Understanding the scale of water poverty

Despite Ofwat's push to lower water bills, millions of households still find them unaffordable. The sector has committed to make worrying about bills a thing of the past and is taking the first step towards that with a common metric for calculating water poverty. Utility Week explores what is involved

Figures from Citizens Advice showing that three million people are struggling to pay their water bill because of coronavirus-related financial problems highlights the need to eradicate water poverty.

Individual companies have social tariffs for customers who struggle to pay but until now there has not been a standardised way of measuring water poverty. Eradicating water poverty by 2030 is one of five Public Interest Commitments pledged by the sector and coordinated by Water UK. As a step towards this, policy and economics group Cepa was commissioned to develop a metric for defining water poverty.

The purpose of the report is to help companies, and stakeholders, understand the issues involved in measuring water poverty. The complexity of some of the issues will require further work to resolve, which Water UK anticipates taking forward in the autumn.

Andrew White, lead on water poverty at watchdog CCW, says a definition would focus the sector on the goal.

CCW’s annual Water Matters survey noted that one in eight customers did not find their water bills affordable, which White equates at around three million households, although that does not include those who may be experiencing hardship because of the pandemic.

The report called Measuring Water Poverty using a bills to income metric sets out the findings from Cepa’s work between January to March 2020. This initial project involved companies and stakeholders agreeing a high-level methodology for how a ‘bills to income’ metric would be calculated and modelled and what the data requirements would be.

The metric takes account of societal factors such as income and occupancy of a home as well as childcare costs and whether to include disability allowance. It was important for the steering group to have a consistent approach that was transparent as well as something that would be considered fair both within the industry and to stakeholders.

White explains other considerations included regional differences – including demographics, scale of wider poverty problems in an area and differing bills because of the varied costs of providing water services in different areas.

“There are challenges around working to a common definition target, but it is necessary. If Water UK wants to move forward with meeting the commitments, then it’s essential for companies to move forward with looking at practical aspects. We don’t feel the practical aspects should be a brake on the ambitions to eradicate water poverty.”

At present social tariffs are available for anyone struggling with bills, but these are largely funded via customer bills so are limited by willingness to pay, which determines how many customers can be supported.

“Social tariffs have done a great deal and we have worked closely with companies to encourage the uptake of those and get support out to customers who need it,” White says. “However, CCW has drawn attention to the limitations of that systems. Up to 1.5 million customers could be helped through the social tariff schemes but the scale of the problem is bigger than that.”

Many households have already been financially affected by coronavirus, and it is likely that many more will be as the government support schemes are withdrawn. To support more struggling households, CCW has been calling for water companies to bear a share of the responsibility and increase the scope of what social tariffs can do in terms of eradicating water poverty.

“It’s great that customers have been willing to fund social tariff schemes, but we want to see water companies contributing from profits also”, says White. “United Utilities, Welsh Water and Yorkshire Water already do this, and we are calling on other companies to follow suit.”

Another consideration is for government to review the funding approach to assess whether public funding could be brought forward to supplement the customer funding and water companies’ contribution.

CCW is pressing for the government to explore that as well as company contributions. “Our research on customer willingness to contribute to social tariffs has shown billpayers are more willing to do that if they can see the company is contributing also,” White explains.

Following the water poverty paper, a period of consultation will allow water companies to respond on how the approach would play out in their regions and what else requires consideration. A standardised way of assessing water poverty may not be fully adopted until the next regulatory cycle from 2025.

White says it is essential to move forward quickly because the definition will determine companies’ future strategies in terms of helping customers and bringing down poverty numbers in a region.

“We have made massive progress over the past five years but there are constraints and blockers in the way because we have a system that relies on customer funding, so the overall amount available to address problems is limited.

“Companies have their own individual schemes based on the funding available through customers so there is a postcode lottery of what companies can deliver. The support can be different for different customers depending on where they live. We need to get past these before we can fully say water poverty has been eradicated.”