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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