Ofwat proposes ‘small and temporary’ increase to the price caps in the business retail market

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Today water regulator Ofwat is proposing a ‘small and temporary’ increase to the price caps in the business retail market.

The temporary increase is intended to allow retailers to share some of the unexpected costs associated with bad debt that have arisen following the COVID-19 pandemic. These proposals do not affect household customers.

The amendment would temporarily increase – over the next two years – the maximum prices that retailers are allowed to charge business customers who are on default tariffs by 0.31%.

Georgina Mills, Business Retail Market Director at Ofwat commented on the announcement: “During the pandemic, we have implemented measures to continue to protect the interests of business customers.

“This small and temporary upward adjustment to the business retail price caps aims to protect customers in the longer-term by promoting stability of the business retail market, whilst maintaining strong incentives on retailers to keep bad debt costs as low as possible.”

National measures introduced since March 2020 to contain the spread of COVID-19 have led to retailers facing unexpectedly high levels of business customer bad debt costs, as businesses have been impacted by the pandemic.

Retailers are prevented from sharing unexpected cost increases with some business customers due to the price caps.

In April 2020, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of industry revenue, which it considered was the level of bad debt an efficient and prudent retailer should have planned for.

Following consultation, in July 2021 Ofwat agreed to allow ‘a small and temporary’ uplift to the business retail price caps.

Ofwat is seeking views and evidence from all interested stakeholders by 5pm Wednesday 12th January 2022.

A decision on the amendments will be published in February 2022 with adjustments taking effect from April 2022.

More information about this consultation and how to take part is available on the Ofwat website.