Ofwat has published its final decision on changes to retail price caps. These price caps apply to smaller business customers (consuming less than 0.5Ml per year) who have not engaged in the market, for example, by switching retailers. On average, across all regions in England, Ofwat’s decision will lead to final bills for business customers on a dual (water and wastewater) metered tariff increasing by around 6.4%, before inflation. The change in price caps will enable efficient retailers to earn a fair return whilst supporting the long-term stability of the business retail market that will benefit customers.
The decisions only affect business customers, they do not affect household customers.
Ofwat has also decided to simplify the price caps applying to smaller business customers by moving from the existing model of price caps varying on a regional basis, to an England-wide national price cap. This will ensure that price caps are more reflective of the costs to serve smaller business customers, which Ofwat has concluded do not vary on a regional basis.
The new price caps will be introduced from April 2023. To help manage the impact on business customers, Ofwat will transition the introduction of the new price caps over a two-year period, including by limiting annual changes in customers’ retail charges to no more £60 per year, before inflation.
Georgina Mills, Business Retail Market Director at Ofwat said:
“Our price caps ensure the business retail market is fair for small businesses that don’t shop around as much as much as larger businesses do. We need to make sure that these caps are at the right level, so that efficient water retailers can cover the costs of supplying their customers and small businesses don’t pay more than they should.
“We have listened to feedback over the consultation period and carefully considered all views. We know that these are challenging economic times but the actions we’re taking today will support stability in the market, while continuing to protect smaller business customers.”
Ofwat plans to review these price caps again in 3-5 years’ time.
Notes to editors:
- From April 2017, with market opening, around 1.2 million business customers in England became eligible to choose their Retailer. Separate arrangements apply in Wales so our proposals here are relevant only to smaller business customers in England.
- Note our proposals here do not affect the charges levied by the incumbent water companies (such as Thames Water).
- This is the first time Ofwat has done a thorough assessment of business retail costs to serve smaller customers as the current price caps are broadly based on the tariffs set by the incumbent water companies prior to market opening.
- In December 2021 Ofwat consulted on its proposed approach to reviewing the retail price caps that apply to business customers. In September 2022 it consulted on specific proposals to amend these price caps.
- In February 2022, Ofwat confirmed that business retail price caps would increase by 0.49% in 2022-23 and 2023-24 to reflect higher levels of bad debt resulting from the Covid-19 pandemic. This temporary uplift has not been reflected in the proposed price caps presented above.