Time to break up water services monopolies says leading think tank

Posted: Thursday 18th August 2011

Customers could benefit from improved customer services, lower prices and saving water if the water services market in England was Wales was deregulated, according to new research from leading think tank Policy Exchange.

The study, Water Retail Services Competition in England and Wales: Still Hobson’s Choice?, recommends that vertically-integrated local water monopolies should be partially broken up, with businesses and public sector organisations given the right to choose their water retail suppliers.

It finds agreement between a range of cost benefit analyses that opening up the England and Wales water retail services market would give large net benefits – between £600 million and £2.5 billion, even without taking into account customer service benefits and water saving.

The research, carried out by Policy Exchange’s head of environment and energy and a former director of water regulator Ofwat, Dr Simon Less, found broad unhappiness among business customers with the customer services received from water and sewerage companies in England and Wales, and with their inability to change their water services supplier.

Large users occupying multiple sites were especially frustrated when they received invoices for every site they occupy – resulting in up to thousands of paper bills per customer, leading to an absence of real-time information on how much water they are consuming and on potential leaks.

The study argues that allowing competition in the market would mean new and better services for business customers, lower prices, less regulation, the ability for multisite customers to have one national water bill, better incentives for competitive retailers to help customers save water and the potential to unlock billions of pounds to help finance new water and sewerage infrastructure.

Reforming the water market could also lead to environmental benefits through greater water efficiency, according to Dr Less.

Dr Less said: “Scotland has enabled business customers to choose their supplier, and our research found that business customers were more positive about the customer-focus of Scottish water retail companies, and valued their ability to switch supplier. This is an innovation which has been shown to work in Scotland and which English and Welsh customers also deserve to benefit from.”

Since Scotland opened its market in 2008, over a third of business and public sector customers have tendered their water and sewerage services contracts, almost 60% have secured lower prices and many are getting new services to help them save water.

Dr Less added: “Relying on regulation of monopoly water retail services suppliers cannot reflect the complexity, dynamism or demand-driven nature of water services. Under regulation, incentives for good customer services are limited because companies cannot lose customers.”

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