Time for a new deal with the water companies

In a panic, after Ed Miliband put the rising cost of water firmly on the political agenda, the Prime Minister’s office briefed last month that action was imminent. Yet when it came, the Government’s response amounted to nothing more than a weak letter from Owen Paterson to the water companies, begging them not increase bills next year. His letter came four months after his last meeting with the water companies – that’s four months of inaction followed by one letter sent on the orders of Number 10.

The fact is that when it comes to the water industry, just as with the energy and train companies, the Tories aren’t capable of standing up to vested interests.

It is way past the time for polite letters. Water bills have gone up by almost 50% in real terms since the Tories’ botched privatisation in 1989. In the last year alone, the water companies made £1.9 billion in pre-tax profits, and paid out a staggering £1.8 billion of that to shareholders. Investment is funded by ever higher levels of unsustainable debt, which in turn ensures they are able to avoid paying tax. It’s a racket that needs to be brought to an end.

When households are struggling to make it through the month because prices are rising faster than wages, it’s unacceptable that a few at the top of this monopoly industry are walking away with eye-watering sums off the back of rising household bills.

The Government has just introduced new legislation on the water industry, so they have a perfect opportunity to act. Yet the Water Bill, which has its Second Reading in the House of Commons today, includes not a single measure to tackle the rising cost of water for households. Labour will therefore seek to amend this legislation to deliver a new deal with the water companies.

First, we will amend the bill to help those struggling the most. Ofwat estimate that 2.6 million households, 11%, currently spend more than 5% of their income on water so it’s urgent that we act. It’s time to replace the voluntary arrangement which enables water companies to decide whether to offer help to those who can’t pay their bills and who should benefit. Since Labour legislated to allow social tariffs, just three companies have brought forward schemes helping just 25,000 customers across the country. We will end this postcode lottery and require all water companies to deliver a new national affordability scheme, with eligibility set by government.

Second, we will amend the bill to help all households by giving Ofwat tougher powers to freeze or cut bills where companies are doing better than was anticipated when prices were set. And Ofwat should be able to take into account the dividends being paid out and the way that companies are structuring their finances, including levels of debt and taxation. It’s time for Ofwat to become much more of a consumer champion, not just an economic regulator. The Chancellor should also use his Autumn Statement next week to take action to clamp down on the dodgy financial engineering by water companies.

David Cameron has wasted three years doing absolutely nothing to tackle the impact that rising water bills are having on stretched household budgets. The Government’s failure to use its own water legislation to toughen up the regulator’s powers to cut bills and require companies to help those struggling to pay shows how out of touch Ministers are on this issue.

By strengthening Ofwat’s powers and delivering a national affordability  scheme, Labour would be taking tough action to bring the rising cost of water under control.

Maria Eagle MP is Shadow Secretary of State for the Environment, Food and Rural Affairs