The government are becoming the pen pal of the water companies – that’s not a response

The cost of living spotlight has now set its gaze on the steady rise of domestic water bills.  Although bills vary be region, the cost of water has crept up by 30% over the last decade. What started as a Conservative exercise in liberating the water sector from the shackles of public ownership has become a monopoly industry sharing many characteristics with the energy market, except that Ministers can’t tell consumers to pull on a jumper or switch supplier. Ministers briefed the press about tough action to crack down on the water companies; it turns out what they meant was that the Environment Secretary would put a letter in the post asking them to look closely at plans for any price rises next year.

Why do water bills matter? Ofwat, the water regulator estimates that 2.6 million households across England and Wales spend more than 5% 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% higher than in 2012-13. Bills increased by 5.7% on average the year before.

Maria Eagle is absolutely right to call the government out on social tariffs. The Water Bill tabled by the government says nothing about affordability. Labour legislated for social tariffs in the water sector as part of the Flood & Water Management Act (2010), but the current government has opposed any form of national scheme.  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.   Arguing for uniform rules to ensure that water companies provide some form of social tariff is a first step but much wider reform is required to ensure both affordable prices and continued investment in water services.

The government is clearly rattled by how the cost of living debate is hitting home with voters, in particular swing voters in marginal seats. Owen Paterson would not have put pen to paper to the water companies, had Ed Miliband made his pledge on energy costs. Despite a more positive economic outlook, the recovery is not shining down on ordinary families.

Ofwat is showing signs that it understands the new pressures facing government and family incomes.  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.  With healthy profits over the last few years, Ofwat has already suggested that bills should come down in the next price review period.   Ofwat also looks like it is playing hardball over Thames Water’s plans to hike bills again to cover the cost of the Thames super sewer.

The Environment Secretary failed to mention that his latest advice to Ofwat – in May this year – failed to mention limiting prices. He also failed to mention that they opposed Labour’s proposals for national guidance on social tariffs compelling water companies to offer help to households most in need.  The Government should be working closely with Ofwat to ensure that it holds the water companies to account. Let the sunshine in, as one politician liked to remind us.  Again, Maria Eagle is setting the weather calling for a thorough review of Ofwat’s powers to ensure it has the ability to referee the water sector for the benefit of the public. There is a huge reform agenda out there on water – on affordability, the tax regime governing the water sector, on sustainability and the management of our water resource – yet the government is once again playing catch up.

The water sector requires serious investment in future years to protect out water resources, as well as ensure affordable prices. The Water Bill is not nearly ambitious enough to deal with these challenges.  They key principles need to be affordability, sustainability and transparency. Many in the water sector are willing to work alongside government, but Ministers need to be clear about the rules of the game.  To date, becoming a pen pal to the water companies is not a response.

Andrew Pakes is a former advisor to the Shadow Cabinet on environmental issues and the Labour & Co-operative Parliamentary Candidate for Milton Keynes South