Water industry targeted for shake-up

REBECCA FOWLER

The water industry is facing a long-awaited shake-up in a attempt to reduce profits and slash bills, amid growing concern over the lack of competition among companies which enjoy regional monopolies.

John Gummer, the Secretary of State for the Environment, will announce the proposals today to force the industry to be more competitive. The water companies have scooped a record pounds 1.6bn profits, causing growing consumer resentment.

An increase in competition may result in bills being reduced by up to pounds 65. It is also expected to reduce the excessive pay rises and profits that have won water chiefs their "fat cat" titles, and made the industry, privatised in 1989, so unpopular.

The water chiefs appeared to be protected from intervention because it would be too expensive for rivals to set up competing networks, and a national water grid would take years to build at a cost of billions. The nation's water is currently drawn only from nearby reservoirs and other local sources.

However, under the new scheme, Mr Gummer is expected to suggest that it is feasible to construct pipelines linking reservoirs between different regions, which would allow them to undercut each other. Householders in the South-west, where bills reach the highest average at pounds 317, may be given the option of buying water from a cheaper company over the border.

The proposals, which have been drawn up in collaboration with OFWAT, the water industry watchdog, will come at a particularly sensitive time for the water companies, where a number of take-over bids are being negotiated. Severn Trent, one of the biggest water companies and which is based in Birmingham, announced it was launching a take-over bid for South West Water if it was granted permission by the regulatory authorities. The same company is facing a separate bid from Wessex Water.

In a foretaste of the proposed changes, John Major told Conservatives in Harrogate this weekend that introducing competition had already forced down bills in the gas, telephone and electricity industries. "This hasn't happened in the water industry yet, but it will," he said.

Since the water industry was privatised the "fat cat" chiefs have further infuriated the public by making dramatic job cuts, while creaming off more bonuses for themselves from their share option schemes. United Utilities, the power and water group, announced 1,700 job losses last week only months after a pounds 1.8bn merger.

The industry responded cautiously to the proposals this weekend. A spokesman for the Water Services Association (WSA), which represents water and sewerage companies, said: "The whole issue of further competition raises a whole range of complex technical, regulatory and legal matters."

He added: "The government must be careful not to rush at this and cause the kind of errors and upheaval seen in the gas industry. Member companies of WSA will be happy to work with government and OFWAT...so long as government is guided by common sense, not ideology."

Leading article, page 18