Smart water tariffs: could new models solve our affordability and supply challenges?

28 August 2025

Innovative pricing tariffs and smart meters are reshaping how we value water – but can they deliver fairness as well as help reduce demand?

At the start of this year, the French city of Lyon did something bold. Aiming to reduce water consumption by 15 per cent by 2035, it introduced a new system of water pricing that sees households receive a small amount of water (12 cubic metres per year) for free, with volumes above that charged according to a sliding scale that sees heavier users charged more per unit.

Can we learn from Lyon's example? Credit: Shutterstock.

Lyon is just the latest French city to implement such a system. The English language French news website The Connexion reports that Montpellier has seen water consumption drop by 3.5 per cent in the past year, following its own move to a so-called ‘rising block’ tariff.

With England facing a predicted water deficit of six billion litres per day by 2055, as well as an affordability crisis that has been exacerbated by recent bill increases, could more innovative tariffs of the kind we’re seeing across the Channel be the answer here too?

Trials and tribulations

Ofwat certainly seems to think so, having called on water companies ahead of last year’s price review to launch charging trials “aimed at supporting affordability, and potentially other sustainability goals such as reducing demand”.

Affinity Water was the first of the English water utilities to take up the gauntlet, introducing a rising block tariff in October 2023 for 1,500 customers in the Stevenage region. A further five companies have followed suit since then and the remaining utilities are expected to join them by 2030. As well as rising block tariffs, there are trials of seasonal tariffs – where customers are charged more in summer than in winter – and peak demand tariffs.

All the water companies already offer so-called ‘social tariffs’, which bring bills down for customers on low incomes – new ‘essential use’ tariffs are now also being trialled for customers struggling to pay their bills that are not eligible for social tariffs. They use a rising block structure, with ‘essential’ water use charged at the social tariff rate, with any further water use charged at the standard rate.

“There is a massive opportunity with tariffs,” says Nathan Richardson, an independent consultant formerly at water saving NGO Waterwise. “It could help people with affordability and it could benefit the environment: it potentially stimulates water conservation motivations.”

Using tariffs to reward particular behaviours is not a new idea. In 2009, the Walker Review on charging for household water found that, “It is very important that the charging system should incentivise the efficient use of water to ensure we have a sustainable water supply. Water, as an essential of life, also needs to be affordable, particularly to those on low incomes.”

So why has it taken so long for the sector to embrace new ways of charging for water? In a word: technology. The Walker Review concluded that metering was the fairest way of charging for water and called for the increased use of meters. It acknowledged, however, that the “bulk of the meters currently being installed would not allow the use of more sophisticated tariffs […] Smart meters would allow such a use as they can store data and/or be interrogated remotely.”

Smart metering for water was still in its infancy then, but much has changed in recent years, such that the Environment Agency has stated that it “expect[s] all water companies to start installing smart meters from 2025, and to replace the current basic meter stock” (see Work smarter, not harder, from the Spring 2025 issue of The Environment for an analysis of the current state of smart metering). The landscape for innovative tariffs is therefore now very different to how it was at the time of the Walker Review. “Smart metering has definitely reinvigorated interest,” says Richardson.

Challenges

Smart metering technology may have opened up the possibilities for innovation in water tariffs, but there’s still plenty to figure out as far as what’s going to work best, where and for whom.

For Rob Lawson, a water resources expert and director of Artesia Consulting, it’s about “finding that sweet spot between what works technically for managing demand and also from a behavioural point of view”. Outside the water sector, he says, “we've seen lots of instances of quite subtle behavioural nudges that have delivered quite significant changes”. He points to the charge on single-use plastic carrier bags in England: first introduced in England in 2015 and then increased in 2021, the intervention has seen sales of plastic bags fall from 7.6 billion to 406 million in 2022/23, according to government figures.

But Lawson warns of the dangers of “unintended consequences”: customers getting the impression, for example, that these new tariffs are a “cynical money-making exercise” by a sector that’s already raised hackles by increasing bills by an average of £31 a year before inflation across the AMP8 investment period (2025-2030).

There are the intended consequences to consider too – if metering and the introduction of rising block tariffs turn out to be very effective at cutting demand, such that the water companies are generating less income from customer bills, how will the firms make up the shortfall? “There will need to be changes. The unit costs will have to change to reflect the value of water,” says Lawson.

Any tariff system must also be carefully designed so as to not to penalise particular segments of society. High occupancy households, with their inevitably higher water use, are vulnerable to be being charged more on rising block tariffs, for example. “We support smarter ways of charging,” says Richardson, “with the caveat that there might be winners and losers, and what's going to happen to the losers?”

This is just the sort of question that the current tariff trials are investigating, so we shall have to wait to see what answers the sector comes up with. Ofwat hosts a digital platform for the water companies to share their trials data between themselves and the Consumer Council for Water (CCW), but it’s not accessible to the public. This lack of transparency is potentially problematic, says Richardson.

“We’re reliant on them publishing what they're doing, or talking about it at conferences, to get visibility of it. That is a limiting factor from our point of view as a stakeholder.”

Responding to this criticism, a spokesperson from Ofwat said: “Maximising learning is one of our good practice principles for charging trials and companies continue to share ideas and best practice through our platform.

“The sector is at an early stage in the process; several companies continue to design, set up, run and evaluate their initial results and once we have definitive information and insight to share more widely, we will do so in the most appropriate and effective way.”

The call for a single social tariff

Andy White, senior leader for social policy at the CCW, is positive about the potential for these trials in terms of “helping inform the future direction of charges more generally”, but stresses that “they do not detract from the pressing need for fairer and more consistent water bill support for the most financially vulnerable households”.

He points out that water companies’ social tariffs are accessed by 1.6 million households, but that “this support is inconsistent, meaning too many struggling customers are slipping through the net”.

The CCW has long been calling for a ‘single social tariff’, a universal scheme available to eligible customers of all water companies that would replace what the CCW on its website refers to as “the postcode lottery of financial assistance that currently exists across England and Wales”. With the support promised for customers in AMP8 “falling short of what is needed”, the case for such a tariff “has never been more compelling”, White says.

The Liberal Democrat MP Tim Farron certainly seems to think so. He tried to add an amendment to the Water (Special Measures) Act 2025 to introduce a single national social tariff for water customers, but it was rejected before the bill became law in February this year.

Asked about the decision not to support a single social tariff, a Defra spokesperson said: “This government is committed to supporting vulnerable consumers with their water bills and addressing water poverty. We are working closely with water companies to ensure that customers are aware of the schemes available to those that struggle to pay their bills.”

In its final report, published in July, the Independent Water Commission recommended that “the UK government should consult on the introduction of a national social tariffs with consistent eligibility criteria and levels of support", explaining that “given level and future trajectory of bills and the degree of variation in current social tariffs, a national scheme is justified”.

Changing minds

Whatever the outcome of the tariff trials currently taking place, and however existing social tariffs are tweaked to ensure a fair deal for vulnerable customers, there is a more fundamental challenge to address here, as a sector and a society: how to shift public perceptions of the value of water.

“Water has been a pretty much unseen resource for a long time,” explains Richardson. “Smart meters will help to some degree, because you can actually see how much water you’re using, as opposed to having no idea and playing a flat rate for water that doesn't actually relate to what you're using. There’s a big job to be done.”

Partly that’s down to how we see ourselves as a nation, says Caroline Wadsworth, director of strategic partnerships at the water consultancy Isle: “Even though individuals are facing drought, the UK still has this belief that water is plentiful: ‘We're a wet country, we’ve got no issue here, this is a blip’.”

Attempting to set the record straight will be the Water Efficiency Campaign (WEC), one of the strands (along with the Water Efficiency Lab) of Ofwat’s Water Efficiency Fund, a £100 million pot to stimulate reduction in public water supply in England and Wales. Full details of the WEC are due to be announced later in 2025 but Ofwat has stressed that rather than a “traditional campaign that aimed to change behaviour simply by providing information”, it will be “much more complex than this and should raise awareness, seek opportunities to bring about change and give people the capacity to make changes”.

With England having just experienced the driest spring since 1893 and hosepipe bans being rolled out across the country as this article goes to press, there’s clearly no time to lose.

--

Engage with the topic of drought and leakage via CIWEM's Water Resources Network.

Get the latest CIWEM news and analysis with our free monthly The Environment newsletter – subscribe here. This article also featured in The Environment magazine, available to CIWEM members via MyCIWEM.

Jo Caird is editor of The Environment

---