Ofwat consults on Covid debt-driven business retail price cap uplift

Ofwat is consulting on its decision to allow a 0.31% uplift to retail price caps in the business market, to cover exceptional bad debt costs arising as a result of the Covid pandemic.

The amendment will be in place temporarily, for two years, and will apply to all business customers within the price capped usage bands (all except the very largest) who remain on default tariffs. Ofwat said that for illlustrative purposes, a small customer with an average annual bill of £500 would pay up to £1.55 more.

Ofwat explained that national measures introduced since March 2020 to contain the spread of Covid-19 led to retailers facing unexpectedly high levels of business customer bad debt costs, as businesses were impacted by the pandemic. But price caps prevented retailers from sharing these unexpected cost increases with most business customers.

In April 2020, the regulator committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of industry revenue, which it considered was the level of bad debt an efficient and prudent retailer should have planned for.

The decision is up for consultation until 12 January. A final decision will be issued in February and implemented in April 2022.