Finding a fair and affordable future

A pragmatic policy on charging may be in sight, writes Barrie Clarke of Undercurrent

This spring, in a quiet revolution, the Government cut through a seemingly interminable debate. Its consultation on proposals following the Walker Review of Water Charging (1) reversed a long-standing refusal to entertain use of public funds to help people pay. As responses come in, the road ahead suddenly looks clearer.

The U-turn speaks to a pragmatic approach that should be widely welcomed. Anna Walker's review was packed with options and ideas on everything from abstraction to mergers and highway drainage to metering.

Minsters did not try to do it all, however. Sensibly, they focused on affordability and the great 'south-west question' and accepted the case for public support in both. The consultation was notable for its clear statements of policy preference. Consider its plans to expand WaterSure (the 'vulnerable group' tariff).

Funding through public expenditure "would be a more straightforward and fair option".

The benefits are clearly listed. It would even out regional differences in cross-subsidy per household, so that those that happen to be in a high-cost area, where WaterSure take-up is high, are spared a heavier financial burden.

Companies would be keener to promote WaterSure if their customers were not picking up the tab; and sharing the costs of helping low-income customers would make company social tariffs more acceptable.

Or look at the consultation's no-messing rejection of a one-off payment of £700M to cut all South-West bills by £50 as "unaffordable". Or its curt dismissal of any notion that bill payers elsewhere will be required to help households in the South West. Its commitment to move on with guidance on company social tariffs is also evidence of sure purpose.

In summary, the consultation was a refreshing effort to get some momentum going on an intractable and increasingly urgent problem. Ministers have put the ball back in the court of stakeholders (it more often goes the other way) especially the industry, Consumer Council for Water and Ofwat. Their responses are positive overall.

Industry
Speaking to MPs last month (2) Chris Loughlin, chief executive, South West Water, and chairman, Water UK, surely expressed a universal view that it is high time the price problem was gripped. No one wins - not customers, companies or ministers - if the challenges of climate change and resilience are crowded out by arguments over price.

Investment in improvement cannot be capped at the price the least well-off can pay, Mr Loughlin said; the Government's proposals are a way forward; companies, and legitimate customer representatives, should have scope to tailor the means (including social tariffs) to meet the needs they understand best.

Water UK itself, while pleased that public money may be available, wisely says (3) that the scale will be modest and dealing with affordability will be "largely be a matter for companies through social tariffs and other measures".

Customers
It is no surprise that CCWater calls the change "an extremely positive step ...that will be welcomed by water customers" (4). Ever since its foundation, CCWater has never wavered from its view that public money ought to be available to make water affordable for all which it believes is an obligation for society not customers.

So Defra's proposals are just reward for determination to pursue a sometimes lonely road. As it happens, the same steadiness has convinced the independent review of Ofwat and consumer representation (5) that CCWater, or something like it, should have a free-standing role in the future.

In this, the organisation has flown in the face of several bien-pensant efforts to abolish it in the name of deregulation. Now, as genuine stakeholder engagement moves to the heart of regulation, the future is bright for intelligent and independent consumer protection.

Regulator
It would be a pity if only the regulator stood outside the positive consensus on the Defra proposals and it has not - well, not quite. Its contribution (5) is a model of impartiality with many helpful observations and questions (we would expect no less).

Two caveats are particularly well-made. Ofwat points out that New WaterSure will help customers with high essential use, but not other affected groups. It agrees with Water UK that company social tariffs will have to take the strain. It is persuasive, too, that public support for South West Water must be copperbottomed to avoid any perception of increased political risk among investors.

Only in not resisting its apparently constant itch to promote market reform does Ofwat strike a jarring note. Its line is that, yes, well, this is all helpful, but if you are really serious, only more customer focus will do the job and, by the way, did we mention that "we consider that market reform, and in particular retail separation, is central to unlocking a step change in customer focus"?

OK, this is a case that deserves to be made. But news this summer from a utility sector famous for what Ofwat calls "dedicated retail companies" is hardly helpful. Consumer Focus, reflecting on energy price rises approaching 20% said: "If the other four energy companies follow Scottish Power and British Gas - which is almost a certainty - a further 1.3M households will face fuel poverty, bringing the total to a shocking 6.4M homes".

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