Article written by Gill Plimmer and originally published in The Financial Times
Shareholders in water and energy monopolies should receive steady but unspectacular returns, says government adviser
Britain’s water and energy watchdogs should be empowered to crack down on companies “ripping off” consumers and “causing harm to the economy”, a key government adviser has said.
John Penrose, the UK “competition tsar” who is advising the government on reforming the regulators, said that a new competition bill will tackle modern monopolies such as Google but is yet to address the regulation of water and energy utilities.
“Our economic regulation system isn’t working properly,” Penrose told the Financial Times, referring to Ofwat, which oversees water and sewage companies in England and Wales, and Ofgem, the energy regulator.
“It has been too soft, giving monopoly-owning firms an overly easy ride on prices and quality with suppliers and customers paying the price for this failure.”
Penrose’s comments follow research by the FT that showed the 10 largest privatised water monopolies paid out £1.4bn in dividends in the year to March 31 2022 despite concerns over the dumping of unknown quantities of untreated sewage and storm water into beaches, rivers and lakes.
“Water is the stuff of life and none of us can do without it, but the performance of our long-term regulatory model is looking poor,” Penrose said. “The regulated utilities should be delivering good quality standards while receiving a steady but unspectacular return in the process.
“Instead we are seeing that shareholders earn monopoly profits that are both very high and extremely stable too, which means customers are getting ripped off by paying too much.” He added: “This is causing harm to the economy.”
Penrose, chair of the Conservative Policy Forum, a grassroots-led think-tank, was appointed in 2020 by then chancellor and current prime minister Rishi Sunak to review UK laws intended to promote competition.
The digital markets, competition and consumers bill has its second reading in the House of Commons on Wednesday and is designed to give the watchdog, the Competition and Markets Authority, greater powers.
Penrose acknowledged there were calls from across the political spectrum to renationalise the water and energy sectors. A YouGov poll last year found 58 per cent of Conservative voters believed water should be brought under public control and 47 per cent for energy.
However, Penrose said: “More competition is the quickest way to reduce the costs which are ultimately passed on to customer bills.”
The business water market was opened to competition by the government and water regulator Ofwat in 2017 in an attempt to mimic the energy sector, which had liberalised services in the 1990s.
Independent retailers were licensed to handle customer complaints, bills, meter readings and enquiries anywhere in the country, although the water is still provided by the regional water company. But a huge surge in complaints over service cast doubt over the market’s success.
The opposition Labour party has called for a new regulator merging parts of Ofwat, the Environment Agency and the Drinking Water inspectorate but Penrose said: “Moving the deck chairs doesn’t fix the underlying problem.”
Cat Hobbs, director of We Own It, which campaigns for public ownership of water, rail and energy, said: “The attempts by regulators to mimic the market have clearly failed and water should be returned to state hands as is the norm worldwide.”
Ofwat said: “We agree that water company performance needs to improve and we are acting to drive that change. We have trebled our enforcement capacity, to help us hold companies to account.”