepare for the upcoming water bill increase, it would be useful to know the different ways in which your water prices are calculated. Most water suppliers calculate water usage by using one of the following methods:

Portable water standing charge

This is a fixed rate that your business is charged for daily water usage. Regardless of how much – or how little – water you use in a day, you will be charged the same fixed rate. Sometimes referred to as a ‘metering charge’, your water supplier will most likely invoice you for this service at the end of the month.

Portable water metered rates

Unlike the standing charge option, portable water metered rates reflect how much water you use exactly. To calculate your water usage, water suppliers take regular meter readings. The more fresh water a water supplier has to send to your premises, the more you will be charged. This will be a good option if your business uses minimal water.

Wastewater standing charges

Sewage systems need to be maintained. If your business pays for water, your business will also have to pay for wastewater maintenance. With a wastewater standing charge, you will have to pay a regular fixed rate for wastewater management.

Wastewater metered rates

Meters can be used to determine how much wastewater you produce exactly. Water suppliers will take regular wastewater meter readings and determine how much to charge you. Like portable water metered rates, you will only be charged for how much water you put in wastewater systems.

Surface drainage water rates

If rainwater builds up in a business draining system, the business will be charged a surface drainage water fee to have it removed.

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How Can Past Water Usage Predict Your Future Usage?

By conducting a water audit, you can figure out how much water you’re using over a specific period. By making changes to your water usage habits, you can also predict the future of your water usage. You can conduct a water audit by reading your water meters, recording flow rates, and generally noting how much water you use throughout your business.

Specifically, you should check the following areas to determine whether water is used efficiently enough:

  • Toilet flushing
  • Washing
  • Urinal flushing
  • Cleaning

Alternatively, you could hire a professional to carry out a water audit on your behalf. Once you have the results in, you can make changes to your water habits to improve your business water efficiency. Or, you could compare business water suppliers to determine if there’s a provider that’s better suited to your water usage level.

To make your business more water-efficient in the future, you could try carrying out the following methods:

  • Invest in water-saving equipment – Cistern-reduction devices and automatic sensor taps could help reduce your business’s water consumption massively.
  • Look for leaks – If it appears you are losing water, you should survey your building for any signs of leaks. Check your pipes and taps for faults and make corrections as necessary.
  • Install a water meter – If you don’t have one already, a water meter allows you to conduct water audits regularly. It means you can take better control of your company’s water usage.
  • Make it a company-wide undertaking – You should introduce water-saving approaches to your employees. Organise educational team-building sessions on the importance of saving water.

Why Are Default Water Rates So Important?

If your business has never switched water suppliers before, it’ll still be supplied by your region’s default business water supplier. This applies to the majority of businesses throughout the UK.

Despite being able to switch business water suppliers for several years, only a minority of businesses have chosen to do so.

Default water rates should be kept up to date regularly by your water supplier – you need to check on these to determine how much your next water bill will be.

Luckily, these rates are regulated by Ofwat. This regulator prevents default water rates from exceeding a certain amount. The price cap ensures that businesses that have never switched water suppliers are not landed with exceedingly high bills.

Unfortunately, at the advent of the energy crisis, Ofwat has increased the price cap twice in the last two years. It increased by 0.49% both in 2022 and 2023. This means there’s less restriction on what your default water supplier can charge you.

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How Does The Default Contract Price Cap Work?

Ofwat has produced the Retail Exit Code to define how default contract price caps should work.

How the default contrast price cap works depends on the scale and purpose of your business. The Retail Exit Code has defined two business types: low-water users and high-water users.

Ofwat reviews your annual water usage and categorises your business based on its findings. These two groups are distinguished as follows:

  • Group 1: If you’re a small to medium-sized business, your water usage is unlikely to be significant. To qualify for Group 1, you need to use 500m3 (or less) of water per year. This applies to 85% of the market, with 1,049,000 businesses currently meeting the Group 1 criteria.
  • Group 2: If you’re a large business that uses a lot of water, you’ll most likely fall into the Group 2 category. To be classed as a Group 2 business, you need to use more than 500m3 of water per year. The maximum amount of water usage for Group 2 is 50,000m3. Group 2 reflects 14% of the market, with 170,000 businesses falling into this category.

If your business exceeds 50,000m3 in annual water usage, the Retail Exit Code cannot protect you from the commercial water market. If your business uses such a high amount of water, it is assumed your business can look after itself.

How The Default Water Price Cap Works In Practice

A few additional steps are required to calculate your business’ individual water price cap. These additional steps include the following:

Group 1 water price cap calculation

Allowed Bad Debt Allowance + Net Margin + Allowed Retail Cost per Customer.

‘The Bad Debt Allowance’ is a risk premium. It reflects how much bad debt risk a business water supplier was exposed to throughout and after the COVID-19 pandemic.

‘Net Margin’ is the allowed profit given to business water suppliers above how much it costs them to deliver their service to customers.

‘Allowed Retail Cost’ reflects how much it costs business water suppliers to provide customer services. This includes meter readings, billing duties, and other services.

Group 2 water price calculation

The Group 2 water price calculation is a lot more straightforward than the Group 1 calculation. The Retail Exchange Code simply caps default water supplier contracts at 8% for underlying water wholesale charges and 10% for underlying wastewater charges.

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The Competing Recommendations For The 2023 Business Water Price Rise

Recommendations for the 2023 business water price rise differ depending on who you ask. Of course, the views of business water suppliers conflict with Ofwat representatives. Here are the main competing recommendations that you should know about:

Ofwat

Ofwat is receiving a lot of pressure to increase the price cap for both Group 1 and Group 2 businesses. Of course, business water suppliers are suffering in the face of inflation, and business water bills need to be increased to maintain water supply infrastructures.

However, Ofwat also recognises that there’s a lack of competition in terms of business water suppliers. If a business feels they are being overcharged for their water and would like to find business water rates cheaper elsewhere, they have limited options.

For this reason, Ofwat argues that it’s important to keep the price cap as steady as possible in the face of business water market uncertainty.

Still, Ofwat has increased the price cap for 2023 again to help water supplier businesses.

UK Water Retail Council

The UK Water Retail Council was formed to protect independent water suppliers in the deregulated market. Their views are at loggerheads with Ofwat, based on their Non-Household Water Retail Market Study. This study was published in April 2021.

The UK Water Retail Council argue that the Group 1 Water Price Cap should be increased significantly – a lot higher than where it is currently. Overall, they want to see a 55% increase in Allowed Retail Cost for each Group 1 customer.

To minimise the risk of bad customer debt, the Water Retail Market Study also argues for an increase in the allowable margin.

The Strategic Panel

The Strategic Panel offers a more balanced view, given that it features representatives from all areas of the business water market. This includes members of Ofwat and MOSL, as well as business water suppliers and wholesalers.

The Strategic Panel completed its own report regarding the business water supplier price rise, in which it detailed its response to Ofwat’s consultation. Despite the mix of members that make up the body of the Strategic Panel, they sided mostly with the views of the UK Water Retail Council.

They claim that current price caps are set too low and that the Group 1 price cap should be increased. They later state that if the price cap is not increased, several water suppliers will face bankruptcy.

Many of the businesses that fit into Group 1 do not want to switch business water suppliers as they feel comfortable where they are. They’re protected by Ofwat, so they see no reason for a change.

Final Thoughts

Commercial water supply bills will increase come April 1st. Even if you manage to reduce your liquid waste substantially, the price you pay for water will go up. Just as water suppliers are suffering from inflation, business premises will now feel the effects of an increase in the wholesale rate of water.

To appease the water suppliers and encourage more business customers to switch water suppliers, Ofwat has increased the Group 1 water price cap. This means that businesses that fall into Group 1 can now be charged more for the water they use.

Although you can’t avoid the price hike totally, you can switch water suppliers in the hope of getting a better deal.

If you’re thinking of switching business water suppliers to save money, use Business Energy Comparison. We helped many companies switch gas and electric suppliers last year – this year, we’re turning our attention to helping businesses survive the water price crisis.

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Start your journey and compare gas prices for business and business electricity rates with Business Energy Comparison today. Use our price comparison tool and in less time than it takes to make a brew, we’ll compile your best prices from the UK’ s best suppliers.

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Frequently Asked Questions

Are business water prices cheaper than domestic water prices?

A business water bill tends to be cheaper than a domestic one. However, this is not always the case. It depends entirely on what your business is and how much water you use. The region your business is in also impacts the price you pay for water.

Can micro and small businesses change water suppliers?

Any micro or small business that does not also use the premises for domestic purposes can easily change water suppliers. Besides using the business primarily for business purposes, there are additional geographical eligibility requirements that must be met.