Angela Smith MP

Penistone & Stocksbridge

Angela's address to the Twenty65 Conference

This conference has a seemingly straightforward theme.

The Value of Water.

It’s one of those titles which draws observers in with its seeming simplicity, but which also encapsulates in four simple words the essence of a vitally important debate.

And we all value water, don’t we?

We appreciate it is essential to life on earth. We value it even to the extent that we put it in plastic bottles, give it fine sounding names and charge the earth for it.

But do we really value water? Do we, as a society, really take water seriously? This is the starting point for my remarks today. I then want to look at the challenges facing the water industry in the long-term, in the context of the theme of this conference. I will then conclude with remarks relating to how best to meet those challenges, with specific reference to the current debate about ownership of the industry.

I have 15 reservoirs in my constituency, all but one in the ownership of Yorkshire Water. Reservoirs such as Winscar, Langsett and Broomhead punctuate the landscape and are treasured for the opportunities they offer for sailing, or for long, tranquil walks around their edges. It’s as if they have always been there.

But of course they haven’t always been there. Langsett was built over a six year period and completed in 1904. In the 1980s, a new treatment works was commissioned to improve the quality of the water, especially in relation to the brown discolouration caused by a degraded peat catchment.  

My contention is that these reservoirs are in fact taken for granted. We forget these water resources are actually engineered, that they incurred huge investment costs. We forget that the water we draw from them has to be treated to reach standards which are amongst the highest in the world.

In other words, we don’t think twice about the water in our taps. I would even contend there is a growing disdain for our domestic supply; we are told constantly that bottled water is ‘pure’ and ‘natural’, with the implication that tap water is somehow lacking in these qualities.

Most of us nowadays are energy conscious, thanks to ever higher gas and electricity bills, but how many of us think about levels of usage when we draw on our water supply? All we have to do is turn a tap to get the water we need to wash ourselves, clean and prepare our food, to clean our homes. We press a button to wash our clothes and our dishes, forgetting sometimes that every time we do so we download gallons of water to make the process work.

Every product we buy to meet the needs of our everyday lives will have drawn on our water resource.  Every kilowatt of electricity and every therm of gas used in our homes, in our offices and in our factories will have required the use of water in their production.

To put it quite simply, water is a reliable old friend, delivered invisibly and without a fuss.  

Except when it all goes wrong. Disruption of supply can occur for a range of reasons, including flood, drought and leakage, but when it happens there’s an outcry. Horror stories appear in the media of people relying on containers of water, delivered if possible to their doors. Get it fixed, and get it fixed quickly, is always the response.

And yet there is still a lingering belief in this country that water is in its essence a low cost commodity. If our water bills are nowhere near as high as our energy bills, the argument goes, that’s because the product we’re buying is something that falls from the sky. It’s part of nature, and those who put it at our disposal ought to be lucky we’re paying as much as we do for it.

Our attitudes to water have to change. They have to change not just because climate change and a growing population will inevitably put extra pressure on water resource, but because even now we can identify areas of the country that suffer water stress. Take the South East of England; it is designated a region of severe water stress and yet its population is expected to grow by 25% by mid-century, with a consequent demand for an extra half a million homes.  

But this isn’t just a problem for the south east. Climate change is going to deliver more extreme weather events over the coming decades, in all parts of the country.  

And it’s also about the environment. The evidence is there for all to see: we have too many pollution incidents and our watercourses pay the price. We know that we are not going to meet the standards required by the EU Water Framework Directive that all our rivers should be in good condition, by the target date of 2027.

Our water catchments are also badly degraded, thanks to centuries of industrialisation and other factors, which makes it harder to deliver clean rivers and watercourses. This, of course, also makes it more expensive to deliver safe and clean water to our taps and it follows that cost efficiency for the water industry would be given a significant boost by catchment restoration. Severn Trent, for example, uses a cost benefit ratio of 4:1 to justify its investment in its catchments.     

Then, of course, there’s the old chestnut, leakage. Everybody hates waste and every drop of water lost to a leak represents an unnecessary depletion of a precious resource.

The challenges facing us, then, are huge. Note, please, that I say us, not them. These challenges, relating to climate change, growing population and the need to improve environmental stewardship, cannot be met by the water industry alone. It is for the whole of society, for all of us, consumers of water as we are, to face up to the task ahead.  

We need, in other words, to see societal change. We need to learn to value water, where it comes from and what it does for us. Active consumers are essential if we are to maximize water resilience and reduce impact on the environment.

In moving on to how we might address these challenges, let me make it clear that the water companies and government will need to be at the heart of the planning and execution of what needs to be done. It follows, therefore, that these institutions have a major role to play in building public engagement in this work.  

I know Twenty65 is conducting research in this field, understanding as it does the importance of the concept. I’m not talking here just about giving customer’s timers to take in to the shower, important as interventions such as these are. I’m talking about much bigger ambitions to engage consumers in the business of understanding and valuing water, in the context of the needs of our society more generally.

Innovation in this field is looking interesting; both Yorkshire Water and Southern Water are developing ideas for releasing combined sewer capacity by reducing the flow of surface water into the system, or even disconnecting customers if circumstances allow. This means not just investing in exciting Sustainable Drainage solutions, such as rain gardens, swales and reed beds, but also investing time in persuading consumers of the merits and viability of such options.

Buy why not go further? I love the ideas I’ve seen, but why not extend the scope of what could be achieved as far as surface water is concerned to establish practical, cost-effective ways of using grey water in our homes? This is easier to do as far as new homes are concerned, I admit, but surely we should invest in establishing ways of retrofitting existing housing stock? And of course we would have to persuade consumers that grey water supply is safe to use in specific circumstances, a point which exemplifies perfectly the importance of what Twenty65 calls the ‘active customer’.

Leakage and blockages remain key problems and sources of concern. Investment in new technologies that allow for predictive and non-invasive approaches to tackling these problems will be needed and indeed, I know Twenty65 is actively engaged in this work. But why the timid target from OFWAT in its CP19 methodology? 15% by 2025. Is that ambitious enough, I ask?

Exciting new ideas are also being developed in relation to waste water. We have already seen energy regeneration from sludge and this will advance, but new, greener technologies for treating waste water are needed. Sometimes solutions offer multiple benefits, as for instance with the Southern Water plan to take waste cooking oils from local business and use it as a renewable energy source. Fewer fatbergs and more biogas. Let’s hope this scheme works effectively and that it can be adopted and expanded.

The role of water companies in flood management is in its early days, but one of the best examples of innovation in this respect is the investment many are making in natural flood management. Restoring catchment is good for the environment and good for our water supply – just ask Severn Trent, which loses capacity at its key Howden, Derwent and Ladybower facilities because of the volume of peat in the water. But we need to look too at whether water companies can effectively allow their water sources to be used to store flood water, as just one of the possible responses we can make to managing extreme weather events.

Now I know that it’s fashionable to posit innovation as the answer to all our social and economic problems, but really there is no alternative as far as the future is concerned. If we are to learn to properly value water as a society and if we are to secure a resilient and safe supply for the long-term future, with less environmental impact, then we have to embrace new ideas and invest in them. It’s not just about technologies, though; as I have already stressed, we will need to make significant progress in relation to how we include consumers in the work of meeting the key challenges ahead of us. And it is, of course, about the workforce. Workers in water companies rarely get a mention but they do such a critically important job for all of us. Continued investment in what they do and securing an efficient, highly productive workforce for the future should be a given for all our water companies.  

It almost goes without saying too that a highly productive workforce needs to be matched with effective governance focused clearly on strategy and performance, so let me turn now to the debate about ownership of the industry.

In recent months, there has been a great deal of debate about public ownership and indeed the Labour Party manifesto for the 2017 election promised renationalization of the water industry. Let me now outline why I think that would be a mistake.

First of all, there is the issue of cost. A recent Social Market Foundation report established that the upfront cost of nationalising the industry would be £90bn. Much has been said about this aspect of the policy, in relation to potential negative impacts on public borrowing and investment in the UK economy. Suffice it to say that financial and economic consequences need to be discussed in the context of an intention to also nationalize large parts of the energy industry and Royal Mail. In this respect, it is clear that the policy has not been rigorously tested.  

My second point relates to the legalities of renationalization. Of course any government can legislate to take key industries into public ownership. Clifford Chance’s recent report on UK nationalisation points out, however, that the Human Rights Act places on UK statute our ECHR commitment under Article 1 of Protocol 1 to guarantee the right to peaceful enjoyment of property. There is a public interest defence for government, but as the report points out, recent legal challenges have established there must be reasonable compensation.  

The implications of the key investor protections in place quite obviously need thinking through by our Shadow Chancellor. I conclude this point by referring to the 1977 nationalisation of our aerospace and shipbuilding industries; Clifford Chance’s report points out that it took three years to get through Parliament and shareholders were paid the average price of their stock for the six months before the policy was announced.

Do we really want to see a new Labour government waste its time responding to challenges by investors in the Courts? When there is so much that needs to be done to rebuild public services and secure the future of the economy in our uncertain, post-Brexit world, is this the best we could do? And if a future Labour government has resources available to cover the substantial transition costs related to nationalization, then surely it would better serve the country by using such funds to invest in our crumbling public infrastructure?  

My final point on nationalization refers back to the key theme of this conference. I have argued thus far that we need to learn to value water as a society and that innovation, in the widest sense, is the key to success. Can we assume, though, that public ownership of the water industry would achieve these objectives? Is there not a serious risk of potential interference in the running of water services, to the inevitable detriment of that engagement with consumers which is so crucial to our water future? And in the event of a squeeze in public finances, can we be sure that the investment needed for innovation would materialize? It seems to me that the risks involved here are high indeed.

None of this means, however, that a profit-motivated private sector should enjoy a free for all. Yes, the performance of the water industry since privatisation can boast some major achievements. Water leakage has reduced by a third, for example, since the 1990s. But the record isn’t perfect. There is considerable disquiet, as we know, about the impact of ownership structures and debt profiling on financial resilience in the industry, especially in the context of what are seen as excess profits. This creates a difficult climate for delivering solutions to the challenges I have outlined in this speech, because it fosters widespread distrust of the industry.

I want to finish my remarks therefore by challenging OFWAT and Government to deliver more effective regulation within a more ambitious framework for our water future.

OFWAT, in its CP19 methodology, identifies long-term priorities and sets out its approach to the next five year period. But where, I ask, is the ambition? Drilling into companies which fail to meet targets relating to leakage and other performance measures and levying fines where appropriate is all well and good. Even better when it aims to secure strengthened financial resilience.  

But we need more. If one of the key justifications for private ownership of the sector is its ability to deliver innovation, then the regulator needs to be both ambitious and flexible in this regard. Five year control periods do not fit the investment profile required to create a more resilient and environmentally friendly water sector for this country. Regulation needs to be tough, yes, but flexible. I remember well the struggle to get OFWAT to recognize the legitimacy of investment by the water industry in catchment restoration; rigid application of price control mechanisms can lead to perverse thinking if we’re not careful.

We also need to see a water sector more obviously dedicated to the public interest. OFWAT is increasingly focused on this aspect of its work, but its rather tightly drawn remit on monitoring and analysing the fine detail of company performance constrains its ability to focus more broadly on consumers and society.  

But the solution here does not belong to OFWAT. It is Government that needs to recognize the case for reform of the regulator, and it needs to bold in so doing. Why not a duty to deliver consumer trust and confidence in the industry? Why not rewrite OFWAT’s powers to refocus its efforts on outcomes rather than processes? What we need, after all, is a more sensible and less bureaucratic approach to engagement with the industry, which on the other hand also challenges it to deliver, in the widest possible way, in the public interest.  

And finally, the 25 year Environment Plan. Long on fuzzy ambitions and short on detail, it fails to convey a vision for a future where water is truly valued. It conveniently skates over the fact that the target for clean, healthy watercourses was initially set for 2027. So I finish with this one comment. Not only should Government commit to reform of water regulation, as an alternative to the much riskier and potentially disastrous choice of nationalization, but it should do so in the context of a commitment to put water at the heart of everything it does. In the Netherlands, for example, water is at the heart of the planning system and the environment.

Why, then, can’t we do the same?

I think Twenty65 for asking me to deliver these remarks, I feel privileged to have been asked to do so. Collaboration between academia, the water industry, government and wider stakeholders has to be at the heart of delivering a more sustainable water future for us all, and I know that Twenty65 is committed to playing its part.

I hope you enjoy the conference and thank you for listening.

Your neighborhood

Penistone & Stocksbridge Wards Dodworth West Ecclesfield East Ecclesfield Penistone East Penistone West Stocksbridge dodworth ward penistone east pen west stocks east eccles west eccles

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