House prices to blame for Thames Water’s 12% bill shock

Coming at a time where we are already discussing substantial energy price rises, Thames Water has announced plans to increase the bills of its 14m customers by 12% and it is believed that house prices in London could be to blame.

The proposed rise in prices comes after Thames Water had originally agreed with Ofwat, the official water and sewerage regulator, a rise of 1.4% plus inflation, totalling around a 4% increase for next year.

However, due to ‘unforeseen costs’, Thames Water have returned to the regulator and requested a one-off super-hike consequently imposing an extra £29 on the average £354 bill. This, together with the original price changes will equate to around a 12% increase for just one year.

Their justification? Thames Water have highlighted “changes to certain specific costs that were not anticipated” back in 2009 (when the prices for the 2010-2015 period were decided and fixed) as to blame. In particular, four factors were differentiated, two of which are strongly related to the rising house prices:

–         Firstly, Thames Water is undertaking the ambitious construction of the Thames Tideway Tunnel, a new “super sewer”, which has cost more than expected. The biggest surprise has been the sharply rising cost of property in London, particularly on the south side of the river where the tunnel needs to be built. The area, which has been substantially developed, attracts wealthy foreign buyers who have already helped push up the prices of property in London. Needing to buy large swathes of this land has cost Thames Water £273m.

–         Director of External Affairs, Richard Aylard explains the second property related factor. He says

The biggest problem is actually the short-term rental population. We sometimes don’t have information about tenants, and landlords don’t have to tell us who they are. Because of the downturn, people were moving more in short-term lets.”

Nevertheless, Thames Water understand that such price rises will disgruntle many of their 14m customers and are in discussions with Ofwat to try and spread the cost over more than one year. Mr Siddle, Chief Financial Officer for Thames Water explains:

“Increasing prices is never good news, which is why the company and its shareholders are encouraging Ofwat to adapt its regulatory mechanism to allow the impact of the price increase to be spread over more than one year to avoid a spike in bills for our customers.”

This is just one example of how the rising house prices are forcing the cost of living up and it is not likely to be the last, particularly with the recent news of strong performance from the property market.

SRJ / BT / LCB                                                                                                            21/08/2013

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