Businesses racking up unpaid water bills during the pandemic have pushed water retailers to the brink, according to industry suppliers.
The UK Water Retailer Council (UKWRC), which represents 18 suppliers, has commissioned an independent report that also warns that pricing is unfair to customers and that some businesses are paying higher bills than necessary.
Most participants in the market were lossmaking before the pandemic but an increase in non-payments during lockdown has piled on the pressure. There is now a “material risk of systemic retailer failure”, said the report by the consultancy Economic Insight.
If a provider collapsed there is a risk that “customers would be ‘stranded’ without a retailer for a period of time”, the report added. Low margins in the sector also meant that water retailers were unable to invest in the service and deliver the improvements promised at the time the market was opened to liberalisation, the industry said.
“This report clearly highlights that the market is not currently delivering adequately for business customers,” said Phillip Mills, chair of the UKWRC.
The industry warning comes four years after the economic regulator Ofwat introduced reforms to allow non-household customers, which include supermarkets, charities, public sector bodies and retailers, to switch their billing arrangements to any water supplier in the country or to new independent market entrants.
The study found the actual cost of serving the smallest customers in the market — who consume less than 1,400 litres a day — is more than 50 per cent higher than they are allowed to charge by Ofwat, and that these customers account for about 70 per cent of the entire market.
Larger water customers such as pubs and restaurants are being charged more so that they can subsidise smaller businesses, the study found.
Water retailers are allowed to charge smaller customers £78 a year for services — in addition to the cost of the water — but the report says the actual average cost is £121 a year, which covers the cost of metering, scheduling site visits, invoicing and dealing with problems.
John Reynolds, chief executive of Castle Water, which took over Thames Water’s business customers, said the charges were “completely unfair” for many of the smallest customers.
He pointed to several examples of cross-subsidies in the sector. In one case, he said, a pub was paying £500 a year for retail services, while an architect’s practice two doors down was paying £50 a year even though the cost for providing services at both premises was about £120 a year.
In another example, a charity shop pays £16,000 a year — based on an estimate of prices — because it has no meter, which is the responsibility of landlords. On the same street, an amusement arcade with a meter pays just £750 a year.
The industry is calling on the regulator to bring forward a review that would look at how the sector could be made more sustainable.
Ofwat said it had taken steps to protect business customers, including in light of the pandemic, and would continue to work with Defra, the environment ministry, “to see if there is more we can do”.
“We are also looking at what additional protections are required to help the market deal with increased customer bad debt resulting from Covid-19.”