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Chair's statement on economic regulation of the water sector

14 October 2015

A statement from Meg Hillier MP, Chair of the Committee of Public Accounts:

"Water is a basic human necessity and most taxpayers are unable to choose their supplier. Close scrutiny of this industry, on which all of us depend, is vital.

In England and Wales, the average household water bill has risen by 40% in real terms since water companies were privatised in 1989. Last year households paid an average of £396 for water and waste water services. Water bills made up 2.3% of the average consumer's annual spending in 2013.

I am concerned that in recent years higher water bills and falling incomes have meant that water has become less affordable, and those who can least afford it appear to have been worst affected. Households with the lowest incomes spend 5.3% of their income on their water bills, almost five times as much as that spent by those with the highest incomes.

It is encouraging that most water companies have set up schemes to support those who struggle to afford to pay their bills and allow them to pay a reduced rate. But it is worrying that 1.8 million households are expected to need this support by 2020.

Most taxpayers rely on the regulator, Ofwat, to ensure they get a good deal from the monopolies which supply them. Ofwat is responsible for setting the prices that water companies can charge customers once every five years. Its work has encouraged water companies to become more efficient and reduced customer bills. Yet Ofwat's approach to setting prices has meant that customers largely lost out on sharing in £1.2 billion of windfall gains the sector made over the last five years.

Ofwat expects the price limits it has set to reduce the average bill by £20 over the course of the next five years, in real terms. But more work is clearly needed to ensure customers share in savings made by water companies and there may be lessons which can be learnt from regulators in other highly regulated industries."

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