Price review: water bills will rise, say government
The government published its principal guidance for the delayed water pricing review this week, giving the go-ahead for a huge programme of environmental improvements within the industry. This investment is likely to lead to a substantial price rise in water bills for both domestic and industry users, although not as high as the 30% that had been predicted.
Secretary of State for the Environment, Margaret Beckett, said: "The programme of work set out in this principal guidance is part of a long-term process. It builds on the work undertaken in previous periodic reviews to again raise the standards of our drinking water and of water in our environment even further."
Mrs Beckett said it was clear, from the advice she had been given, that there would be price increases, but hoped that water companies could deliver the policies set out by the guidance in the most cost effective manner.
The programme of work includes action to improve drinking water, tackle sewage overflows, control water leakage, improve wetlands, and raise the standards required for fresh water fish.
Publication of the guidance has been delayed by six weeks amid speculation of internal wrangling within government over price increases and the effect on the electorate (see related story). Environmental groups had urged the government not to drop any of the planned environmental improvements while consumer groups had warned of the effect on the poor of huge price leaps.
During a telephone conference after the publication of the guidance, Environment Minister, Elliot Morley, said publication had "taken a long time because it is important to get it right", and would not be drawn on any internal disputes.
He told journalists that there had been cuts from the original investment plans, as "there has to be a balance between further environmental improvements and affordability." He would not say if the cuts amounted to the £5 billion suggested by water regulator, Philip Fletcher (see related story). "It is very difficult to give a figure at this time," he said.
Areas likely to have investment scaled back are protection for shellfisheries, meeting tougher standards for bathing waters and meeting national river quality targets.
Asked whether he thought the water bills would go up by the predicted 30%, Mr Morley said: "I doubt it, but it is the decision of the regulator now." He predicted the price increases would be much lower but, again, refused to be drawn on how much.
Mr Morley said the government would also be issuing a policy paper in April covering measures to tackle diffuse pollution, in line with the European Water Framework Directive.
Commenting on the price review guidance, Sir john Harman of the Environment Agency said: "The investment water companies make in the environment will be more than offset by the economic and social benefits that it will bring to local areas and communities." He added that the environment was not the only pressure on water bills, citing rising overhead costs and infrastructure as expensive examples.
Ofwat and industry spokespersons told edie it was too early to assess the exact impact of the price review on bills.
The Environment Agency and the Drinking Water Inspectorate will now need to translate the policy areas into schemes that water companies can cost into their plans. Ofwat said it would confirm a final timetable as soon as possible, although the delay in publication of the draft guidelines means its decision making time is very short.
The final guidance is due in the autumn. The new price regime itself is due to start in April 2005.
By David Hopkins