Ofwat has announced its decision to temporarily increase price caps in the business retail market by 0.49% - the decision does not affect household customers.

The amendment allows retailers to share some of the unexpected bad debt costs that have arisen due to the Covid-19 pandemic with business customers.

The small and temporary amendment increases the maximum prices that retailers are allowed to charge business customers who are subject to price caps by 0.49%.

The uplift has been recalculated from the 0.31% uplift consulted on in December 2021, to incorporate a proportion of bad debt costs reported by retailers during 2019/20. The uplift will take effect from April 2022 and last two years.

In recognition of the unfolding Covid-19 pandemic, in April 2020 Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded levels which an efficient and prudent retailer could reasonably have been expected to plan for – which it assessed as 2% of industry revenue. Following consultation, in July 2021 Ofwat agreed to allow a small and temporary uplift to the business retail price caps.

Georgina Mills, Business Retail Market Director at Ofwat said:

“During the pandemic, we have implemented measures to continue to protect the interests of business customers.

“Implementing this small and temporary upward adjustment to the business retail price caps aims to protect business customers, including by maintaining strong incentives on retailers to keep bad debt costs as low as possible.

The amendments give retailers additional flexibility to increase a business customer’s total bill by 0.49%, where the business customer is subject to price caps set out in the Retail Exit Code (REC).

Price caps do not apply to business customers who have actively agreed a contract with their retailer.

As an example, a small business customer (0-9 employees or <0.5Ml per year) with an average annual bill of £500 could expect to pay up to £2.45 more per annum.