Delivering better outcomes for businesses: Unlocking the retail water market potential through smarter regulation.

In response to the current challenges facing the UK water industry, the UK Government recently established the Independent Water Commission, chaired by the former Deputy Governor of the Bank of England, Sir Jon Cunliffe, to conduct a review of the sector.

While the scope of the review is far wider than the retail water market, we have responded to the consultation calling for improvements to be made to help build a more inclusive, efficient and resilient retail water market.

Read more about the changes we’d like to see to help businesses of all sizes reap the benefits of a competitive market and the ways in which we believe we can start to better address the water scarcity challenges we’re already facing.

How the water market can work for all

While we know that a competitive retail water market delivers benefits to customers – the current regulatory framework in England is unintentionally prohibiting many small and medium-sized customers from doing so.

The Retail Exit Code (REC), which was meant to be a temporary safety net providing protections for business customers engaging in the market, is still in place eight years after market opening.

We’d like to see the REC replaced with a more flexible, cost-reflective framework that is more conducive to allowing a competitive market to thrive, but which still provides protections for those customers who need it.

We know from experience that a competitive water market can work for all customers - while switching was slow when the market first opened in Scotland in 2008, following a re-balancing of retail and wholesale costs, businesses of all sizes became active in the market; with over half of all businesses in Scotland now actively engaging in the market.

In addition to a review of the REC, we’d also like to see greater harmonisation across the wholesale regions, as there’s still a great deal of unnecessary complexity, particularly on tariffs, which is confusing for customers and retailers. For multi-site customers operating across a number of regions, a more simplified approach would help. And when we consider the smart meter roll out that is now underway, the need for a consistent approach across all regions becomes even more pressing.

The retail water market should deliver benefits to all customers – not just large water users – so by adjusting (and simplifying) the regulatory framework we can create a market that encourages more businesses to engage in it – paving the way for better service levels and greater innovation.

Tackling water scarcity

The second challenge we’d like to see a focus on is around water efficiency and how we can increase customer awareness levels and engagement to ensure we can address the water scarcity issues we’re already facing.

The European Commission recently published their Water Resilience Strategy, highlighting the urgency of the situation and calling for major reforms and a shift in how we think about water. As Executive Vice-President Ribera accurately stated: “Water is life. It connects every part of our world – from the smallest insect in the soil to the largest cities we call home. It sustains our health, grows our food, powers our homes and industries. Quite simply, without water, nothing works.”

As the UK and the rest of the world face the growing impacts of climate change, water security has become more than just an environmental issue, it’s now a key part of economic stability and public health.

The UK Government is taking action – with a target for non-household water use to be reduced by 9% by 2038 and water retailers play an important role in supporting businesses to reduce their water use.

We’ve launched a wide range of services and solutions designed to do just that – including our Water Stewardship programme for large water users; our water efficiency fund for public sector customers in Scotland; and water efficiency toolkits and online water efficiency shop to make it easy for smaller businesses to reduce their consumption levels.

However, in the absence of a supportive regulatory framework and incentive schemes to help drive water efficiency, we recognise that customer engagement in this area will remain, at best, mixed.

To close the gap between policy goals and market reality, we are calling for a dedicated forum to lead water efficiency efforts in the retail water sector, backed by government leadership and aligned incentives.

A Path Forward

Our main concerns align with those called out by the European Commission - that water resilience is not optional, it is essential. But achieving it requires more than infrastructure investment or policy guidelines.

It demands a regulatory framework that empowers all market participants and a cultural shift that places water stewardship at the heart of business and public consciousness.

The Cunliffe Review provides an opportunity to address a number of challenges facing the UK water market – which if addressed could help to deliver better outcomes for business customers and a stronger response to the water scarcity challenge we’re facing.