According to a spending watchdog, The National Audit Office (NAO), water companies in England and Wales have pocketed an £800m windfall because of poor regulation, tax cuts and cheaper finance costs over the past five years.
Unfortunately though, the customer has not benefitted at all, due to Ofwat not properly “balancing the risks” between consumers and water companies. Ofwat has met the criticism of its price control regime with disdain however.
According to NAO estimates, water companies have gained and astronomical £410m from lower corporation tax rates as well as another mind-blowing £840m from lower than expected interest payments over the past 5 years.
Although the companies absorbed costs and offered water bill discounts over the same period, the discounts only came to £435m, leaving them with a net gain of £800m.
According to the NAO, this is because Ofwat’s price cap is slanted heavily in favour of the companies and had therefore not accomplished good value for money. According to Ofwat chief executive Cathryn Ross though, the approach taken by Ofwat is the correct one, as it precluded the customers being open to risk of changes in financing costs.
Since privatisation in 1989, water bills have risen by around 40%, with the biggest increases being between 1990 and 1995. Water bills accounted for approximately 2.3% of the average household spending in 2013, but for the poorest households it was in excess of 5%.
According to Ofwat, water prices in general are set to fall by around 5% over the next five years.
This news is rather upsetting to the general public, but unfortunately it seems there is little that can be done about it other than to practice good water conservation in order to save on your general monthly water bill. Fix any leaks, recycle water into the garden where possible and install low-flow toilets and showerheads.
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