What next for the water companies?

In the intervening 15 years, it has joined much bigger companies like Thames, Southern Water and South West Water as the public villains in a sector which has gone from one of the “Silent Services” Britain values to a place of routine public obloquy, and a Prime Minister who talks of greater public control without specifying quite what it means.

Much analysis has been devoted to the perceived failings of the industry over the last ten years. Alleged profit-gouging by shareholders leading to under-investment, meaning in turn that sewage ruins rivers and beaches while in some places people go without running water for days. It’s a big charge sheet, and only slightly mitigated by the fact that profits and investment have been largely controlled by the regulators over the years.

As if implicit recognition of this plea in mitigation from the companies the previous Starmer Government said it would abolish OFWAT, but we have no idea yet what will replace it, and possibly other regulators such as the Drinking Water Inspectorate. One of the problems was indeed OFWAT’s concentration on the short-term need to keep consumer costs down, with not enough thought given to the long-term need for spending on necessities like reservoirs. I can remember looking at the site South East Water had in mind for a new reservoir in water-stressed Kent back in 2008. Nearly twenty years later, this project has not started because the investment was not approved by the regulator.

For the 15 years before 2023, water bills fell in real terms, though I doubt any consumers faced with rising bills now will care about that. They care more about the visible leaks which discourage households from economising on their own water usage. Companies can explain as much as they want that often the hidden underground leaks are more serious, but as long as there is water pouring down the road for days, telling people not to run the tap when they clean their teeth will be a less effective message than it deserves to be.

What messages should the water companies be putting out, given their collective lack of credibility with the public and politicians? The first is a realistic degree of contrition and a credible assertion of the desire to change, with examples of recent improvements. The second is an urgent appeal for some certainty about Government plans. Last summer Sir John Cunliffe made 88 recommendations about what should happen, and even with a change of Prime Minister, is it reasonable to expect to know before the end of this year how many of these will be implemented? The third is a constant reminder of how much private capital has been deployed, and will be needed over the next decade, with constant repetition of the fact that a nationalised industry would need to take this money from taxpayers or add billions more to public borrowing.

It will be a long haul back to credibility for the water companies. Improvements in messaging will need to be supported by radical uplifts in performance on the metrics their customers care about. The next couple of years will be vital for putting these improvements in place and making them visible.