Water market overhaul proposed by Ofwat

Tap and water Image copyright Getty Images

Regulator Ofwat has proposed opening the retail water market in England to more competition.

Currently, households have no choice in which water company supplies them. Ofwat says greater competition could mean innovation and lower prices.

Under the proposals, firms could buy water in batches from existing providers and sell it on to households.

Companies could also offer bundles of services, selling gas, electricity or broadband alongside water.

In theory it could mean that banks, supermarkets or phone companies could also sell water.

'Analogue service'

"We are living in an age of retail revolution, but water customers are being left behind," said Ofwat chief executive Cathryn Ross.

"The service offers from water companies can feel behind the curve compared to the innovation customers benefit from when buying other goods. The uncomfortable truth is that, when it comes to retail offers, water companies provide an analogue service in a digital age."

According to Ofwat, greater competition may only have a modest impact on bills, with an annual saving of £8.

But Ms Ross told the BBC that she expected that opening up the market would lead to better service as well as lower bills.

"We would expect significant benefits to come through to customers in terms of better service," she said.

"For instance, at the moment only two of the water companies in England let their customers manage their bills using an app. That's the kind of thing we'd expect to change and see real innovation."

Ms Ross said that opening up the market would only work for customers if switching was made "as hassle-free as possible".

Government approval

Water UK, which represents the water companies, said in a statement: "Extending retail competition to over 20 million households could secure potential benefits for domestic customers, but would also be a major undertaking and so deserves to be given very careful consideration.

"We look forward to a timely decision from government which helps sustain the stability the industry needs to continue successfully meeting the needs of its customers."

The government still has to approve any proposals before the market is opened up.

Earlier this year, a report from the Public Accounts Committee (PAC), said millions of households in England and Wales were paying too much for their water supply because of poor oversight by Ofwat.

PAC said the regulator consistently overestimated water companies' costs.

Analysis: Simon Read, business reporter

How will the opening up of the water market work? Ofwat sees similarities between water and energy supplies. Consumers buy energy from one company - the retailer - even though the gas or electricity may actually be supplied by another, the wholesaler.

The retailer buys the product from the wholesaler and sells it on to the consumer.

Ofwat hopes that the water market ends up moving in a similar way, with the existing regional water suppliers continuing to supply water to your home but with customers potentially dealing with a different retailer.

The theory is that retailers may be better set up to deal with issues such as customer service, leaving water companies to focus on delivering their product and maintaining pipes and reservoirs.

Being freed from customer service costs could help drive down wholesale prices while retailers may be able to offer their services more efficiently than water companies.

The process is already happening in the business market which is opening up to competition next April.

Several retailers are believed to be interested with United Utilities and Severn Trent already announcing a link to form a new water retail company for business called Water Plus.

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