The UK’s water market is set for its biggest transformation since privatisation as it opens for competition between suppliers from this weekend.
From April more than 1.2 million businesses, charities and public sector bodies will be able to choose their supplier rather than rely on a supplier with a regional monopoly, in a first for customers in England and Wales.
The Government hopes that competition will lead to better customer service, lower costs and more innovation among suppliers as they vie for customers. Scotland already deregulated its water market for businesses in 2008.
Andrea Leadsom, the environment secretary, said: “Opening the market is an historic milestone, paving the way for innovation and efficiency and giving customers the same choice over their water retailer as they currently have for their energy and other essential services.”
Billions of pounds’ worth of water contracts are set to be awarded to utilities in the coming weeks. The first major framework contract is expected to be awarded by Crown Commercial Services on behalf of the UK’s public sector and is understood to be worth between £800m to £900m.
A steady stream of contract awards from high street retailers Marks & Spencer, Next and Sainsbury’s will follow.
Cathryn Ross, chief executive of industry regulator Ofwat, said that major water users have long awaited the opening of competition in the hope they could secure better service at a better price.
“The cost-benefit analysis which underpinned the reforms suggested a net benefit for the country of £200m from opening the water market. So even based on a conservative estimate there is some real money here,” she said.
In addition many multi-site operators, such as national chains, will be able to choose one supplier to avoid paying extra administrative costs to manage separate billing from the various regional water suppliers across the country.
“There was tale after tale of frankly below par customer service and that was probably the biggest single driver for the reforms. There was this palpable need among business customers for better service and, frankly, more innovative thinking,” Ms Ross said.
Low awareness of the change among small and medium sized enterprises (SMEs) has raised concerns that the benefits of competition may remain limited to the UK’s biggest companies.
“If you look, for example, at how competition progressed in Scottish market… you can see that SMEs have benefitted from competition. It did take longer but we are confidently expecting SMEs to become an attractive part of the market for some providers,” she said.
She added that Ofwat plans to “keep on the ball” by learning lessons from the energy market, which has been dogged by concerns that competition is not working in favour of the consumer.
“There are reasons not to expect the same issues that we see in energy occurring in water. That said, we must absolutely learn the lessons that we can,” she said.
Under Ofwat’s plans micro businesses will be granted a ‘cooling off’ period of seven calendar days after signing up to a new provider. The provider will be prohibited from rolling over contracts at the end of the contract. The regulator has also designed a voluntary code of conduct for service brokers.
Tony Smith, the head of the Consumer Council for Water, said: “We know there will be teething problems and not everything is going to be right first time. When problems arise, CCWater will be here to help customers get their complaints resolved quickly and support them with free, impartial advice and information.”
The Government is now looking at opening up the market for domestic customers – a move that Ofwat has calculated could save households up to £3bn in a best-case scenario.
However, Ms Ross said the regulator was not concerned about a “slower burn” within the SME sector.