Thursday, April 25, 2013

Water: profiteering - "out of control"

Mail 023-wat.jpg

The Daily Mail is playing catch-up, so to speak, following in the wake of the Express in highlighting the money-grubbing behaviour of water companies.

In this case, though, the Mail brings something new to the table – a study commissioned by the trade union Unison which finds that almost a third of an average water bill – more than £100 a year – goes on profit, compared with nine percent in the energy sector. 

The research, conducted by the New Policy Institute (NPI), finds that water bills have risen more than twice as fast as pay over the past decade in an industry which is now "out of control". And a 3.5 percent increase in the average annual bill this year – a hike of £13 bringing the total to £388 a year – has brought charges to treble the level since privatisation in 1989, well above increases in the rate of inflation. 

NPI also says that water bills have soared by 64 percent in the past ten years compared with 28 percent for average earnings – although in some cases the increase has been higher. In ten years, we've experienced a near-doubling in charges from Yorkshire Water – presumably to fund the CEO's million-pound salary and pension fund. 

If the average bill had done no more than keep up with earnings, and the rise had been confined to a "mere" 64 percent, it would now be an £71 a year lower. For some it would mean we would be nearly £100 better off. 

Assessing why this situation has arisen, NPI reckons that the high prices are due to a lack of competition in the industry. But, given that all price hikes have to approved by the water regulator, Offwat, its role must also be explored. 

Nevertheless, the facts alone give Dave Prentis, Unison's general secretary, something of a platform. He says: "This private monopoly is the worst of both worlds. Since privatisation, private equity firms have swooped in to grab a lucrative slice of the water industry pie, but households, taxpayers and employees are losing out". 

Unsurprisingly, Prentis then says, "The time has come to think again, with all options on the table. We need a root and branch review to make sure the industry is run in the interests of consumers not profits". But that, of course, is precisely what the regulator is supposed to be doing, which again suggests that Offwat should be looked at. 

Turning to the actual report, it brands the water companies "a very odd industry indeed", one "whose ownership is opaque, whose consumers are powerless and whose profits are high yet which is also unable to finance key investment without government help".

And there's the rub. This is an industry which has been starved of capital investment but, after 24 years of rising prices, we are no better off. Instead, this "very odd industry" celebrates "stable cash-flows and sizeable dividends", to say nothing of their captive consumer base which it has no hesitation in milking. 

Strange it is that this should have been another part of the Thatcher legacy – selling us back our own property, only to make us pay three times more for the end product.