The Big Question: Should water bills be going down even further than they are?

Martin Hickman
Friday 27 November 2009 01:00 GMT
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Why are we asking this now?

The water regulator, Ofwat, has set the amount water companies can charge in England and Wales for the next five years, 2010 to 2015. Scottish water companies have been told they cannot raise bills for a year from April, while Northern Ireland bills will be announced next month.

How much have bills come down by so far?

On average, Ofwat has capped the companies' requests to raise bills. As a result, before inflation, water and sewerage bills will fall by £3 from an annual average of £343 this year to £340 by 2015.

So my water bill will be lower?

Not necessarily. Depending on where you live, your bill could fall by 7 per cent or go up by 13 per cent. The biggest increases will come from Thames Water (3 per cent), Southern Water (5 per cent), Bristol Water (7 per cent) and Essex & Suffolk (13 per cent). The biggest falls will benefit customers of United Utilities (down 3 per cent), Severn Trent (down 4 per cent) and Anglian and Welsh Water (down 7 per cent). By 2015, Wessex will charge the most, £424, and Severn Trent the least, £292.

Is this what the water companies wanted?

No. On average they asked to put up bills by £11, or about 3 per cent. However, Ofwat has reduced the scale of cuts it announced in its draft bill determination in July, when it intended to cut bills by £14. As such, investors on the London Stock Exchange were relieved. Shares in United Utilities and Severn Trent rose by 2 per cent and 4 per cent respectively in morning trading.

Why did Ofwat do this?

Ofwat believed some of them were inefficient. Regina Finn, its chief executive, studied best practice in each area of the business at each company and then sought to impose those efficiency savings on all the operators. Yesterday she said: "There's more to this than just low bills, it's about what customers get for their money. We've scrutinised every pound in the companies' plans to make sure they deliver what customers want."

Will there be sufficient investment for clean water and flood defences?

According to Ofwat, the deal will still allow water companies to invest heavily to deliver clean water, reduce leakages, prevent pollution and improve flood defences. In total £22bn will be spent over the next five years – £935 for every property in England and Wales.

The money will be spent accordingly: £12.9bn to maintain and replace pipes and treatment works; £4.6bn to improve drinking water and the environment; £2.7bn to secure future provision of enough water, and capacity to treat sewage; £1.1bn to improve service to customers, like reducing pressure problems and sewer flooding; and £0.9bn to deliver big projects such as large sewers.

Commenting on the investment, the Institution of Civil Engineers did not say it was enough. It merely said it was needed. "The £22bn earmarked for upgrading the water network is good news but with years of under-spend our assets are already stretched to their maximum capacity and the network is brittle," said its director general Tom Foulkes. "We have seen what happens when key infrastructure fails over the last few days, with hundreds of people without water or power in Cumbria."

Is everybody satisfied by this settlement?

No. The Consumer Council for Water, the independent watchdog, believes the deal was too generous and says Ofwat should have stuck by its original plan. "The overall deal will be acceptable to many customers who told us that they wanted bills to remain flat, and over England and Wales, average bills are actually going down by 1 per cent," said its chair, Dame Yve Buckland. "However, we would give the deal a seven out of 10 because Ofwat has eased off on the companies, meaning that some customers will face higher bills." The GMB union warned there would be job losses as some water companies followed the behaviour of rivals who have already "cut hundreds of jobs and outsourced activities in order to protect their profits."

Water UK, which represents the water companies, warned they could be forced to cut work such as fixing leaks if the funding proved to be inadequate. Its chief executive Pamela Taylor said the firms would be studying Ofwat's decisions: "Companies will need to look at the detail and say: has Ofwat understood; have they allowed us what we need? "On top of that, they have got to think: can we actually attract the long-term sensible investors we need? Because if all the customers, all the time, paid their bills, it's still not enough money."

Is there anything the companies can do in response to Ofwat?

Yes. If any company is aggrieved at Ofwat's "final determination" it may appeal within two months to the Competition Commission.

The Competition Commission would then carry out its own review of an operator's charges, which would tie up that company's resources and could lead to prices being raised or lowered.

Has Ofwat got the price level of bills about right?

Arguably, yes. If consumer groups on the one hand are complaining that bills are too high – and water companies on the other hand are complaining they are too low, it's likely the regulator has got the balance right. If anything the balance has been tilted towards consumers.

Has Ofwat always been such a doughty defender of consumer rights?

No. A few years ago the big scandal in the water industry was that companies were ignoring their contractual obligations. Although water was – and remains – of extremely high quality, with 99.96 per cent meeting EU quality standards last year, there were problems regarding leakage and shabby customer service. Last year Severn Trent was fined £2m for falsifying leakage figures during 2001 and 2002. Ofwat hadn't noticed this behaviour until a "whistleblower" spoke out. It fined the company £35m.

Southern Water had been delivering poor service and misleading Ofwat about its data for five years, until 2005. Again its managers – not Ofwat – exposed the "shameful" episode. Ofwat fined Southern Water £20m in February. Ofwat, it seems, has got its act together.

Are water bills now at around the right level?


* Ofwat has slashed the amounts the water companies wanted, cutting bills in real terms by 2015

* Although there will be some rises, millions of customers will see their bills fall by up to 7 per cent

* £22bn will be spent over five years, replacing 10,000km of pipes and improving other infrastructure


* Our water network endured decades of neglect as a nationalised industry

* Companies themselves know best what they need to maintain water quality, counter climate change and increased flooding

* Workers will lose jobs as companies outsource work and cut other costs to maintain profits

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