Select Committee on Environment, Transport and Regional Affairs Memoranda

Memorandum by the Public Utility Reform Group (PURGe) (DWB 03)

  I am writing on behalf of PURGe—the Public Utility Reform Group—to contribute to your inquiry into the draft Water Bill. We are pleased to see that your inquiry welcomes comments on any aspects of the Bill. PURGe is a loose coalition of organisations who share one common goal: changes to the regulatory system which deliver a fairer balance between the main stakeholders—customers, employees and shareholders. Organisations contributing to our forum—including Water UK, UNISON, Consumers' Association and National Consumer Council—will be making separate submissions to your inquiry. However on behalf of PURGe, I would like to make the following general points.

  PURGe welcomes the Bill and the proposals it contains to re-introduce into Parliament provisions regarding the future regulation of the water industry first contained in the Utilities Bill. In particular we welcome the aim of putting the consumer at the heart of the regulatory process, the commitment to notify all interested parties of the reasons for decisions, the new advisory panel and the clauses on linking remuneration and standards of performance.

  PURGe awaits the insertion of further clauses on competition within the industry. However in their absence we believe the Select Committee Inquiry should take evidence on this matter. PURGe counsels a cautious approach given the unique nature of the water industry, the essentiality of water to life and indeed the unique affection with which the public hold that industry. Introducing efficiency, and passing onto customers those gains, is a laudable aim, however, safety of drinking water and indeed its quality must not be jeopardised. Indeed from our perspective it is far from certain that the benefits perceived from greater competition in the water industry will outweigh the health and environmental risk it may create. Therefore appropriateness of, as well as the nature of, competition must be examined in detail.

  In fact PURGe believes that there is a need for a comprehensive review of the correct principles which should underpin the future structure, ownership and regulation of the industry. In light of the history of the water industry since privatisation, PURGe does not take the view that the shareholder-owned model has always worked in the best interests of all stakeholders. Indeed the industry is far different than when privatised and—if the Glas proposals goes ahead, heralding we believe a restructuring of the whole water industry—it is soon to change yet further. The examination of the proper structure—that guarantees a fairer balance between the main stakeholders, customers, employees and shareholders—is we believe entirely necessary. However the Glas proposal is seemingly largely driven by the structure of the UK bond markets, which will give preferential investment rating to a non-profit making company, rather than a coherent model of what is in the best interests of customers, employees and shareholders. We would hope that the Select Committee Inquiry would address some of these issues.

  In particular, PURGe remains concerned that the trend towards outsourcing to specialist contractors must be secured against a "Railtrack" eventuality. There can be disbenefits as well as benefits with outsourcing—if an individual company experiences financial failure or is incompetent the effects for customers and employees can be massive and long term. The further fragmentation of the water industry into asset-owning companies and many contractors must only continue if OFWAT, DWI, the EA and the Government are convinced that safety and water quality standards will not be jeopardised. PURGe doubts whether such guarantees are possible but suggest that the Select Committee should make a specific statement on this issue.

  In conclusion PURGe believes the water industry is particularly appropriate for the stakeholder approach—one where consumer demands and environmental considerations as well as employee needs can be balanced with the interests of the employers and Government. Notwithstanding the Environment Sub-committee Inquiry—which we hope is wide ranging—PURGe further believe that there is a need for a separate review by the Government of the water industry sector prior to further changes being agreed by OFWAT and prior to the further introduction of competition in the water industry.

December 2000

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