By Emma Kelso, Senior Director Markets and Charging at Ofwat
Claims that water companies could increase bills during a drought are simply wrong. Water charges are set in advance, and the work being reported relates to existing trials being conducted by some water companies that help customers save water and, in many cases, save money. Any new charging structures must strive to make bills fairer and more affordable while encouraging water efficiency, in line with Ofwat’s charging rules. There are currently no proposals to change charging for households, and any changes from existing trials are unlikely to happen before 2030.
You may have seen recent media headlines suggesting water companies want to introduce “surge pricing” during droughts, with some comparisons drawn to dynamic pricing for concert tickets. We want to be clear: this isn’t happening, and it isn’t something water companies are able to do. Any new charging structures for households must strive to make bills fairer and more affordable while encouraging water efficiency, in line with Ofwat’s charging rules.
This blog explains why surge pricing during a drought isn’t possible under Ofwat’s rules, what the recent consultation is actually about, and what’s happening with the longstanding programme of household charging trials.
How prices are set
Water companies are required under the Water Industry Act to set and publish their charges before the start of the charging year, and to fix those charges for the following 12 months. There is no mechanism for a company to raise prices mid-year in response to a drought or a spike in demand.
Our charging rules also include protections relating to fairness and affordability, and require charges to reflect long run costs. Droughts, by their nature, are short-term events, so their short-term costs fall outside what a water company’s charges are allowed to reflect.
Are household bills about to change?
No, there are no changes planned to charges structures. Decisions on individual charging trials are for water companies to make, in consultation with us. Water UK has already confirmed that existing trials will continue until 2030, meaning no significant changes are expected in the short term.
It’s also worth noting that most future charging approaches depend on the rollout of smart meters. While ten million smart meters are due to be installed by the end of the decade, most homes will not have one for some time yet, which naturally limits how quickly new charging approaches could ever be introduced at scale.
What the recent consultation is actually about
We have been working with water companies to reform charges for large business users. There are around 2,000 large business users in England and Wales that together account for more than 40% of total business consumption. These businesses have historically enjoyed discounted charges, which we were concerned might be sending the wrong signal on water efficiency. Already, five water companies have started to phase out these discounts.
Companies are already able to reform these charges under our existing rules. However, some companies and stakeholders asked us to make this explicit, so we consulted on clarificatory changes to encourage water companies to pay greater consideration to the costs of water scarcity and the need for water efficiency when setting business charges. This consultation closed on 30 July, with implementation expected from April 2027.
For consistency, we also proposed making equivalent clarificatory changes to household charging rules. This reflects practice already happening through our existing household charging trials, and appears to be what triggered recent press coverage, particularly given the context of this summer’s drought conditions.
To be clear: this consultation does not introduce any new household charges, and there are no new plans for household charging.
Why charging trials are important for the sector
England and Wales are forecast to face a shortfall of over five billion litres of water a day by the middle of this century. Reducing demand is expected to provide nearly half of the solution, alongside new supplies and reduced leakage.
Let’s be clear – we need water companies to step up and fix leaks and eradicate 50 per cent of them by 2050. Even in a scenario where leakage was eliminated entirely, something no country has ever achieved, and the current programme of new reservoirs was delivered in full, a huge gap would still remain. That’s why reducing demand, including through smarter charging, and the Let’s Save Water campaign, are such an important part of the picture.
Ofwat has been encouraging water companies to trial innovative approaches to household charging since 2022, to support both affordability and water efficiency. This work has wide support, not least because of the importance of doing more to support affordability and water efficiency and is welcomed by the Consumer Council for Water (CCW).
One example of these trials is the rising block tariff, where customers are charged a lower rate for an initial amount of water use, with progressively higher rates as usage increases. You can read more about the range of approaches being tested on our charging trials page.
These trials are still at an early stage, and the evidence so far is partial, but early findings are encouraging. Most household customers taking part are better off, either through bill savings or reduced arrears. There have also been modest water savings on average. Some companies have found the practicalities of communicating these changes to customers challenging, and we’ve seen mixed views on the fairness of different charging structures, which is exactly the kind of thing these trials are designed to test and learn from.
Why we think this work matters
Given the scale of the water shortage England and Wales are facing, we think it’s right to keep exploring modern, fairer ways of charging for water, provided the right protections are in place for customers. That’s why we’ll continue to champion this work, while being clear that there is no truth to suggestions of drought-based surge pricing, now or in our future plans.