MPs: companies overcharging for water bills because of regulator error

The UK's water companies have been allowed to overcharge customers for years because of miscalculations by regulator Ofwat, a group of MPs have said.

Water bills have been higher than they should be for years, says a new report by the Parliamentary Public Accounts Committee (PAC).

And it’s all the fault of the industry regulator Ofwat. Here's why.

Water windfall

One of Ofwat’s duties as regulator is to limit the price that water firms can charge customers in its five-yearly price reviews.  

According to the report, Ofwat has consistently overestimated water firms' financing and tax costs when it decides what price cap to implement. As a result since 2010 water firms have been able to enjoy windfall gains of at least £1.2 billion between them, gains which have not been shared with customers.

The MPs behind the report have ordered Ofwat to review how it calculates companies’ various costs and report on how it will improve.

Meg Hiller MP, chair of the committee, said that many households would be “appalled” to find out that their water bills could have been smaller if Ofwat had adopted a different approach.

She added: “We are also calling for greater transparency over windfall gains made by water suppliers, and more effective action to see these gains passed on to customers.” 

[Related story: From your home to your car, how to spend less this winter]

Helping struggling customers

Water bills represent a significant outlay for households with smaller salaries – around 5.3% of household spending in 2013, compared to just 2.3% for the average household.

And while water firms have support schemes in place to help those that struggle to pay, the actual help on offer varies significantly from company to company.

The report argues that Ofwat should ensure that all water supplies provide a minimum threshold of support for low-income customers, and force them to advertise clearly the support they provide to all customers.

[Related story: Where to get help paying your gas and electricity bills]

What do you pay for your water bill?

Water bills fell by an average of 2% for the 2015/16 tax year, according to Ofwat.

One of the problems with water bills is that suppliers operate a regional monopoly – if you don’t like your supplier, you can’t shop around and switch to a new one, as you can with things like energy or your mobile phone.

However, the government wants to introduce an element of competition into the market by the end of this Parliament, allowing people to choose between rival suppliers for billing and customer services. However they won’t be able to change the water supply itself.

Don't burn money: see if you can switch and save on your energy bills