Ofwat, the water industry's watchdog, made the choice plain yesterday. This decade, consumers can expect bills to rise 5 per cent a year faster than general prices if the current level of investment is to be maintained. That, said Ofwat, is too much, and the Government should renegotiate EC directives which are setting too a rapid a pace for improvements.
There is certainly pressure on Britain to clean up its act. The European Commission in Brussels is threatening to take the Government to court over poor water quality. The European Court of Justice is expected to rule today on a separate case involving beaches in the north-west of England. Domestically, the National Rivers Authority is pushing for water companies to press on with the clean-up operation. It is sceptical about the doom and gloom spread by Ofwat and points out that UK prices are still significantly lower than in most European countries. The NRA also highlights concern about the profits of the 10 privatised water companies - the best- performing sector in the London stock market during 1992 - and argues that the industry is still far from standards that should have been met long ago.
So the waters are muddied, as these two regulatory bodies - one with a pricing brief, the other with environmental concerns - do battle over plans for the industry. However, it is quite clear that a pounds 3bn a year investment programme needs better justification. An important argument for such a large capital budget must be health considerations. Yet there seems to be little serious examination of the health improvement Britons can expect from such an investment, which may be subject to rapidly diminishing returns. Would the money be better spent, for example, on health care or education or some other pressing social concern? Here is the flaw in EC directives, which, as the Ofwat report comments, have not in the past been priced.
Furthermore, the strain on British water consumers is beginning to show. Disconnections tripled in 1991-92, compared with the previous year. Meanwhile, cases of dysentery more than tripled in 1991 compared with 1990. Experts argue that there is a geographical relationship between disconnections and such outbreaks of infectious diseases. Making water even purer is of limited relevance to people if the price of that improvement is restricting their access to it.
The prices and benefits of rapid investment in water need to be reconsidered. If slower improvements are more cost-effective, the Government should be robust and renegotiate a less demanding EC timetable. Here is an excellent opportunity for invoking subsidiarity, the principle that decisions be taken as close to the people as possible.Reuse content