Angela's speech to British Water's Winter reception
We meet this evening, in this lovely room, to talk about the water sector in the context of a colossal and very damaging debate, characterised by polarised views of what the future should look like. In many ways, this discussion is painful to watch and even more difficult to participate in because of the various profiles of what that future could look like do nothing to deliver anything as good as we have now.
And that’s enough about Brexit.
But the truth is that although Brexit is indeed a vitally important issue, there are nevertheless other arguments raging which could have an enormous impact on our country and its citizens.
Who would have thought, in that post-2015 period, that the water sector would become subject to a fraught and damaging public debate?
There is no time this evening to discuss the politics of why this situation has materialised; suffice it for me to say that it has proved a distraction from the conversation we really need to have about how to meet the challenges facing the country in the coming decades.
Climate change projected population increases and the pressing need to improve our natural environment create a complex and demanding context to the task of establishing how best to ensure that the water sector is fit for purpose, ready and able to deliver in the public interest.
I don’t deny that the debate about ownership of water companies has spurred a renewed focus on existing financial arrangements, particularly with regard to debt profiling and dividends, but this has been very much at the expense of the debate we need to have, namely how to ensure that our water suppliers recalibrate in a way which enables them to deliver their services not just for the benefit of shareholders but for customers and wider society.
In other words, we need to talk about water companies as social enterprises, as suggested by Rachel Fletcher, who for me is proving to be a very welcome breath of fresh air as Chief Executive of OFWAT.
In this speech, I want to, first of all, discuss recent developments and the potential I think there is in our water sector to contribute on a bigger scale to our country’s prosperity, before returning to the key issue of how to tackle the challenges of the future.
There is no doubt the industry faces immediate demands to raise its game.
Just last week we saw a hint of the challenges we face when OFWAT published its initial assessment of the business plans submitted by the water companies for PR19, for the period 2020-2025. Four companies, in the opinion of the regulator, require ‘significant scrutiny’ and consequently need to substantially rework their plans and re-submit them before they are accepted.
It’s not very often I quote Michael Gove, the Secretary of State, but on this occasion, I will, because I agree with the comments he made last week in a letter to the Chairman of Water UK. He points out that three of those companies – Thames Water, Southern Water and Affinity Water – serve the most water-stressed regions and makes it clear that he expects, and I quote, ‘revised plans to be more ambitious in delivering for customers and the environment.’
But we should not overlook the fact that three companies did achieve fast-track status, which is something to be celebrated, given the renewed rigour with which OFWAT is discharging its responsibilities.
It has made it clear that standards have to be raised, in every respect, and in the context of the challenges I outlined at the beginning of my speech.
I support this approach. Our water companies do not deserve the unbelievably aggressive and inaccurate attacks made on them by elements of the hard left, but we do need to take an objective and critical approach to their performance. Challenge is necessary and the regulator needs to use its levers to ensure greater efficiency, better customer service and value for money.
I think the regulator is right to challenge companies to share financial gains with customers and to ensure dividend and executive pay policy is aligned to delivering for customers.
It’s right they should look way beyond the five-year price review period to meet the needs of future customers and protect and improve the natural environment.
But it is also right to be balanced in our approach.
Because there is another story, a very positive story, about just how good our water industry is, especially when compared to many other advanced nations.
For instance, almost every household in the UK has a connection above secondary treatment levels.
Something neither the Germans nor the French enjoy.
On most measures of customer service, the industry out-performs many other countries.
On investment, its record stands up to comparative scrutiny.
Our water sector also compares well on measurements of productivity.
Indeed, the UK’s water industry is respected around the world for its expertise and the way it efficiently supplies water and cleans waste.
And I would argue that, in what soon might be a post-Brexit UK, it will be even more essential to find opportunities for the sector to sell that expertise in water engineering around the world.
Affordable and safe drinking water is a goal common to all countries. Nevertheless, up to 1.8 billion people globally lack access to safe water and it is predicted two-thirds of the world’s inhabitants could live in water-stressed conditions by 2025.
Our industry, with its mature and forward-looking supply chain, has the potential to help provide solutions to these global challenges.
It is a sector that has decades of experience in developing integrated water-resource management solutions and techniques.
There have been some notable successes, such as the recently announced wastewater plant in Bahrain, facilitated through a £28m loan from UK Finance.
The sector needs support, however, to do so much more, and should expect to find this from the Department of International Trade.
I welcome the department’s recent consultation on how it can help British exporters and industries in Post Brexit Britain.
Incidentally, whether we leave the EU or not, our Government should be more pro-active in supporting our industries in their efforts to sell their expertise and their products globally.
For its own part, it is also vital that the water sector should embrace innovation.
I know this is very much a buzz word nowadays, but I believe there is a growing awareness in the sector that the time is ripe for thinking what is commonly referred to as ‘out of the box’.
We should be encouraging new approaches to service delivery as well as embracing new engineering technologies.
We should be encouraging new thinking when it comes to relationships with customers, making the most of academic research which helps point the way when it comes to embedding customers as active agents in the delivery of services.
Water companies as key agents in the development of catchment-level working is a key part of this. Environmental improvements and resilience have to be at the heart of an industry which serves customers and society as much as it serves the interests of its shareholders.
And we should think long term, looking ahead to the potential offered by smart technology to radically alter the nature of the relationship between customers and water companies.
This is all very exciting. So exciting, in fact, that we cannot afford to just talk about it, much as that gives us all a nice warm feeling that we understand what needs to be done.
Innovation has to be the catalyst, the driver for change, taking the water sector step by step towards meeting those challenges that have been so clearly defined by OFWAT, by the National Infrastructure Commission and by DEFRA.
Which brings me to my final point.
The National Infrastructure Commission recently articulated the pressures on the sector relating to climate change and population increases and identified very clearly the need for measures to reduce demand for water, increase supply and create transfer capacity.
Reducing leakage is one very important way of reducing demand which is much commented on at the moment.
But customers need to understand to the scale of the task involved in delivering new supply, for instance by building reservoirs, and in creating capacity for transferring water resource efficiently, mitigating by so doing the effects of climate change.
The challenge in delivering this new infrastructure will be related to securing the necessary investment.
It provides a significant opportunity, however.
New infrastructure offers us the option of opening up the industry not only to new operators but to a more pluralistic culture in terms of ownership.
If a mutual option were to emerge for commissioning and operating a new source of water supply, for instance, why would we not want to encourage that?
This approach, along with much of the agenda that I’ve presented in this speech, would require changes in regulation and a review of the regulator, in order to ensure it continues to be fit for purpose.
But we should not shy away from that process.
Let’s foster the innovation we need to see in the industry.
Let’s encourage a meaningful commitment to service and infrastructure development. For instance, by introducing regulatory flexibility in terms of long-term planning for investment.
Let’s embrace models for delivery which encourage a healthy and successful balance between collaboration and competition at catchment level.
And above everything else, let’s commit to ensuring we deliver for our country a water service which secures resilience and environmental improvements for all.