Charging Ahead: Early lessons for regulators, companies and policymakers from water tariff trials

Introduction

Water companies are beginning to test whether different ways of charging for water can help customers use less water, support affordability and respond to increasing pressure on water resources. Innovative tariffs, which vary the rate at which metered water is charged, can be used by companies to create a financial incentive for using water in certain ways.

Companies are engaging in these trials because charging is one of the few tools that directly links everyday customer behaviour with the wider challenge of water scarcity. But it is also a sensitive area. Water is essential, customers do not have a choice of supplier for household water services, and trust in the sector remains low.

CCW’s starting point is that customers must be protected. Any trial needs to be fair, clearly explained and designed so that people in vulnerable circumstances are not harmed. At the same time, we recognise that water resources are becoming more stretched and that tariffs could have a role in helping households and businesses value water, reduce waste and lower bills.

Why companies are trialling new tariffs

The water industry must confront the challenges posed by climate change. The summer of 2026 brought this into sharp focus with drought conditions across the entirety of Wales and over two-thirds of England. Eleven water companies had to introduce hosepipe restrictions with some struggling to cope with peak demand for water.

The Environment Agency has estimated that England’s public water supply could face a shortfall of 5 billion litres a day by 2055 without urgent action. Alongside investment to improve water resource resilience, water companies need to make better use of the resources currently available to them. That must include reducing leakage and encouraging more efficient use of water by households and businesses.

In April 2023, Ofwat changed the charging rules so that companies could trial different charging structures. The aim was to create space for innovation: companies could test whether charges can encourage more efficient water use, improve affordability, or both, while still operating within the overall regulatory framework. Companies cannot collect more money overall as a result of these trials, but individual customers may pay more or less than they would under existing charges.

CCW supports the principle of carefully managed trials. These can provide useful evidence about what works, what customers understand, and potential risks. Our involvement has focused on making sure companies communicate clearly, design proper safeguards, and exclude or protect customers who could face unfair impacts, including customers on affordability support schemes and households with high essential water needs.

Full details on the charging trials can be found on Ofwat’s website.

What has been tested so far

The main household trials to date fall into two broad categories.

Rising block tariffs

Customers pay a lower price for an initial amount of water and a higher price as usage moves into higher blocks. The objective is to protect essential use, while creating a stronger price signal against discretionary or wasteful use.

Affinity Water’s WaterSave trial is a clear example of this, with a free first block, a standard middle block and a higher price for high use.

Seasonal tariffs

Seasonal Tariffs charge higher prices when demand is usually higher and water resources are under greater stress, such as during summer, and charge less when more water is available.

Anglian Water has tested this approach with household customers in Lincoln, Norwich, Northampton and Colchester. Pennon has also undertaken seasonal trials within its South West, Bournemouth, and Bristol Water (pdf) operating areas.

Other emerging approaches

Some companies are also exploring reward-based models, including discounts for reducing use against a previous baseline, and fixed-price bundles that give customers certainty if they stay within agreed consumption limits.

There are also important lessons from non-household customers. Anglian Water’s non-household trial (pdf) asks higher-using businesses to undertake efficiency audits and act on recommendations, with an additional charge where they do not. This approach recognises that business water use varies far more than households. A high-using business may be efficient for its sector, while a smaller user may still be wasteful. For businesses, a simple rising block tariff may be inappropriate unless it is linked to context, advice and realistic efficiency opportunities.

What the trials are telling us

CCW’s analysis of water company trials has highlighted several emerging lessons for regulators, companies and policymakers. These insights can help shape future innovative trials and ensure they deliver greater value and better outcomes for consumers.

Tariffs can influence behaviour, but the evidence is still mixed

The early findings suggest that tariffs can influence water use, but the strength and reliability of that effect needs further evidence.

Rising block tariffs

Affinity found a reduction in water use of 11 litres per head per day among participants during the first year of its rising block tariff trial. However this effect dissipated in the second year.

Water consumption can also be affected by factors including the weather, household circumstances and wider communications from companies. The Affinity trial tested both a price structure and an enhanced communication package, so it is difficult to separate the effect of the tariff from the impact of better information.

Longer trials, larger samples and stronger evaluation will be needed before firm conclusions can be drawn.

Similarly, South West Water’s rising block tariff trial showed some signs of being effective in moderating water use, particularly among average and higher water users.

Seasonal tariffs

The emerging results from Anglian’s seasonal tariff trials are promising in terms of driving greater water efficiency. Over 50% of households participating in the trial showed signs of positive behaviour change. The variant of the trial with a stronger price signal prompted the bigger response from customers.

Anglian’s research had found that while many customers recognise the wider water resource challenge, they do not necessarily see themselves as having a meaningful role in solving it, especially where saving water feels inconvenient. However the company’s trials are pointing to the tariff having an influence in bringing increased focus on how water is used for many participants.

Pennon’s trials and customer research found more positive reactions to rising block tariffs than to seasonal tariffs, with some households expressing concerns about perceived fairness. Customer expectations about how they would respond to the seasonal tariff varied, and emerging evidence suggests usage patterns may not always have changed in the way intended. As analysis is ongoing, further evaluation will be needed to understand the full impact on consumption, bills and customer acceptability.

Non-household customers also raised fairness concerns, particularly in sectors such as agriculture and seasonal tourism, where water use is often closely linked to operational requirements rather than discretionary demand.

Communication is as important as the price signal

One of the clearest lessons from the trials is that customers need to understand what is changing, why and how to respond. Without this, a tariff can feel like a penalty rather than an opportunity to save water or reduce bills. Effective communication is particularly important given the erosion of trust in water companies. Some customers wrongly assumed that companies were using trials to boost revenue.

Affinity’s customer research points to the value of a practical communication agenda:

• use simpler, more visual materials
• explain the purpose of the tariff clearly
• provide key information at the start
• create easy access to support
• give customers regular information about their use against tariff thresholds

CCW’s smart metering research with business customers reinforces this point. Smart meters and innovative tariffs only work if customers can see and understand their consumption data. A “data void” after installation undermines confidence and makes it harder for customers to act.

Fairness and protection must be designed in from the start

Rising block tariffs can look fair because they charge more for higher use. However, high use is not always wasteful use. Larger households, people with medical needs, and customers with other essential water needs may use more water even when they are being efficient. Conversely, a small household may use relatively little water overall but still be inefficient for its circumstances.

This is why exclusions, safeguards and allowances are essential. Most companies have excluded customers known to be financially vulnerable and lower-income households with high essential water needs i.e. customers supported through social tariffs or the WaterSure scheme. These existing protections are important but there is a risk of relying only on what companies already know. Some customers who need support are not on existing schemes. Trials therefore need clear routes for customers to raise concerns, easy opt-out or review processes where appropriate, and active monitoring to identify bill shocks early.

Customers appear more open to rewards and support than penalties alone

Evidence from trials and research suggests that rewards can motivate more efficient water usage if they are meaningful and easy to understand. South West Water’s Stop the Drop scheme, which offered a bill discount linked to reservoir level recovery, showed how a clear shared goal can help connect individual action with a local water resource outcome.

Portsmouth Water’s planned reward-based trial, where customers can pay a reduced tariff if they use less than the previous month, will provide useful evidence on whether positive incentives drive behaviour without creating the same anxiety as higher charges.

Practical support with efforts to moderate water use also matters. Customers are more likely to respond where they have practical, low-effort ways to save water, such as water-saving devices, home audits, leak advice and timely prompts. Pennon’s findings suggest that trials can increase awareness and encourage behaviour change: many participants reported installing water-saving devices, seeking audits or wanting more advice.

Tariffs should not be seen as a standalone intervention and are more likely to work when combined with information, tools and trusted support.

Trial design affects what can be learned

Careful evaluation is needed, as opt-out provisions can affect the reliability of findings. Those who remain on the trial may be more engaged, less concerned or more able to change behaviour. Severn Trent’s opt-out approach offers useful customer protection and may help maintain acceptability, but it also needs careful analysis so that results are not overstated. Equally, where a trial combines price changes with enhanced communications, evaluation should try to understand which element is achieving the aims of the trial.

Trials should also be judged against more than one outcome. Demand reduction is important, but so are affordability, customer understanding, acceptability, complaint levels, distributional impacts and trust. A tariff that reduces use but creates unfair bill increases or confusion would not be a success from a customer perspective. Similarly, a tariff that improves affordability for many customers but creates severe impacts for a small group needs stronger safeguards before wider use could be considered.

What this means for future charging

The evidence to date suggests that alternative tariffs have potential, but they are not a simple fix. Rising block tariffs may encourage some customers to reduce use and may improve affordability for many, particularly where an initial low-cost or free block protects essential consumption. Seasonal tariffs are intuitively linked to water scarcity but may be harder for customers to accept without stronger support or clearer messaging to change behaviour.

The key test is whether any approach is fair, understandable and effective. Consumer behaviour change must also be matched by company efforts to reduce leakage, invest in resilient supplies and improve service.

Customers can be part of the solution if they are given fair price signals, good information and practical help. The trials suggest that price can play a role, but trust, communication and support are likely to determine whether customers feel empowered or penalised.

Conclusions

The emerging message from the charging trials is cautiously positive but there is a need for more evidence. Emerging findings suggest that alternative tariffs – especially rising block tariffs – combined with clear communication can reduce demand and lower bills for many customers. There are also signs that customers are willing to engage when the purpose is clear and when they can see how their actions make a difference.

However, there are significant risks to consumers if tariffs are not fairly designed. Poorly designed tariffs could penalise households with high essential use, confuse customers, or deepen existing mistrust.

The next phase of trials should therefore focus on:

• building robust evidence
• strong communication
• real-time or near real-time usage information
• practical water-saving support
• clear protections for customers who may be exposed to higher bills

If those conditions are met, innovative tariffs could become one useful part of a wider package to improve water efficiency while protecting customers in a world of increasingly stretched water resources.

CCW recommendations for next steps

1. Companies should continue to test a variety of alternative charging structures and reward-based schemes to create an extensive evidence base across both household and business customers. In doing so companies should ensure that they:

• take account of the distributional impacts between different groups, including for households and businesses, which have more limited control over the amount of water they use or when they need to use it
• provide practical support, such as water-saving devices, home audits, leak advice and timely prompts, to support customers’ water efficiency efforts
• utilise the capabilities of smart meters to enhance the information available to consumers in controlling their water use and bills
• make communication a core component of tariff design and future trials. Evidence consistently suggests customer understanding is critical to both acceptance and behaviour change

2. Companies and CCW should continue to seek out customer views on innovative tariffs to strengthen our understanding of how they can meet their needs and expectations.