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Letters to Regulatory Directors
RD 19/08 1 October 2008 Dear Regulatory Director Industry information on household debt As in previous years, Ofwat has collected data from companies on:
This letter provides detail on the above, along with key trends and the results of analyses we have carried out. Appendix 1 shows the level of household revenue outstanding and associated collection costs reported in 2007-08, and how these compare to costs reported in both 2003-04 2003-04 was the base year used when setting price limits in 2004. Changes in costs reported by companies and included in any claim for an interim determination involving the bad debt notified item will be compared to 2003-04. and 2006-07. Where possible, it also sets out changes since 1998-99 – the last full year in which household disconnection for non-payment of bills was permitted. Key findings from the reported numbers All figures used in the analyses have been inflated to 2007-08 prices to allow meaningful comparisons across years. show that:
Appendix 1 also includes some simple analysis to see whether any relationship exists between the various debt measures, income deprivation levels and average bills in different company areas. As in previous years, no statistically significant correlation has been found at a company level. Appendix 2 sets out industry figures relating to the number of actions taken through the courts. The data shows that while the number of pre-court action notices has increased by 23% since last year, county court claims and county court judgments have fallen by 8% and 3% respectively. The number of pre-court action notices (which includes written correspondence warning customers of possible legal action for the non-payment of bills) issued by the industry now stands at 10.7 million. The cost of bad debt to the industry represents around £11 per year for every household billed. The cost arises from debt collection activities, writing off bad debts and financing costs associated with unrecovered revenue. This means that those who do pay their bills on time pay extra to cover the costs of chasing payment and revenue written off. Reducing debt-related costs will help to reduce the overall amount that customers pay. As set out in 'Ofwat's future strategy for customer charges for water and sewerage services: consultation conclusions' we are planning to look at ways to make bills as easy to pay as possible and will work closely with other stakeholders to take this forward. This will include making a contribution to the independent Government review of household charging for water and sewerage services, and considering whether companies' ability to manage debt might be enhanced through changes to primary legislation. We will focus on steps that would encourage more customers to pay in the interests of reducing bills overall. This issue is particularly important in today's economic climate. In August companies submitted draft business plans setting out proposed investment programmes and prices for the period to 2014-15. Many argued that in the absence of more effective sanctions for non-payment, the level of bad debt in the industry will grow. We will consider companies' arguments but intend to protect consumers by keeping strong incentives on companies to collect effectively the revenue due to them. We will also continue to work with the industry and the Consumer Council for Water to gain a better understanding of the level and causes of debt and to promote the sharing of good practice in efficient revenue collection. We welcome observations on any aspect of this work. Please send comments to Sally Inett at the above address, or to sally.inett@ofwat.gsi.gov.uk. Yours sincerely Sue Cox Head of Service and Performance  |
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