Ofwat has launched a new consultation on promoting water efficiency in wholesale charges for business customers – the regulator is reviewing current and potential wholesale charging structures for larger users and examining the rationale for offering discounts.
Ofwat also identifies several options for how IT might amend its existing Wholesale Charging Rules (WCRs) to enable reforms aimed at better environmental and social outcomes.
The consultation highlights growing awareness of the need to tackle water scarcity and the importance of water efficiency, and the potential for confusion about the value of water arising from the provision of discounted charges to large business customers.
Ofwat discusses current and possible future charging structures for large users and options to amend the WCRs to enable companies to place more weight on water efficiency considerations when setting wholesale charges.
The consultation relates to water companies wholly or mainly in England and Wales.
Introducing the consultation paper, Ofwat said that in July 2025, the Environment Agency warned that the country could have a 5 billion litre of water a day shortfall by 2055, unless action was taken to reduce demand, cut waste and increase supply.
In addition, the Independent Water Commission has highlighted the need for greater water efficiency in the non-household sector and recommended that charging structures be changed to incentivise water efficiency.
Ofwat is now seeking views on whether companies' charges and the WCR might be changed to support greater water efficiency, including whether discounted charges for larger users continue to be appropriate. The consultation paper:
- examines existing charges for larger users, in the context of the need to promote water efficiency amid the increasing threat posed by water scarcity.
- sets out different options for how companies might restructure their charges for larger users; and
- sets out possible amendments to the WCR that could promote greater water efficiency.
Ofwat is inviting responses to the following questions:
Ofwat notes that retailers in the business retail water market generally reflect wholesale charges in their charges for business and other non-household customers. Charges for large business users are of particular interest as those customers account for a significant proportion of total consumption.
Businesses using more than 50Ml per year account for more than 40% of total business consumption and businesses using between 5 and 50Ml per year account for more than 20% of total business consumption.
In the current 2025-26 charging year, all companies offer lower unit rates for larger users compared with their other customers and apply one of two types of larger user tariff (LUT) at present:
1. Discounted single rate tariff structure (SRT)
The volumetric charges for larger users are lower than the equivalent volumetric charges for other business and household customers, while the fixed charges are higher. The lower volumetric charge is applied to the entire volume used by a given large user - 16 out of 17 companies apply this charging structure in 2025-26.
2. Falling block tariff structure (FBT)
The volumetric charges vary according to blocks of consumption. The highest volumetric charge is applied to the initial block of consumption and the volumetric charge falls for each subsequent block. Only one company applies this charging structure in 2025-26.
Discount structures may be "creating perverse incentives for large businesses to use more water"
Under Ofwat’s current charging rules, the discounts are permitted if they reflect lower costs. However, the consultation paper says there is concern that such structures may be creating perverse incentives for large businesses to use more water.
The consultation paper examines the rationale for larger user tariff (LUTs) and whether there could be alternative approaches for setting LUTs to provide better price signals for the value of water efficiency – such as applying larger user discounts through fixed rather than volumetric charges.
The regulator is also consulting on amending the WCR to support water efficiency – the consultation says some companies perceive the WCR as a barrier to reforming their charging structures. Ofwat’s proposals are aimed at addressing this perception by enabling companies to place more weight on water scarcity considerations when setting charges.
Deadline to respond is 11:59pm on Wednesday October 1st, 2025 - click here to access the consultation paper. Ofwat is asking for responses to be emailed to This e-mail address is being protected from spambots. You need JavaScript enabled to view it
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