Inflation to scupper water bill "cut"

Annual water bills must be cut by 5% in real terms over the next five years, industry regulator Ofwat ruled today - but inflation means they are likely to be around £30 higher in 2020 than they are now.



The decision means average annual charges for water and sewerage services for England and Wales seeing a real-terms fall - from £396 to £376 in current prices.

But actual bills dropping through customers' letterboxes in five years' time will be higher, because they will add in the rate of Retail Price Index (RPI) inflation.

This currently stands at 2.3%, higher than the benchmark Consumer Price Index (CPI) measure and well above pay growth at 1% - fuelling fears that, despite being held back, water bill rises could still see customers struggling to pay.

Industry experts calculate that based on the current rate of RPI over five years, a typical bill would rise by 8% or £32 over the 2015-2020 period.

Severn Trent shares were up 1%, as the group said it welcomed "the progress that has been made" since a draft ruling by Ofwat earlier this year though it was disappointed with some aspects of the decision.

The stocks provided a safe haven for investors on a day when the wider FTSE 100 Index was down sharply.

Tony Smith, chief executive of the Consumer Council for Water, said of Ofwat's ruling: "Customers need to be aware that water companies are allowed to add inflation to bills each year which means charges are still likely to rise from what they are now. That will hurt some households."

Labour's Maria Eagle said: "For many people prices are still going to be rising faster than wages and that's why one in five people are struggling with their water bills."