We’ve
had a lot of rain over the last year. The good news is that most reservoirs are
full and aquifers have been topped up. The bad news is that many households are
struggling to pay their water bills.
There
is a cost of living crisis. Inflation has far exceeded income increases over
the last 4 years. Inflation in utility, energy and housing bills has been even
higher and lower-income working families have been the hardest hit. OFWAT estimates
that 11% of households currently spend more than 5% of their income on their
water and sewage bill. That’s 2.26 million households across England and Wales,
990,000 adults, 730,000 pensioners, and 540,000 families with children.
Water
bills have increased by almost 50 per cent in real terms since privatisation in
1989. Many companies are using complex and ‘opaque’ financial structures,
including worryingly high levels of debt, to minimise tax in the UK. The
Chairman of Ofwat has warned of increasing levels of debt in the sector: “the
overall proportion of equity has diminished from 42.5% in 2006 to 30% of
regulatory capital value today with several companies at 80% gearing, thus
obtaining only one fifth of their financing from equity”. Profit margins
are exceptionally high, with the regional water companies making £1.9billion in
pre-tax profit last year and returning £1.8billion of this to shareholders.
The
Government’s voluntary approach, by which water companies can choose whether to
offer a ‘social tariff’, has resulted in only three water companies offering a
scheme, assisting fewer than 25,000 consumers nationally. Following significant
criticism, last October, David Cameron’s spokesman briefed that there was
imminently to be ‘decisive action on water bills’ from Owen Paterson and
Defra. This turned out to be nothing more than a letter to the water companies
asking them not to put up bills. You can guess what they did with it!
There
is a Water Bill in Parliament at the moment. Cameron and Clegg ought to do
three things now:
- introduce a national affordability scheme – to replace voluntary
arrangements - to help those struggling with their bills, funded by the
water companies from their excessive profits, thus ending the current
postcode lottery;
- give OFWAT stronger powers to cut bills - when these monopoly
providers benefit from favourable economic circumstances outside their
control; and
- enable OFWAT to take corporate structures and levels of
investment, tax and dividends into account - when setting the
regulatory framework for each company.
Will
they do that? I wouldn’t bet on it.
