Outlook: Watery grave for Byatt review

IAN BYATT is not the sort to fire shots across the Government's bows. The director general of Ofwat is generally more subtle and methodical than that and, in any event, he gets on better with New Labour than most of his fellow regulators.

Nevertheless, what is one to make of the strategy document Mr Byatt issued yesterday setting his face against profit sharing in the water industry and generally indicating that his forthcoming price review will be less harsh than feared?

The stock market lapped it up, marking the shares of several water companies sharply higher. How well it will go down with the President of the Board of Trade, Margaret Beckett, is less clear. Mrs Beckett is keen to include some formula for sharing out "excess" profits in her forthcoming Green Paper on utility regulation, if the DTI can ever achieve sufficient agreement with the Treasury to get the wretched thing published.

Neither Mr Byatt nor any of his fellow regulators much like that, arguing that the RPI-X price capping regime has served customers well while giving the utilities the incentive to raise their game and their efficiency levels.

Mr Byatt's carefully crafted statement yesterday obliquely accepts that Mrs Beckett may take a different view of regulatory needs when her Green Paper emerges. "Changes resulting from the Government's review could affect the balance between incentives to efficiency and early benefits to customers," he says sweetly. Shorn of regulese, this means Mr Byatt may have to flush his own review down the pan and start all over again.

The longer the Green Paper is delayed, the more apparent it becomes that its contents are a moveable feast. Since the situation seems to be as fluid as water regulators can hardly be blamed for seeking to influence the shape of the final proposals. But this is a dangerous game. Some of the regulators, like Clare Spottiswoode at Ofgas, have given up hope, much less interest, in being re-appointed when their terms are up.

And how is Mr Byatt to buckle down to implementing the sort of regulatory regime he has so vociferously campaigned against up until now?

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