Some change, please

The new water strategy can help hard-pressed customers by building on the achievements of price regulation, writes Barrie Clarke of Water UK

Low-income households tend to suffer most in economic downturns, and the impact is harder to bear if prices are rising above trend. Such a double blow could be just round the corner if the gloomy predictions of the Governor of the Bank of England last month prove accurate.

So it was no surprise to hear environment secretary Hilary Benn stressing that the review of metering and charging he announced as part of Future Water, the
government's new water strategy, would "consider how to protect vulnerable
groups like those on low incomes and the elderly". (1)

The outlook does look grim. The Retail Price Index is reflecting big rises in the things everyone must buy. Double-digit energy price rises are particularly sensitive. Benn's worry is that in the longer term his policy might actually make things worse.

For widely accepted environmental reasons, the government has decided that in areas of "serious water stress" it should look at ordering water companies to install meters faster than might otherwise be achieved. The fly in the ointment, however, is that this would speed up the unwinding of cross-subsidies from better-off to lower-income customers, which is an effect of the present balance between measured and unmeasured charges. The likely outcome is more families finding it harder to afford their bills.

One way forward strongly advocated by the Consumer Council for Water is that government should provide direct financial assistance to vulnerable and disadvantaged customers through the tax and benefit system. CCWater has a point. Everyone must be able to pay for water; just as they need housing, energy and local authority services where benefits are available.

Ministers are reluctant. The strategy underlines their heartfelt concern for the vulnerable. But they still prefer an industry solution. And, as if to underline the point, they will encourage water companies to look at the issue in the light of "corporate social responsibility... targeting assistance to vulnerable households as a cost-effective way of addressing affordability and fairness concerns". (2)

The industry is already exploring different payment schemes and tariffs, and will play its full part in the government's review of metering and charging. But at the same time it will be keen to explore government's understanding of that "cost effective". Cost-effective for who? In surveys, most consumers say they don't want to help those less fortunate than themselves by paying a higher water bill.

Future Water maps out a paced and positive direction for a sustainable industry. It can spur companies and others to be innovative but also to build on success.

The double benefit is worth emphasising. The industry's success to date has certainly helped hard-pressed customers.

Ofwat makes the point neatly in its evidence to an All Party Parliamentary Water Group inquiry. Illustrating the part regulation plays in protecting consumers, it says: "For the past 18 years, the primary tool we have used to do this is the setting of price limits for the monopoly businesses every five years...

"Over that time the regulatory regime has delivered significant benefits, including efficiencies passed to consumers as a result of our challenges and price caps amounting to £100 per customer by 2009-10." (3)

By chance, the same kind of argument was also being made last month by a very different organisation, but one equally keen to show the value of its record and continuing work for consumers. Tesco chief executive Sir Terry Leahy was explaining how much worse pressure on household budgets would have been but for businesses such as his own. Price deflation and competitive efficiency had saved 30% (or £4,954 per typical family) on the average Tesco shopping bill for customers since 1997. (4)

Future Water identifies the right questions and offers a promising mix of evolution and innovation to supply answers. Neither Ofwat nor Tesco quite says it, but ministers seem to have got the message: "Some change needed. But, where it ain't broke, don't fix it".

1) Hilary Benn, Ministerial Statement, Securing water for the future, Defra, 7 February 2008
2) Future Water, Charging for water (8.27), Defra, February 2008
3) Ofwat, written evidence to APPWG, February 2008
4) Report by Anthony Hilton, Evening Standard, 6 February, 2008

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