Better water 'may cost too much'

(First Edition)

BETTER water quality may have to be sacrificed to stem soaring bills, the industry watchdog said yesterday. Ian Byatt, the director general of Ofwat, called on the Government to decide whether planned quality improvements were worth the cost to customers who in some areas could be paying increases of 11 per cent a year more than inflation over the next five years.

Mr Byatt said market plans drawn up by water companies showed that the average increase in bills would be 6.5 per cent a year in real terms to meet minimum legal requirements on quality and the environment. Research showed that many people did not want to pay and some could not afford to, he said. But the requirements are largely decided at European Community level and then implemented by national governments.

Mr Byatt said the real test would come next month when he submitted his views to the Secretaries of State for the Environment and Wales. 'How much will they champion customers by protecting their pockets? Or how fast will they push ahead with ever higher standards? How should they respect ability to pay in pressing ahead?' he asked. 'What they decide will set the scene for me. I want to see low price increases.'

Speaking at a London conference, Mr Byatt also warned companies that they faced tough regulatory pressure to deliver water cheaply by cost-cutting, lower margins and innovation. He also said that there was too much divergence in prices charged in different areas and that this was likely to get worse the most obvious example being South West Water, which envisaged a bill more than double that of Thames Water by 1999.

Plans drawn up by the companies show a range of likely real price increases of between 1 per cent and 11 per cent a year. The plans are part of a consultation with customers in the run-up to a decision on new price controls. Mr Byatt welcomed the work done by the companies, but said he would 'not necessarily sign up to the numbers in these market plans'. The interests of customers buying a commodity with no alternative supplier had to be a main priority.

Water company results, page 26