The government has failed to provide a convincing solution to water price rises

We need greater leadership from the government, not just to deal with household water bills, but to ensure that regulation of the industry is fit for purpose.

Water companies

Andrew Pakes is a former advisor to the shadow cabinet on environmental issues and the Labour & Co-operative parliamentary candidate for Milton Keynes South

After weeks of promising tough action against water companies for failing to keep increasing water bills in check, ministers showed their hand.

The government’s preferred approach is much closer to nudge than it is price freeze. Environment secretary Owen Paterson has written to the water companies asking them to ‘look closely’ at whether they need to raise prices next year. This is not the heavy hand of government regulation.

The government’s response to concerns about rising water bills reveals much about the water industry. Water is a heavily regulated sector with prices agreed by a formula over a five-year period in return from investment from the water companies.

It is Ofwat who leads on the negotiations with water companies.

Urging restraint risks un-picking the five year negotiation, plus there is no incentive or obligation for water companies to respond other than Owen Paterson is now in correspondence with them.

Although water bills are significantly lower than energy prices, rising costs are a worry for many people. Ofwat, the water regulator, estimates that 2.26 million households across England and Wales spend more than five per cent of their disposable income on water – and those are figures taken before the worst of the downturn hit family incomes.

Average water bills for 2013-14 are £388, 3.5 per cent higher than in 2012-13. Bills increased by 5.7 per cent on average the year before.

Ofwat is showing signs that it understands the new pressures facing government and family incomes. With healthy profits over the last few years, Ofwat has already suggested that bills should come down in the next price review period. Ministers acknowledge that the next Price Review could significantly reduce pressure on bills from 2015 by between £120 million to £750 million a year.

Yet this is nothing to do with Ministers.

The environment secretary failed to mention limiting prices in his latest advice to Ofwat on the price review, issued in May this year. The Water Bill – currently awaiting its Second Reading in Parliament – fails to mention affordability at all.

Social tariffs – providing help to those households most in need – are one of the answers Labour legislated for social tariffs in the water sector as part of the Flood & Water Management Act (2010). The coalition consulted on introducing social tariffs in 2012 but opted for a voluntary approach whereby water companies can make their own decision about whether to offer reduced rates or not.

Until energy bills rocked the political agenda following Ed MIliband’s announcement of a price freeze, the government had nothing to say on affordable water outside of a subsidy to help households in the South West (facing particularly problems as a legacy of privatization). It is hard not to see Owen Paterson’s letter as a response to Labour’s dogged pursuit on the cost of living.

Maria Eagle is right to say that we need greater leadership from the government, not just to deal with household water bills, but to ensure that regulation of the industry is fit for purpose. Accountability is key for monopoly interests whether in private or public hands. To date, the government has failed to provide a convincing answer.

One Response to “The government has failed to provide a convincing solution to water price rises”

  1. Juteman

    Luckily we Scots kept our water in public ownership.
    A No vote in the referendum will probably see that end.

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