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Why water bills are set to drop by £34

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Water bills will fall next year, but by a smaller amount than previously announced, following an investigation by the Competition and Markets Authority (CMA).

Ofwat, the regulator of the water industry, had previously set in place price controls which outlined what water companies could charge for their services between 2020 and 2025. However, complaints from some suppliers led to the issue being passed to the CMA.

The CMA has now outlined its ruling, which it says will result in water bills dropping by £34 ‒ a smaller drop than was proposed by Ofwat.

Putting controls in place

Back in 2019, Ofwat set out its price controls for the following five-year period. These serve as an effective cap on what water companies can charge, and try to find a balance so that water firms can raise enough money to cover their activities and invest in better infrastructure, while protecting consumers.

Those price controls would have meant an average bill reduction for households of £50 on their annual water bills.

However, four water suppliers ‒ Anglian, Bristol, Northumbrian and Yorkshire ‒ took their complaints with the price controls to the CMA.

After conducting an investigation, the CMA published provisional findings at the tail end of 2020 siding with the suppliers, and warning that “water companies need to be provided with more revenue to secure continued investment in the sector”.

However, in concluding its investigation it has now found a middle ground between what the water suppliers wanted and Ofwat’s initial rules, meaning that prices will still fall, albeit by a smaller amount than Ofwat had proposed.

Kip Meek, chair of the CMA’s group that looked into the issue, said: “In coming to our decision, we have sought to balance keeping bills low with the need to maintain a good quality of service and to invest in critical infrastructure for the future. 

“Our decision means that customers of these companies will be paying, on average, £34 less per year for their water than they did in 2019/20.”

A step in the right direction

The move was welcomed by Citizens Advice, which had raised concerns over the CMA’s provisional findings last year, arguing that it was being too generous to water companies.

Alistair Cromwell, acting chief executive, said: “Today’s announcement is progress and a better deal for consumers than the CMA originally proposed. However, the CMA should have gone further in cutting back the excess profits made by water companies.”

Yorkshire Water, one of the suppliers which initially challenged the new price controls, also praised the decision, with a spokesperson stating: “We can now draw a line under the last price review and start to work collaboratively with government and regulators to ensure that we restore the balance to the sector and deliver long term resilience whilst protecting customer interests.”

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