City & Business: Water companies waiting for a rainy day

It never rains but it pours says the old adage. In the case of the water companies, just "it never rains" is more appropriate. Not only are they facing the prospect of a windfall tax if the Labour Party is elected, but now they are also facing a massive investment in the infrastructure to cope with a change in the climate that is delivering higher temperatures and lower rainfall in England and Wales.

November is not a great time to be talking about the weather being too hot and too dry, but the records show we are in the midst of a protracted drought that began in April 1995. It is the driest 19-month April-October period since records began. It is also the third driest of any 19-month period in the last 230 years.

At the same time, temperatures are on the rise. Over the last 10 years, temperatures have risen by a significant margin both during the day and at night.

The weather experts are not yet prepared to say we have witnessed a permanent climatic change. However, they recognise that the recent weather patterns have been extremely unusual.

If the trend continues, water companies in the English lowlands - broadly south of the Humber and East of the Severn - will have to make contingency plans to deal with water shortages.

There are simple things that can be done - such as making usage more efficient, metering and reducing leakage. However, if the weather changes are becoming permanent, the only option, if rationing is to be avoided, will be investment in the infrastructure. A national water grid would be too expensive, but some selective water transfer system between wet and dry regions will be required, as will new reservoirs of some substance.

The emergence of these micro climates means that the rain is falling mainly on the regions that do not need the water. It has been exceptionally wet, for instance, in the west of Scotland, where the average rainfall last month was twice the average. In contrast, the rainfall was only 70 per cent of the average in the Thames Water region. That follows a dry September where rainfall was only 37 per cent of the average.

Thames has recognised the problems that lie ahead. It ran a successful campaign during the summer encouraging customers to make more efficient use of garden sprinklers. It has just launched another campaign that urges customers to lag their pipes to guard against the inevitable winter bursts.

Thames is also stepping up its campaign to cut back on leakage from the system. The leakage rate has already been cut from 28 per cent to 25 per cent. A team of 180 dedicated leakbusters has been set up and pounds 160m has been set aside to cut the rate in half.

This is good sound practice from a company that has not had water restrictions since 1990. However, while you can battle the elements, you cannot always beat them. With river flows on the Thames at their lowest level for over 60 years and soil moisture deficits (the amount of average rainfall required before ground water sources start refilling) running at eight to 10 weeks it is easy to see that the pressure is mounting.

It is clear that City analysts who have tended to specialise in forecasting profits are also going to have to get used to forecasting the weather.

Bleak for bean counters

The accountancy profession has its roots in looking backwards. It is therefore encouraging to find it looking forwards. A consultation document to be published this week by the English Institute of Chartered Accountants will bravely forecast what the world of the bean counter will look like in the year 2005. Not very pretty, it appears.

The report outlines a very gloomy picture indeed. In essence it concludes that unless the profession recognises that the world is experiencing profound change it will slump into decline.

Developments in technology will lead to the computer doing even more of the routine work that the accountant undertakes. Increased competition both within and without the profession means there will too many accountants chasing too few jobs.

Anyone over the age of 45 will be particularly at risk. Changing labour markets means that accountancy will no longer be the safe and secure career it once was. Reskilling on a grand scale will be required if accountants are to keep working through to retirement.

The report also predicts further changes in the structure of the accountancy profession. Further consolidation is anticipated to reduce the big six to the big four. Medium-sized firms will be most at risk while the smaller firms will carve out profitable niches.

The main thrust of the report is that the audit function, which has always been at the heart of the profession, will no longer provide the bread- and-butter of income and employment. Only firms and individuals with the skills and services that their clients need will prosper in the next millennium.

David Stewart, who chaired the working party that produced the report, has struck just the right tone. The report is not a prediction of despair but a call for change. That change will present opportunities but can only be grasped if the profession responds now.

The problem is that the Institute, which commissioned the report, is notoriously slow at dealing with these matters. By the time it has consulted, considered and concluded (probably in triplicate), it will already be 2005.

Moving the goal posts

The devolution issue is vexing the Scottish business community, which has been slow to nail its colours to any particular mast. When the economics say "no" but the customers say "yes", it is a difficult call.

This dilemma has been recognised by the public relations industry, which has dashed north of the border in a communications equivalent of the Gold Rush. The spin doctors' plans to loot and pillage could yet be thwarted, if John Major was to follow the suggestion of one well-informed Scot I know - that the Prime Minister should announce tomorrow that the England- Scotland soccer game at Wembley will be reinstated forthwith.

An annual opportunity to thrash the English is far more appealing than devolution. A political circle is squared, and the goal-post manufacturing industry receives a much needed boost.