Clearer skies on policy

The Government says that it is backing the current industry model. Good call, writes Barrie Clarke of Undercurrent

The minister could not have been clearer, not if he had said it a fifth time. Not if he had adopted President George HW Bush’s mantra, “Read my lips: no new taxes.” There would be absolutely nothing in the upcoming Water White Paper (WWP) to spook investors or undermine the industry. Water companies are “a huge asset”.

Richard Benyon was speaking last month to a fringe meeting at the Conservative Party conference. Did this make it too marginal to believe? Or too easy to say what people wanted to hear? No. For one thing, there were serious witnesses – three water & sewerage company chief executives and the chair of a parliamentary committee on the platform, and some 80 party members, stakeholders and media in the congregation.

The response was positive. A risk-cloud of overzealous reform has been hanging over management and investors for several years. It has been hidden, but not dispersed, by the defensive attractions of the industry to investors in uncertain times.

Now there is a prospect of clearer skies, on industry policy if not much else. Visibility should improve and let companies focus on the things that really matter. Mr Benyon was clear about Government’s view of things that matter. The WWP will have two core themes: resilience and affordability.

Both are welcome in their own right. They are the things that most worry customers. They present complex challenges to policy-makers, water companies and others with environmental, social and economic responsibilities. They need urgent attention.

The two themes are also welcome for the reassurance they will give investors who want to see real, rather than invented, problems being tackled. I think they show that ministers have rejected the advice of those traditional economists whose solution to every problem is to extend competition (in this case, to force the break-up of successful companies doing vital work, rather than accept that effective water management must become more, not less, collaborative and integrated).

If I am right, ministers will deserve praise for backing the interests of customers and investors, and for moving on from played-out market fundamentalism. But if they still have doubts, a WWP that supports the industry, rather than plunging it into years of uncertainty, would be in their own interests too.

The reason is that now is obviously and precisely the right time to prioritise investment in important economic infrastructure. Everyone accepts that growth depends as never before on business investment.

The Chancellor himself has accepted that ‘credit easing’ for middle and smaller companies may be necessary. But infrastructure is where policymakers look first.

President Obama wants his American Jobs Act to generate US$60B in transport projects. The UK business department, arguing for a sustainable growth strategy, has said “Good infrastructure networks support economic activity and growth and conversely, economic growth increases the demand on infrastructure. The UK’s infrastructure networks enable people, goods, energy, information and water to move efficiently,”

(BIS July 2010). Add to the benefits a host of delivery options. A Green Investment Bank opens next year, an ‘infrastructure bank’ is mooted. There are private finance initiatives and public-private partnerships – some are problematic, but others work well. And there is the regulatory asset base (RAB) model used across the utilities, but nowhere as successfully as in water. If you consider that this comes with the added attraction of not depending on public funds, you can see why ministers would indeed be wise to turn down the chance to interfere.

You can also see why policymakers are intrigued by the possibilities of extending the RAB model to other sectors. But in this parish, water related development is the main interest. There is so much to do, whether in meeting higher environmental standards, managing demand, cutting carbon, building resilience, or sorting sustainable drainage and flood prevention. The potential is huge for a new, government-guided framework of regulation that sets the right incentives and lets good businesses get on with the job. And such a move would offer an extra bonus to a government whose promise to be the “greenest ever” is widely thought to be slipping badly.

A boost for investment in the water service would have big environmental, as well as economic, benefits. What’s not to like?


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