by Meg Huby and Jonathan Bradshaw

Almost a quarter of households in England and Wales suffered from water poverty in 2009/10 and if water charges continue to rise more quickly than inflation, the extent of water poverty could more than double by 2033. This is causing problems both for low-income families, who find that water costs are putting ever more pressure on household finances, and for the water companies, who face increasing losses of revenue through non-payment.

Since water privatisation in 1989, water prices have been increasing faster than both inflation and average earnings. As the graph below shows water and related charges have risen faster than overall consumer prices (though less than fuel and lighting). This has posed particular problems for families on benefits as benefit increases have been pegged to the Consumer Prices Index.

Movement in water compared to CPI and other costs

With the costs of supplying clean water rising as a result of climate change, extreme weather events and an ageing infrastructure, water prices are set to continue to outstrip prices and earnings. 

The main threshold used by the water industry, the regulator, consumer groups and government to determine when water consumption is problematic for households is when they spend more than 3 per cent of their household income on water costs. This threshold is taken as a measure of water poverty. Studies have found that households who spend more than between 3 and 5 per cent of household income on water bills find problems in paying their bills.

In a study on Water Poverty in England and Wales prepared for the Family Resources User Group, we found that in 2009-10 nearly a quarter of households (23.6%) were spending more than 3 per cent of their disposable income on water. Water poverty was much higher amongst single adult and lone parent households (an average of 40%) than among couples and multi-unit households (with an average of 14%). One-adult households spend 7.2% of their income on water payments compared to 3.6% spent by other households.

Water poverty rates were also much higher among households dependent on benefits: 46.6% compared with 18.8 % for those not on benefits. Having a water meter reduces rates of water poverty, primarily because bills are lower(on average by £1 a week).

Calculating the risks of water poverty, households with only one adult have are almost four times more likely to be in water poverty than larger households; those receiving benefits are three times more likely than non-benefit households; but metered households are only half as likely to be water-poor as others. One-adult households in receipt of benefits without a water meter have the highest probability of being in water poverty with almost seven out of ten in water poverty. In contrast, larger households not on benefits and paying for water on a metered basis have the lowest risk with only eight out of a 100 at risk of being water poor.

If water prices go on rising faster than the overall CPI and there is no change to the benefits uprating formula, the proportion of income spent on water bills will rise for low income households, and rates of water poverty will increase. Modeling a range of simple scenarios for the period from 2009-10 to 2033 found that:

·      If there were no increase in water bills from 2009-10 levels then the water poverty rate would remain at 23.6 per cent using the 3% water poverty threshold. 

·      If water bills increased by 3 per cent per year more than income then by 2033 the water poverty rate would affect more than half of all households (53.7%) at the 3% threshold.

Policy options

A reduction in water poverty will require an increase in the incomes of those at risk, or a reduction in their water bills (or both). Targeting households through the benefits system is problematic, not least because water poverty is not restricted to benefit-dependent households.

Greater use of metering would help. Although metered households currently have lower bills than others, metering in itself does not reduce water charges, though it should increase awareness of the value of water leading to reduced consumption. Even if metered households reduce their consumption, the extent to which their bills decrease depends on the charging tariffs in place. At present, households with low usage and high rateable values would have lower water bills if they paid on a metered basis. Larger families with higher usage are less likely to benefit from a switch under current tariff systems.

Nevertheless, universal metering would seem to be a necessary first step through the scope it offers for tariff adjustments. Current tariffs are mainly regressive, with small consumers paying more for each unit of water used. Yet they could be made more progressive so that high users pay more. Trials are already taking place to assess the potential impacts of rising block, seasonal and peak seasonal tariffs. Under rising block tariffs, the high volumetric rates paid for luxury high use could be used to subsidise very low rates for low levels of essential water use or unavoidably high use by low income households.

It is in water companies’ own interests to take action. If affordability problems increase as predicted, non-payment of water bills will lead to increasing loss of revenue. Debt in the water industry is currently three times higher than in the energy sector. In June 2012 the Government proposed that water companies should introduce social tariffs based on ability to pay. They will be asked to select customers most at risk and offer them discounts. It is, however, unclear how companies can select such customers. Progressive charging tariffs would seem to be a more feasible option.

Meg Huby and Jonathan Bradshaw are based at the University of York

Further details of this study can be found in Water Poverty in England and Wales.