Water Industry (Hansard, 20 March 2002)

§ Lord Whitty

On 30 March 2001 (HC, Deb col 832W) my right honourable friend the Minister of State for the environment informed the House in another place that the Government had decided to boost the opportunities for competition in public water services in England and Wales. We proposed that the incumbent water companies would remain vertically integrated statutory undertakers, while new entrants would be licensed for production and retail activities. Since then, Defra has undertaken further detailed work on the future framework, in close collaboration with other government departments, the National Assembly for Wales and the three principal regulators of the water industry: Ofwat, the Drinking Water Inspectorate and the Environment Agency.

Competition can deliver benefits for customers through keener prices, more innovation and improved service quality. But competition must be consistent with the Government's wider policy objectives for the water industry. It is important for the framework and scope of any further competitive activity to be tailored to the particular circumstances of the industry and the needs of its customers.

After thorough consideration, we propose to extend competition for non-household customers that use large quantities of water. Market entrants will be authorised to enter into common carriage agreements with statutory undertakers to supply premises which use more than a specified threshold of water per year. We propose that this should be set initially at 50 megalitres, based on the evidence current]) available. Work is under way to assess the likely effects of lower threshold levels both in terms of increasing competitive opportunity and the Government's wider policy objectives for the water industry. Views will he invited on the threshold in a forthcoming consultation paper. This further analysis, the views received in response to consultation and consideration of the implications for all customers will inform any Final decisions on the initial threshold to be introduced in England and Wales.

Any subsequent lowering of the initial threshold will be considered once we have the benefit of practical experience to draw on. We would consult publicly on any proposed change and the same considerations would apply as in the case of the initial threshold. From the outset, new entrants to the industry will be expected to co-operate with the statutory undertakers in preparing and implementing water resource, security and emergency planning.

We have considered very carefully whether to introduce competition now for household customers. We have concluded that extending competition to the domestic water sector, while at the same time seeking to ensure that the Government's public health, social and environmental objectives continued to be met, 155WA would require a complex and costly regulatory regime which would still leave substantial uncertainties. The added complexity would militate against effective competition and the extra costs would have to be borne mainly by customers. In our view, these drawbacks are likely to outweigh the potential benefits.

Household and other customers can continue to rely on the present system of comparative competition operated by Ofwat to encourage water companies to improve efficiency and their services. Average household customers are now paying 13 per cent less than in 1999, a reduction of £33 in real terms.

We shall be publishing a consultation paper with further details of our proposals later this year. As previously announced, our intention is to introduce a water Bill to bring these changes into effect. The draft Bill also contains proposals to put customers at the heart of the regulatory process, including setting up an independent consumer body to be the voice of consumers.