Angela Smith MP

Penistone & Stocksbridge

My Interview with Utility Weekly as Shadow Water Minister

Congratulations Ofwat, you have (almost) completed what has been received, at least by consumer groups, as a well-balanced price review that will ultimately lead to lower bills in real terms for water customers. And your reward is a huge pat on the back from Labour. Not a celebratory, “well-done, haven’t you done well” kind of pat on the back: more of a “you’ve made a start, but you’re going to have to do a lot more than that” kind of pat on the back. At least that is what the shadow water minister Angela Smith would have you believe.

And she reserves the same iron fist/velvet glove approach for water companies. She congratulates them for “acknowledging” change is needed, and for starting to incorporate their customers’ views, via the customer challenge groups, into their business plans, but warns that a much stronger focus on customers, rather than profits, is needed and will be enforced – should Labour win the general election.

Speaking to Utility Week, the Penistone and Stocksbridge MP is keen to show that Labour will go into May’s general election with its steel toe-capped boots on ready to kick the water industry further into shape through changing regulation, introducing a national social tariff, and by getting to grips with abstraction reform.

She admits that the final determinations published by Ofwat at the end of last year “have, to some extent, acknowledged the case for change” by cutting the average water bill (in 2014 prices) from £396 in 2015 to £376 by 2020 – a drop of 5 per cent. This is greater than the 2 per cent originally put forward by the water companies in their business plans back in December 2013.

A total of £44 billion of investment has been planned for the next five years, and additional support schemes are being introduced, which the regulator says will help a total of 1.8 million people by the end of the decade.

However, Smith warns that “there is a lot further to go” and that a Labour government – one she hopes to be a part of come 8 May – would seek further changes to help ease the “burden” on customers.

Indeed, she needs to follow up on the big promises set out by shadow environment secretary Maria Eagle in a dramatic party conference speech in September to introduce a national affordability scheme, as well as slash the industry’s profits and boost its green credentials.

The “new deal”, in keeping with Labour’s Twitter-friendly “cost of living crisis” crusade, has tackling the cost of living at its heart, according to Smith.

But, with many water companies offering help to those struggling to pay their bills, and the Consumer Council for Water leading the campaign urging those unable to pay their bills to contact their water companies, isn’t this already being done, without the need for a significant legislative and regulatory overhaul? Not so, retorts Smith.

“There are only six companies so far, out of the 18, that offer social tariffs and only 25,000 customers so far benefit – so we’ve got a long way to go.

“We’re very keen to embed the principle of affordability in everything the water industry does and having a national affordability scheme for those who really struggle to pay their bills is a really important part of that.”

Currently, water companies have to get the approval of their customers – who ultimately have to subsidise those who are unable to pay their bills – before they can offer a social tariff. This is tried and tested but, as Smith is eager to point out, creates a “postcode lottery” and a patchwork of support systems across the country.

How will a potential Labour government – which will also be grappling with a budget deficit of £76 billion – get an industry reeling from the swingeing cuts outlined by the regulator in the price review, to fund a significant national scheme? The shadow water minister says it’s simple.

First, get those who can pay but don’t to cough up what they owe. Details on exactly how this would be achieved should the Labour team take the reins of government are unclear. Second, reducing company expenditure on bad debt – estimated to be costing more than £1.6 billion a year – would free up cash to fund a country-wide social tariff scheme.

She says: “Labour is committed to ensuring water companies have the tools they need to reduce that bad debt on the part of those who won’t pay, and that will make it significantly easier for us to put together the funding for those who can’t pay.”

Labour has been banging this drum for a while. It tried, and failed, to insert a clause to this effect in the Water Bill last year.

Labour’s reformation of the water sector would not end there.

Away from the customer-facing reforms – and what it hopes will be the big vote winner – it has also plotted out a series of “back office” changes to make the industry more transparent, fair and sustainable. Number one is ending the “increasingly exploitative behaviour” of some companies (to borrow Maria Eagle’s language) over the issue of profits. This would be done through licence modification – a threat to make the sector wince, as memories of the last attempt at licence modification, the bungled Section 13, still smart.

Labour has not slammed Ofwat – like its energy counterpart Ofgem – for being toothless, but says it is constrained by the framework in which it operates and its inability to clamp down on the complex and intricate structure set up by the water companies to, in the words of Eagle, “siphon money off year after year”.

Smith says that “reforming the licensing system is the key to delivering the kind of regulator that we want to see” and doing this is “all-important”.

The aim of these reforms will be to decrease the companies’ debt, increase the amount of tax they pay, and reduce the £1.8 billion (in 2013) of profits being paid out to the “privileged few” (Eagle’s words again).

How would Labour achieve this without inciting rebellion from water companies? If Smith knows, she isn’t telling. She says only that her party would get the sector to focus on consumers and on the longer term, rather than on “short-term, high-yield gains for shareholders, holding companies and private equity”. She says the clearer it is to understand what water companies are doing, the more Ofwat will be able to “get to grips” with debt levels (which she considers to be too high), tax payments (companies should be paying more), and long-term investment (more is needed).

“What we want to see is an industry not focused on short-term profit-making but long-term investment. That’s good for the industry actually.”

Sustainability – of the water resource kind – is something else that occupies Smith’s mind and time in Westminster. Specifically, the need for abstraction reform – something she accuses the government of “dragging its feet” over.

The Department for Environment, Food and Rural Affairs (Defra) has run a seemingly endless set of consultations on abstraction reform, the last of which closed in October. Nothing has been mentioned since then while the department assesses the responses, and no legislation is expected until 2017.

Smith hesitantly says – aware of how often the term gets chucked around by politicians – the water sector faces “a real risk of hitting a sustainability crisis”. And the blame is laid squarely with the government because “it has mishandled this whole abstraction reform process”.

“It has just been slow – very, very slow – in responding to what absolutely everyone acknowledges, that abstraction reform is needed.”

But, when asked what reforms Labour would introduce to the abstraction regime, the previously bullish Smith is not so forthcoming, and reiterates her point that “it is needed” and takes another pop at the government for “delaying the timetable”.

When pressed, she again fails to outline plans and says her party is dependent on the government to complete the “preparatory work that is required”.

Smith adds: “We are very open-minded on what abstraction reform may look like. But we need to see the data. We need to see the research. We need to see the preparatory work before we form a view on this.

“There are key principles here and one of those is that we need to ensure resilience of supply for the long term and a sustainability of supply. We’re sure of our principles here.”

She again attacks the government for failing to make the early moves.

“We are not in power. We are not the government. It is for the government to do the preparatory work and we will look at all of that with interest – when it emerges.”

Smith talks a good game, promising lower bills and better service for customers, while threatening the water companies with reform and punishment should they fail to comply with Labour’s “affordability agenda”. But the details – something rarely pushed for during the doorstep election campaign – are still thin on the ground

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