Afternoon all,
The news has been a little mad over the last week, so I thought I’d take a second to put some of the highlights into a single article, just so we can get a picture of whats happening in the UK as our government goes on their five-and-a-half weeek summer break. The newest piece of news is the last thing I discuss, so make sure you get there!
The Goodbyes
Water
The biggest bit of news came out yesterday, we are saying goodbye to Ofwat. Personally, I’m not sad about it, more nervous than anything.
Let’s be honest, Ofwat have done an appalling job over the past few years. Sewage being flooded into our rivers, water bills increased by 50% this year and executives at these water companies have taken the absolute mick and found ways to circumvent regulation banning bonuses by renaming them as “Management Retention Plan Payments” – thats not a joke, they simply removed any performance-related KPIs from them and designated them as retention payments, not bonuses.
Anyway, the government announced they will be scrapping Ofwat and replacing it with a new, currently unnamed, water regulator. The new regulator will take on the water responsibilities of Ofwat, Natural England, the Environment Agency and the Drinking Water Inspectorate combined. This comes after a report was published by Sir Jon Cunliffe – former deputy governor of the Bank of England who oversaw the biggest clean-up of Britain’s banking system after of the financial crash.
Sir Cunliffe’s report gave a total of 88 recommendations for fixing the UK’s water sector, one of which was to scrap Ofwat. The government immediately accepted that recommendation, as well a couple of others, and are in the process of reviewing all of the recommendations from this report.
For me, there’s one recommendation I really like and that is mandatory water meters. I can’t understand how in the modern world of information everywhere – fitbits for step counts, smart meters telling you how many kWh your kettle uses, apps with screentime stats and graphs – we still have homes that have no idea how much water they actually use. The idea of saying “this street has no water meters per house, so we’ll just split out the bill equally” is completely bananas and takes away all individual control of your bills. So yes, give everyone a water meter and put us all in control of our own water usage. Those with low usage will see a nice reduction in their bills and those with high usage might start paying attention and reducing their usage, it just works for everyone.
The thing I’m worried about is whether we’re just wasting taxpayer money and time by scrapping one regulator, creating another that has no more additional powers to enforce regulation on water companies than the current one does. This could all just be smoke and mirrors, with no real-world impact in the long run. That would frustrate me beyond belief, and I worry that amongst the confusion of one regulator closing and another opening, water companies will take advantage of the mayhem and pay themselves more bonuses and higher salaries.
Just so you’re aware, Ofwat isn’t immediately shutting down, it will stay active until the new regulator has been formed, although I’m not sure how motivated the employees of Ofwat are going to be after yesterday’s announcement.
Electricity
Ed Miliband has been considering a plan for Zonal Pricing across the UK. These conversations have been ongoing since 2022, but in the last week it was announced that they will NOT be going ahead with any zonal pricing plans.
Effectively, at the moment we have a national wholesale price for electricity which is always set to whatever the most expensive generator of electricity is at the time, so usually it would be gas-fueled power stations. The problem we’ve been having is that we often have to pay windfarms to turn off because theiy additional electricity on the grid may overload the grid, and we can’t have the powerstations turned off because then we wouldn’t have enough electricity on the grid. A zonal pricing strategy would allow local communities to utilise the cheap wind farm energy that is close to them, rather than taking from the powerstations. This would reduce transmission costs for many northern counties and would reduce the wholesale cost of electricity for people living close to renewable sources. Overall, everyone’s bills would come down.
However, the larger UK energy companies did a great job at twisting the story and have spun it as “zonal pricing will make southerners pay more for their electricity than northerners”. Not technically untrue, the overall impact would mean that the north would have lower bills than the south for the first time, but it misses the point entirely, everyone would have lower bills overall. The impacts of zonal pricing are that the north would see massive reductions, the south would see medium reductions, everyone wins but the north would see a greater win, thats all.
Instead, Ed Miliband has decided that we will scrap zonal prices and move to a single price system instead so that everyone is treated fairly. As there is already a single price system on the wholesale side, I figure he is talking about on the supplier side, in which we have 8 gas regions and 14 electricity regions across the UK that all pay different prices for gas and electricity respectively.
What’s interesting about this approach is that it will increase bills for people in London and the south and lower bills for people in the north. So, zonal pricing brings bills down for everyone, single price system brings bills up for the south and down for the north, and the government are deciding to go with the latter. Utter stupidity.
Retirement
That’s our bills covered, but we also have another announcement. Liz Kendall, the Work and Pensions Secretary, has announced an early review of the state retirement age.
Currently the retirement age is set at 66, moving up to 67 over the next two years and a planned move up to 68 by the year 2046. Interestingly, there was a state pension age review in 2017 that recommended moving the retirement age to 68 by the year 2039, 7 years earlier than current legislation dictates.
I’ve seen some news outlets say that the government have announced an “early” review of the state pension age, but this isn’t true. The previous State Pension Age Review in 2023 explicitly stated “We plan to have a further review within two years of the next Parliament to consider age 68. T his will ensure that the government is able to consider the latest information which was not a vailable to the independent reviewer at the time.” – essentially, the last review wasn’t able to take into consideration the impact of COVID-19 on long term health and the population size, so the government thought it was premature to make huge decisions without all the information. An oddly wise choice by the government.
The problems we’re having are that life expectancy has increased far more than the retirement age has, this means people are living in retirement for longer periods of time, costing more than we originally expected. Additionally, the pension triple lock system has cost about three times as much as originally planned because of the huge inflationary pressures we’ve seen over the last couple of years. All-in-all, pensions cost the government more than they can afford and current estimates show that people retiring in 2050 are likely to receive £800 a year less than today’s retirees (I’m not sure if that figure is adjusted for inflation or not, but i certainly hope it is otherwise we’ll feel far worse than just £800 a year worse off!).
My feelings on this are mixed. On the one hand, I get it, people are living longer and there is only a finite amount of money the government can give. I mean look at the stats, in 1950 the retirement age for men was 65 and for women it was 60, but the life expectancy of a man was 67 and a woman was 70, so we were paying 10 years of pensions for women and maybe 2 years for a man. Today the retirement age is 66 for eveyone, and the average life expectancy is 79 for a man and 83 for a woman, so we’re paying 17 years of pension for women and 13 years of pension for a man – those are SIGNIFICANT increases!
On the other, no one wants to hear that retirement is even further away than it already is. At this point, I’d be happy if I’m allowed to retire by 70, but many of us millenials and younger generations are concerned that that isn’t a likelihood.
The implementation of auto-enrolment into private pensions was a great idea, but it is also foreshadowing a future where state pensions aren’t given to everyone. I can see this current review as being the next step in the UK governments move towards making state pensions a means-tested benefit.
Here are my predictions for the outcome of this pension review:
- The government will plan to have state pension age increased to 70 by the year 2050 – this will be the media smoke-screen that they want, all news outlets will focus on the state pension age increasing dramatically, allowing the government to sneak other announcements out with less attention
- The government will move forward the increased state pension age of 68 to coming into force by 2038
- The government will weaken the state-pension triple lock to being a double-lock system, removing inflation as part of the lock and reducing the fixed percentage element to 2%. This will mean the state pension will only increase by either average wage prices or by 2%, and will be entirely uncoupled from inflation
- The government will BEGIN conversations about reducing the number of people eligible for state pension. They won’t act on this, but it’ll start opening the conversation up to the public about whether it’s fair that people like Lord Alan Sugar can receive state pension – they did a similar thing with the Winter Fuel Payments, opening up conversations and focusing on extreme examples wins over some public support before a plan is actioned
There’s not a lot more to say until we are given more information by the government. This review will take a while, its unlikely that we’ll hear anything until mid 2026 I think, but I’ll keep you posted on it.
The Hellos
Water Again
Whilst some things seem to be going away, there are some new introductions in the news recently which also offer cause for concern, and the first is the 30% increase in water bills. I’m actually really confused about what is happening in the water industry, particularly where it comes to my bills.
So all over the news earlier this year was articles saying “water bills to increase by 35% over the next five years” – so I was thinking “oh no, a 7% increase every year” or something like that, but I was wrong. Thames Water immediately announced a 41% increase in bills from 2024 to 2025, like all in one hit. And now the news is reporting a further 30% increase is expected over the next five years. Again, I feel conflicted.
According to the recent report by Sir Jon Cunliffe, there has been huge pressure on water companies to keep bills low for years – this has resulted in serious underinvestment in our water network and water companies, its lead to a lot of the problem the water companies are facing and has now lead to a recommended 30% across the board increase in water bills. Effectively, we’ve all been undercharged for water for years and the consequence of that is we have to see some huge increases in our bills to get out water system back up and running properly. I understand that economically, but then my personal feelings are conflicted.
My personal feelings are “give us a damn break” – council tax is costing just under £200 a month here in the south-east, mortgage and rent prices are reach ridiculous highs, our energy costs are still 70% above pre-crisis levels, weekly food-shops have sky become a rich-mans game and tax brackets have been frozen for years. The only thing in my life that has gotten cheaper over the last couple of years are my mobile phone, because I paid it off and have decided not to get a new one until this one dies, and weirdly my broadband has come down because I switched to Three broadband – it’s not bad but if the network goes down then I lose phone and wifi all at once, which isn’t great, but it only costs be £16 a month. Now we’re being told water is to rocket even higher, it’s just a lot of increases without an equal increase in income.
I just need to know, where the hell has the money gone? All of this money is going somewhere, right? Are shareholders seeing insane profit levels from all of these companies, because I doubt they’re passing the earnings down to employees? And where is the cliff-edge? At some point our salaries are going to be out-matched by the cost of living, what happens then? I just think it’d be nice to see some changes that bring costs down somewhere, please.
Electricity Again
Today it was announced that the UK government have approved a £38bn deal to build a new nuclear power plant, Sizewell C. There’s a lot to unpack on this one, so I think it best to give it in short bullet points so you can soak in the information without my babble:
- The government will own and fund 44.9% of the powerstation, with La Caisse owning 20%, Centrica (British Gas) owning 15%, EDF (the French government) owning 12.5% and Amber Infrastructure owning the final 7.6%.
- Sizewell C was originally estimated to cost £20bn to build, it is now predicted at £38bn – some experts predict that this is still an under-estimation
- The government did not inform the UK public that predicted costs have almost doubled before it agreed the deal
- The predicted £12.5bn cost to consumers (44.9% of £38bn) will likely be added to energy bills over the coming years
- The last time Britain completed a nuclear plant was Sizewell B in 1987
- Hinkley Point C (a different Nuclear Power Plan) began construction in 2016, is expected to be delayed until 2031 and is predicted to cost £35bn, up 40% from the original £25bn prediction
- Alison Downes, a campaigner for Stop Sizewell C, claims that “his much-delayed final investment decision has only crawled over the line thanks to guarantees that the public purse, not private investors, will carry the can for the inevitable cost overruns.“
Nuclear power is cleaner, cheaper and better than gas-fired power stations, which is great. The government will own 44.9% of the powerstation, so I’d expect that they will receive 44.9% of the profits it generations in future years, which will be great for our kids. It is expected to create enough power to support 6 million homes, give 10,000 jobs and 1,500 apprenticeships once it is operational, expected to be in the 2030s.
The problem is these things never go to plan, look at Hinkley Point C or HS2 – these things inevitably have delays and cost billions more than they are predicted to, and I really hope Alison Downes is wrong when she says that all overrun costs will be borne by the UK public.
If everything goes to plan, this is overall good news, apart from the downside of our bills increasing to pay for this investment. However, I’m not confident it will go to plan and I’m certain that this will cost far closer to £50bn than the current £38bn target.
Right, that’s all I got today. There’s obviously a lot more happening in the news tahn this lot, but these are the bits I figured would impact the average household more than anything else. As usual, it’s not great news, and the government are just about to start their 5 week summer holiday, lucky b*stards, so I don’t expect there to be much big news in august.
Thanks for reading guys, don’t forget to subscribe to my newsletter and get yourself some excellent deals on your energy bills!
Richard Winstone
The Regulator Guy.
