Water rates in the UK – how is the price of water determined?

Water rates in the UK are calculated based on several factors including location and whether a property has a water metre installed
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Water rates are always big news in the UK. What we pay for this essential service dominates front page headlines, is subject to independent scrutiny and crops up frequently in political debates.

Yet how many of us actually know how our water rates are calculated? Why, for example, do households in certain areas of the country pay far less to their water supplier than those 100 miles down the road?

Who sets the rates that water companies in the UK are allowed to charge? And the question to which most people want an answer when it comes to the price of water – is there any way I can reduce my bills?

Here’s how the price that you pay for water is calculated.

How water rates in the UK calculated

Each of England and Wales’ 12 water and sewerage companies set their own prices. These are determined by the availability of water in your area and the size of your region.

The most expensive water supplier in 2019-20 was South West Water, whose customers in Cornwall and Devon paid an average annual bill of £487.

Hafren Dyfrdwy had the cheapest water rates in the UK last year at an average cost of £296 per household. They cover a central area of Wales.

Unmetered water bills

The bill of an individual household is calculated in one of two ways. Older homes in the United Kingdom are more likely to be on unmetered billing, where you pay a set amount for your domestic water no matter how much or little you use.

Unmetered water rates are based on your home’s ‘rateable value’. Before 1990, local councils assessed homes in their area to ascertain how much rent a property could expect to raise in the private rental market.

This was based on the size of the property, the area, the general condition of the building and the availability of local services. It is this ‘rateable value’ which still determines unmetered water bills 30 years on.

The last national survey of rateable values was carried out in 1973. Anyone living in a property built before then that hasn’t switched to a water metre is therefore paying a rateable value based on how their property and the local area was rated in the early 1970s.

Homes built between 1973 and 1990 had their rateable values calculated once they had been built. Since 1990, all new homes have been fitted with water metres.

Unmetered water bills are therefore a somewhat controversial way of billing. A two-person family who live in a large house built in the 1950s might be paying a rate determined 47 years ago by the size and potential rental income of their home, leaving them with a bill which is far in excess of the water they use.

Alternatively, a five-person family in a small terraced building will pay a smaller bill despite using more water.

There are no plans to change the rateable value system or reassess a home’s value – households are instead encouraged to switch to water metres.

Water metres

Water metres record the amount of water that a home uses as well as its sewage costs and then bill that household accordingly. Sewage costs are higher than water costs because of the processes involved in removing wastewater from a home and then treating it.

The advantage that comes with water metres is that you only pay for what you use. In a smaller household, this can result in big savings compared to a bill being decided by the property’s rateable value.

For larger households who use a significant amount of water, switching to a water metre could lead to an increase in bills. As a rule, if you’ve got more bedrooms in your home than people, then you will probably benefit from a water metre.

There are free calculation services which can help you work out if you would be better off on a water metre. Installation of a metre is free in England and Wales and you can switch back to unmetered bills within the first 12 months should your water bill rocket.

Water rates determined by council tax

In Scotland, water bills are based on council tax bands. Households are billed as part of a ‘combined service charge’ along with other services.

In Northern Ireland, water and sewer services are provided free of charge for residential properties. Business and non-residential properties are billed.

Ofwat and the price of water

The water regulator Ofwat is responsible for monitoring the water industry, with a review into the sector carried out every five years.

That most recent report was the PR19 document, released in December 2019. One of the key demands that Ofwat made of water companies was that they must reduce consumer bills in England and Wales by an average of 12% by 2025.

In February 2020, Water UK then confirmed that the average bill would go down by £17 in 2020-21. Customers of Northumbrian Water will see the biggest reduction, with their bills set to drop by 21% from £411 to £326.

How to cut your water bill

Because water rates in the UK are determined by region and, unlike in the energy market, you cannot switch provider, many households assume there is little they can do to reduce their annual bill.

Some simple steps can however help those on water metres cut their water usage and with it, their outgoings. Maintaining pipework and repairing leaking pipes will reduce the amount of water that a household wastes, making a difference to the bills.

Taking showers rather than baths and not running the tap whilst brushing teeth will also reduce how much water a household gets through.

Finally, there are various gadgets which can help cut water use. Installing a shower timer can encourage you to spend less time in the shower. A water-displacement device goes in the cistern of a toilet and reduces the amount of water used each time you flush while keen gardeners should install a water butt to capture rain water, which they can then use instead of water drawn from the main.

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