Competition in the household water market risks being a “damp squib”, with many customers ending up disappointed after an “overly optimistic” review by Ofwat.

The Consumer Council for Water (CCWater) said the savings that would be available to customers would not be enough to persuade many people to switch supplier. It warned that many vulnerable customers are unlikely to take part in the market and could lose out on possible savings as a result.

The water watchdog has written to Ofwat, challenging some of the more positive assumptions it has made in its cost-benefit review of competition, in which it outlined four possible scenarios.

CCWater has expressed concern that the regulator has not made clear which of its scenarios is the most plausible. The group insisted it is “crucial” Ofwat tells government what it believes would be the most likely outcome, before a decision is made.

CCWater chief executive Tony Smith said: “If household competition is to be introduced we want to see a market in which customers are actively switching their supplier or renegotiating with their current supplier to get the best deal on price and service. We do not want to see the water sector experience the same problems that have affected the energy market.

“We are not convinced by many of the more positive assumptions that Ofwat has made in its analysis. In particular, we question how many water customers would be interested in switching supplier for such a small amount of money.

“We are also concerned that large numbers of customers, particularly the elderly and others living in vulnerable circumstances, may not participate actively in the market and that could cost them money.”

In September, Ofwat submitted its analysis of the costs and benefits of introducing household competition to the government. This included four possible scenarios based on assumptions about what might happen, including the likely level of customer switching, retail savings and cost efficiencies.

The regulator claimed that the financial benefits from opening the residential retail water market to competition could be worth almost £3 billion over 30 years. However, a scenario in which costs were higher, innovation is scarce and competitive activity is weak would result in a negative net present value of -£1.4 billion over 30 years.

The government is now considering Ofwat’s report and will use it to make a decision on whether or not to open competition to household customers.

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