Industry Profile: UK Water Industry

In this video we provide an overview of some of the key statistics on and issues facing the UK water industry.

One area that examiners are keen to stress ahead of students taking their papers is for them to showcase their knowledge of the subject and add contextual application to their answers. Hopefully this series of short update videos will help in this.

The water industry in England & Wales was privatised in 1989.

Most water and sewerage companies are regional monopolies, with dedicated pipe networks and water supplies This means that household customers cannot choose or switch their supplier and competition is limited.

Water supply is therefore a good example of a natural monopoly – an industry with large economies of scale

There is a need for regulation of the industry to ensure that the industry delivers value for consumers and the environment.

Ofwat is the economic regulator from the water industry in England and Wales.

Ofwat sets wholesale price limits for each water company alongside performance targets, such as for leakage reduction, reducing pollution incidents and lowering personal water consumption.

In 2017, the UK government introduced competition into the water supply & services industry at retail level for businesses

Regional water companies (utilities) act aswholesalers and manage their networks

Business customers can now choose their water provider in the same way they choose energy or telecoms providers.

Some entrants have come into the retail market such as ConservAqua, EverFlow and Castle Water. Some businesses have also been granted their own “self-supply” licence

Motivations for businesses switching retail water supplier:

1. Reductions in water bills
2. More accurate water metering and billing (estimated 70% of bills are inaccurate)
3. Consolidated billing – for example supermarkets with stores across the country
4. Improved customer service
5. Additional value added services such as water efficiency and help in meeting leakage targets

Exam gold - some key issues

• The continued political debate over ownership – should the UK water industry be nationalised?
• The nature of natural monopoly – the UK has regional water monopolies – what are the benefits and costs of this?
• Will the introduction of competition at retail level for businesses who use large amounts of water be successful?
• How should water bills be regulated? Should water companies be allowed to raise bills more than inflation to fund investment in infrastructure?
• Externalities from the water industry – how best to tackle sewage discharges Behavioural economics – how best to tackle water scarcity and reduce people’s consumption?