Ofwat to temporarily increase business retail price caps

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Ofwat has published its decision to temporarily increase price caps in the business retail market by 0.49%, allowing retailers to share some of the unexpected bad debt costs that have arisen due to the COVID-19 pandemic with business customers.

Bad debt costs relate to invoices or money owed that are unlikely to be recovered.

The temporary amendment increases the maximum prices that retailers are allowed to charge business customers who are subject to price caps by 0.49%.

This uplift has been recalculated from the 0.31% uplift consulted on in December 2021, to incorporate a proportion of bad debt costs reported by retailers during 2019/20. The uplift will take effect from April 2022 and last two years.

The water regulator’s decision does not affect household customers.

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.

“Implementing this small and temporary upward adjustment to the business retail price caps aims to protect business customers, including by maintaining strong incentives on retailers to keep bad debt costs as low as possible.”

In April 2020, and in recognition of the unfolding COVID-19 pandemic, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded levels which an efficient and prudent Retailer could reasonably have been expected to plan for – which it assessed as 2% of industry revenue.

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

More information about this decision is available on the Ofwat website.