The water industry was the Cinderella of the privatisations. Telecoms received strong competitive challenges in two tranches, on and after privatisation, producing a large number of new providers and suppliers. Electricity and gas had much of their monopoly broken, and they were in strong competition with each other. Even railways were made to compete through franchise awards to run the trains, and through different leasing and owning companies. Water alone saw the main regional monopolies survive intact, with the predictable consequences â€“ the two worst characteristics of the nationalised industry, shortage and higher prices, partially survived the change of regime. Regulation and shareholder pressure did something to improve both areas, but not enough.
The first step the government should take stimulate new investment is to break the monopoly. If the industry is as advertised a natural monopoly removing the legal monopoly will make no difference. If, as seems obvious, it is not a natural monopoly, new entrants will come in to challenge the current returns and high prices of the incumbents, and offer a lower cost model of water supply and dirty water removal. New entrants will seek to tap into borehole water in the many parts of the country where the water table is rising. They might offer to desalinate sea water, or to use river water where there is sufficient to allow further extraction.
Water is no more a natural monopoly than oil or gas production. Each of those businesses needs pipes and tankers to get the product from where it is fouond naturally to the market. They need to refine or purify their raw material;. Water suppliers need to pipe or transport water form where they can collect it or abstract it, to the customers, cleaning on route to the necessary standard.
A competitive water industry might not wish to supply all water to a uniformly high standard for drinking, but may supply cheaper water for gardens or loo flushing. It might propose collecting more water at or close to the userâ€™s own home for lower grade uses. It might supply water to industry without the drinking water additives some water companies put in on a take it or leave basis. A competitive industry is unlikely to tell people to use less water in hot summer periods, or cut people from certain uses altogether. In summary a competitive industry would be more obliging and more flexible in meeting customer requirements.
The government should also make it clear permits will be forthcoming to put in extra reservoir capacity where needed. There is a need for several more reservoirs in southern and eastern England. It is important work starts on these soon. Even if the government is sufficiently gutless to want to keep the monopolies, it could insist through the regulator that the companies aim to meet demand rather than artificially restricting it. This should be enough to trigger the investment schemes needed. Water is not a scarce resource, and it is the ultimate renewable. You cannot destroy it, it merely returns through the water cycle. As this is the case we should sotp all this nonsense about husbanding the resource and using less, and concentrate on finding ways to route around another 1% of the copious rainfall our country experiences to customers through the pipe, borehole and river system.