Affinity Water’s new charging plan has some obvious flaws

Is Affinity Water’s new charging plan the start of rationing by the back door or a new system of paying for water that will make this rather important commodity “fairer and more affordable” for domestic customers?

Beauty really is in the eye of the beholder.

So let’s unpick a scheme that may soon be coming to you given that water regulator Ofwat has spoken approvingly of it and will be closely monitoring the results (as will Affinity’s peers). You mightn’t get much choice in the matter, either. Those selected for the trial didn’t.

Here’s how it works: the customers – or should that be conscripts – who are involved will be granted 30,000 litres of water a year free of charge. The next 215,000 will be priced at £1.50 for every 1,000 litres. Anything over 245,000 litres will cost £4 for every 1,000 litres, a rise of 166 per cent.

Some 1,500 customers in Affinity’s supply area, which covers 3.8 million customers across southern England, will find themselves grappling with this. Their selection, we are told, involved “cutting across income distribution and embracing both high and low usage customers”.

These customers will be informed of how they can reduce bills by bringing down their water usage as part of the scheme. Patterns of usage will be compared with a control group to see if it succeeds in cutting consumption. Admirably scientific, then.

Now here’s the thing: we need to reduce the amount of water we use, especially those of us living in the parched South East where Affinity supplies a lot of customers in an area notably prone to drought.

Climate change looks set to exacerbate that problem. OfwatCEO David Black has said the latter “poses significant long-term challenges to river water health and security of water supply”. The Environment Agency says that by 2050 we as a nation may need to find around 4,000 million litres per day of extra water for public water supplies if consumption is not reduced. Affinity says finding a way to do that will “reduce abstraction from sensitive locations, including our precious chalk streams”. There are more of these in England than in the rest of the world combined.

Like it or not, water consumption is an issue that has to be addressed. However, customers might very well respond by saying, yes we understand and that’s all very well but this industry hardly has a spotless record when it comes to things like leakage, now does it? And regulation has also too often been lax. And scandals too common. Perhaps you should lot – companies and regulators both – should put your own house in order before imposing upon us?

The sometimes opaque, and overseas, ownership of some of the water companies has been also been a source of controversy. For the record, Affinity is currently in the hands of a consortium of investors including HICL, a FTSE 250 listed group that invests in infrastructure, DIF Tamblin, a fund manager, and Allianz, a German insurer. There’s a certain type of investor that finds the UK’s water supply business very attractive because of the stability of the returns.

If we’re talking about the issue of how consumers are charged, and incentivised, shouldn’t we raise the same questions about water companies? All these businesses are monopolies. There isn’t even the dubious choice available when it comes to one’s energy supplier, at least when the market is working correctly (which it currently isn’t).

All of this is relevant when looking at wheezes like this one, which has one very obvious flaw when one considers that “fairer and more affordable” water selling point. Because the allocation of water is being made per household, and not per person. That will very likely make water cheaper for, say, a childless professional couple on good salaries, even more so for a single person. But how about a single mother with three kids, working as a teaching assistant? The advantages are harder to see from her perspective.

This is where the element of compulsion could be particularly problematic. It would have been much better for Affinity – and by extension Ofwat – to have sought volunteers even if that might have complicated its plans somewhat.

If the promised advice on how to cut water usage is being offered, it had better be top-notch.