Cost Savings with Income Offset Allowance

water pipes

Any development needing a new water connection can now benefit from significant cost savings with the income offset allowance.

What is the Income Offset Allowance?

The income offset allowance is a payment made by water companies to developers for all new connections, in recognition of the continuous future income they will receive from the billing of connected properties.

Previously this was only applicable to newly installed water mains. In April 2020 Ofwat changed the rules to apply to all new connections to both new and existing mains.

Income offset is set as a formula relating to income the water company expects to receive from the new customers, over the first 12 years following the new connection.

An “allowance” (discount) is provided to developers per plot, and the value varies by water company. The budget allowance from United Utilities is £751 per plot.

The income offset allowance offers substantial savings to new developments, as illustrated in the following case study.

How does it work?

You will still need to pay for the new water connection, and the income offset allowance is only paid once the entire system is connected to the given property. If, for example, a building is handed over in two phases, the allowance is likely to be paid back in two parts. You should therefore see the benefit of the savings by the time the project is complete, or very soon after.

Case Study

Cost savings available for Project X, circa 550-unit apartment building, showing quotes before and after the income offset allowance was introduced in April 2020.

Note that this is a budget quote only, the main contractor will need to apply to United Utilities for a full quote.

Item Priced by UUOld Budget Quote (08.10.2019)New Budget Quote (06.01.2021)
Service Connection Costs£21,099.60£18,843.80
Provision and Installation of Meters and Manifolds£56,406.00£50,713.20
Additional Service Pipe£1,317.60£696.00
Building water charge for premises with a connection up to and including 63mm£16,590.00£18,117.00
New standard infrastructure charges due for development – Water£192,500.00£165,798.00
New standard infrastructure charges due for development – Sewerage£228,250.00£153,171.00
Sub-totals£516,163.20£407,339.00
Income offset allowance for each premises benefitting from a water connection£0.00-£412,299.00
Total£516,163.20-£4,960.00

The client receives a payment of £4,960 and benefits from an overall saving of £521,123.20.

There is potential for an additional cost reduction of £149,000 in infrastructure charges if low flow fittings can be utilised. United Utilities would pay the client this sum upon project completion.

Contact us for more information, or to discuss your project.