These Water UK background briefings provide further information on the price review and key features of the water industry.
Affordability - how water companies are helping UK households
Although water bills comprise less than 1% of household expenditure, water companies continue to help all hard-pressed UK households by charging stable and affordable prices.
Almost all companies have recently confirmed they will hold down their bills to keep them in line with or lower than inflation from 2015-20.
Water companies spend millions of pounds every year to give struggling households money off their water bills, as well as offering a range of extra support and advice measures. In the next five years, companies are proposing to increase their funding and support through these measures, which include more social tariffs.
How water prices are set
Water companies cannot just set whatever prices they like. They have to follow strict rules. For example, in England and Wales, price limits are set for them for five-year periods by the independent economic regulator, Ofwat.
Prices go up only as much as the regulator thinks is absolutely necessary and are pegged very closely to inflation. This is why water bills have risen far more slowly and steadily over time compared to electricity and gas.
Water companies are expected to be highly efficient in the way that they operate – to deliver water services cost-effectively and to a very high standard while reflecting their customers’ priorities. Ofwat quantifies this and says that because of this efficiency, bills are £120 lower than they would be otherwise.
Water companies' investment and tax
Companies look to finance their investment as efficiently as possible. They use a mixture of debt finance and equity finance, of which the equity finance is more expensive, to compensate shareholders for the greater risk they face.
The stable and predictable regulatory regime has allowed companies to secure more of their finance through debt finance than the average UK company, which reduces bills for customers. It has also made the UK water industry an attractive destination for global investment in our essential services.
Successive governments have encouraged investment both through sector specific policies and through tax policy that applies to all companies.
When companies invest for the future, they can defer – but not avoid – corporation tax due to the tax relief on capital allowances. This reduction in tax has directly led to lower customer bills.
How customers’ bills are helping protect the environment
Water bills do not just cover the water that we use for drinking, washing and watering the garden. Water bills also cover the cost of the water industry’s vital role in protecting and caring for the unique and diverse landscape and wildlife of the British Isles.
Water companies protect the environment because it is the right thing to do, because customers and local communities say it is important, and because having good quality supplies of water in the future depends on us all taking good care of the environment.
Economic impact of the water and sewerage sector
The UK water sector currently contributes around £15 billion a year to the UK economy. In 2012-13, companies spent £4.5 billion on investing in assets including to tackle leakage, flooding, drought and a further £5 billion on operating expenditure, including staff, services, power, chemicals etc
This activity supports 127,000 jobs directly or indirectly.
Deloitte has carried out a study on behalf of Water UK on the economic impact of the water and sewerage sector in the UK.