Angela Smith MP

Working hard for you

Speech to the British Water Reception

House of Lords Wednesday 6th February 2019

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There is no doubt the industry has some historical and present-day issues to deal with.

Just last month we saw a hint of the challenges to be faced when only 3 out of 17 water companies received fast-tracking for their business plans from Ofwat for the control period 2020-2025.

Indeed, 4 companies, in the opinion of the regulator need to substantially rework their plans and re-submit them before they are accepted.

Meaning almost 25% of companies have submitted plans which the regulator wants to see a major improvement in before allowing them to proceed further.

Even then the vast majority of submissions by companies to OFWAT need in the words of the regulator ‘further work’ before they can be accepted.

I think it is only right OFWAT seems to be setting such high standards for the period 2020 – 2025. The companies do need to be challenged and pushed further than ever before to improve efficiency, customer service and resilience.

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.

Its 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.

If the industry is to meet the challenges it will face it needs to start to think about them today not tomorrow.

Let’s not let our bashing of the industry go too far.  

We do need to keep in perspective just how a good the industry it is overall, especially when compared to that of 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 outperforms many other countries.

On investment, it measures up to most other countries and has high levels 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.

In many ways, the UK's water sector is looked upon as an exemplar of how the industry can be and should be run.

Indeed, in what soon might be the post-Brexit UK there will be 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.

The UK can help these countries respond to these 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 can, however, do so much more. But to do so will take the Department of International Trade to engage better with the sector.

On that, I do welcome the department’s recent consultation on how it can help British exporters and industries in Post Brexit Britain.

Now we need those words and good intentions to be put into practice.

Therefore, I call on Government to be much more proactive in supporting the industry and the people within it.

Domestically, the future also holds many challenges and opportunities for the industry.

We have already heard how the regulator sees the future of the industry and how it is challenging the industry to face up to tomorrow, today.

Others, however, see different ownership models as the key to meeting the challenges the sector faces.

That’s not to say I’m ideologically wedded to the private sector owning the sector, but I have yet to see a change in the model of ownership that will improve the sector or make it fit for the challenges that lay ahead.

Both nationalisation and mutualisation have been talked about as solutions and both I believe have issues.

Both require large amounts of public investment to recompense shareholders. We are told something between £50bn and £100bn

Also major is an investment in the sector is required. £5bn over the next control period and £25bn over the next 25 years.

At a time when public spending is under such pressure, I fear investment would end being diverted elsewhere or shelved.

So, while the present structure of the industry is imperfect I do believe with an enhanced role for the regulator and a change of culture could a step change in the industry could be accomplished helping it to deal with the challenges ahead.  

I welcome, therefore the words of the new Chief Executive of OFWAT, Rachel Fletcher when she talks about water companies being part of a social contract as a way of changing the culture.

For me indicating a move away from the pile on the debt and high shareholder returns culture some companies had in the past.

If the industry is to meet the challenges which lay ahead I think this is exactly the way the industry needs to be shaped. Companies need to aim to become more like Social Enterprises with consumers and the environment at the core of their business model.

And the challenges they face are great, make no bones about it.

The National Infrastructure Commission recently, and rightly identified that climate change and a growing population will inevitably put extra pressure on water resources.

Already, there are areas of the country which are suffering water stress with South East of England being badly affected, yet its population is expected to grow by 25% by mid-century, with a consequent demand for an extra half a million homes all requiring water, drainage and sewerage.   

Climate change will deliver more extreme weather events over the coming decades, in all parts of the country, with sometimes too much water or as we found out last year, too little. Both of which the companies must learn to deal with better. 

We also know without major investment it will be impossible to meet the standards required by the EU Water Framework Directive which says all our rivers should be in good condition, by a target date of 2027.  

Then, of course, there’s leakage.  Not only is this an irritation to consumers but a waste and an unnecessary depletion of a precious resource and needs to be dealt with

New Infrastructure will be required to face these challenges too. Be those new reservoirs or the means to transfer water from wetter areas of the country to dryer areas.

The challenge here will not only be providing the capital to do so but also a fit for purpose planning system.

And of course, all these need to be dealt with sustainably, while making sure water bills are still affordable.

One final point I would like to make, and one often forgotten is that no matter how the industry is structured there will always be a relationship with a supply chain of smaller private companies.

Here the regional company must learn a much better way of working. Presently their expertise is often ignored, and innovations missed.

That’s a loss to everyone. 

Here, again though I think a move to a more social enterprise type of working could be of benefit by treating suppliers as stakeholders within the family.

Yes, I know this is already happening to some degree but by fully bringing outside organisations into the tent, letting them fully express themselves surely this can only help bring innovative processes forward helping meet the challenges of the future  

To finish with, in many ways, we need, to see societal change, to really learn the value of water, where it comes from, what it does for us, and how we return it back to the environment.  

I firmly believe we can meet these challenges. They won’t be easy. They will take investment. They will mean a change in how the sector works, including the regulation of it.

But after speaking to so many professionals in the industry it is clear there is a desire to build a more sustainable future. One that puts the environment and consumers at its heart and one that is sustainable.