Cut bills, stop flooding, reform Rainwater rebate

Challenges from flooding and bills

● The risk of flash flooding is growing. More than 4.6 million properties in England are at risk of flash flooding, as heavy rainfall overwhelms our sewers. This risk will increase as climate change makes our weather more extreme. Rainwater was once naturally absorbed into the ground but hard surfaces, like patios, driveways, and artificial grass, now force water into sewers. This is increasing pressure on the system, making flash flooding and sewage discharges more likely. 

● Households and taxpayers are paying the price. As the risk of surface water flooding grows, so do insurance premiums and the costs of repairing flood damage. Local authorities are now spending more than £550 million per annum on dealing with surface water flooding damage, and water bills may rise by 36% by 2030. 

The policy problem 

● The rainwater rebate theoretically offers a conservative, incentive-based approach, for households to take action, but it is not working in practice. Water bills include a fee to deal with rainwater going into the sewer. The rebate should incentivise consumers to reduce surface water run-off from their properties by cutting this part of their bills, for example, by removing concrete and fake grass from gardens to open up their soil. If customers can prove that rainwater is not escaping from their properties they can apply for the rebate. No new regulations, no new taxes. Just customers being rewarded for their diligence. 

● However, in practice, fewer than 5% of households have made use of the rebate. The rebate is too difficult to access because of its all-or-nothing approach. Consumers receive a 100% rainwater fee rebate if they capture all water. But, if any water escapes into the sewerage system, this rebate is completely revoked. Confusingly, properties with rainwater harvesting systems, such as water butts, cannot access the rebate because this water is not deemed to be ‘retained’. 

The solution 

● Reform the rebate to stop money going down the drain. Ofwat needs to redesign the rebate so it properly rewards households for catching, absorbing, and retaining rainwater. This cost-free policy change can reduce the risk of flash flooding risk, cut water bills, and rewards responsible behaviour, without the need for new regulation or public spending. The government should include reforming the rebate in Ofwat’s next Strategic Policy Statement, as part of its ongoing water regulation reforms. Specifically, the rebate can be reformed in the following two ways: 

1. End the all-or-nothing approach. A sliding scale rebate should be adopted instead, which means that a partial rebate is available when some action is taken to retain water on the property, even if the household fails to capture 100% of the rainwater. 

2. Remove the waterbutt penalty. By removing the penalisation for rainwater harvesting systems, like waterbutts, customers will be encouraged to save water to, for example, water their gardens when it is dry or use excess rainwater to flush their toilets.