Water firms will face tougher competition

The Government is planning to shake up the water industry, opening it to more competition and inviting scores of new companies to enter the retail market.

Michael Meacher, the environment minister, is to publish a consultation paper in the autumn on ways to introduce and enhance competition. The Government hopes that the policies will be eventually included in a Water Bill, penned in for November 2002. A source at the Department for Environment, Food and Rural Affairs, said: "We need to encourage entrants into the market, because the level of competition is disappointing."

The consultation paper will lay down a fresh set of rules under which the private water companies will operate. Compared to gas and electricity, deregulated water has not yet led to competitive pricing, with the market still dominated by the incumbent regional operators. The Government is said to want retail-only companies which do not own any part of the water infrastructure but specialise in customer billing. If the rules were changed, companies such as Virgin and Centrica may be interested in setting up water operations.

Water UK, the trade organisation for private water companies, is pressing the Government to clarify the rules. "Effective competition will encourage market players to excel, to develop the full potential of their staff and ...improve...customer service," it said. But the organisation warned: "The flip side of the coin is competition based on cherry-picking or the exploitation of regulatory boundaries."

The Government issued a draft Water Bill before the election but some of the civil servants working on it left and this has delayed it.