The last week has seen some challenging developments in the UK. We’ve had a Comprehensive Spending Review outline spending cuts on a scale unseen for generations. During the build up to this CSR, we also had announcements related to a review of the UK’s many Quangos (a.k.a. non-deparmental public bodies). This was also inspired primarily by budgetary motivations – albeit a little bit of Spring-cleaning of the UK’s nearly 700 Quangos has probably been overdue for some time!

What implications do these developments hold for water users and for the UK water industry? Looking at the full list of Quango changes, quite a few it would seem.

Defra’s admittedly significant raft of Quangos appears to have been hit quite hard. First, the Environment Agency – a body whose effectiveness may have been marred in the past by internal politics between national and regional offices and snowballing numbers of geographically and functionally overlapping plans and strategies, at least according to our experiences – has been put ‘on notice’, as it were, via the following determination:

Retain and substantially reform – Reform through structural, process and cultural change to become a more efficient and customer focused organisation; and clarify accountabilities. Further announcements after the spending review. The Environment Agency in Wales may move to form part of a WAG [Welsh Assembly Government] Environmental Body.’

Second, the Consumer Council for Water – an independent body representing consumers’ interests, that in 2005 took over from its predecessor WaterVoice (and its precursor, Ofwat’s national and regional ‘customer service committees’) – is also ‘under consideration’, albeit as part of an ongoing wider review of the UK’s water policy:

Under consideration – Decision to be taken as part of OFWAT review launched on 26 August. Outcome of the review will be set out in the Water White Paper, due for publication in June 2011.’

Third, the main subject of this policy evaluation, Ofwat itself, has not been totally spared, and will undergo a fairly fundamental review of its functions and practices:

Retain – Review launched 26 August to ensure it is fit for future challenges. The outcome of the review will be set out in the Water White Paper, due for publication in June 2011.’

Fourth, British Waterways will be abolished:

No longer a Public Corporation – Abolish as a public corporation in England and Wales and create a new waterways charity – similar to a National Trust for the waterways.’

Fifth, the Inland Waterways Advisory Council will similarly be abolished:

No longer an NDPB – Abolish body and functions, as previously announced.’

Sixth, the ‘internal drainage boards‘ (all 160 of them) – which deal with drainage and water level management right across the country – are earmarked for increased decentralisation, of sorts, and are to be set some kind of goals for increasing community engagement:

Retain and substantially reform – Improve efficiency and accountability, amend functions, and increase the involvement of local communities.’

Seventh, albeit not a direct water-related development, the Sustainable Development Commission appears to be under threat:

Under consideration – Future of body currently being considered in light of Defra’s decision to withdraw funding at end of 2010/11; as previously announced.’

(Please note that further details of all of the above moves, told in Defra’s own words, are available here.)

I must admit that finding out about the situation with the SDC – a supposedly forward-looking, independent body advising on holistic, sustainability-related issues – only a week or so before Ofwat held an event entitled ‘Sustainable Water‘ – was both surprising and more than a little alarming for me.

Sadly, for reasons I’ll cover in my next post, I was unable to accept Ofwat’s invitation to attend their ‘sustainability audit’ type event on 20 October. Nevertheless I do hope to find time to provide some input into the overarching Defra review of Ofwat (which was launched back on 26 August) that no doubt inspired Ofwat to hold this particular event. (The deadline for responses is a mere two days away though, on 29 October! With Roger still out-of-touch with the rest of civilisation somewhere in Australian outback for a little while, I’d better get around to typing something up myself fairly quickly!)

The questions posed by Defra’s review – as outlined in the ‘call for evidence‘ – are very interesting indeed. A lot of them, for us, fall squarely into our ‘about ble*din’ time’ category, we must say.

In its press release, Defra sets the scene for the review as follows:

‘The water regulator Ofwat will be reviewed to ensure it is fit for future challenges … The process will examine how the industry regulator works, whether it offers good value for money and if it is delivering what the Government and customers expect. The economic regulator was set up 20 years ago, at the time the water industry was privatised, to ensure customers receive good services at a fair price.’

We’ve stressed countless times that the 20 years since privatisation have entrenched all kinds of problematic mindsets and practices in the UK water industry – particularly with regard to innovation and sustainability. So we are happy that this review is going ahead. (How thorough and wide-ranging it will finally be is another matter, of course…!)

In particular we note the following interesting items that the review will cover (on some level), as outlined in its ‘terms of reference‘:

‘The governments’ objectives for independent economic regulation of the water sector, including how far Ofwat’s remit should extend beyond pure economic regulation…’

‘Ofwat’s statutory duties and whether they are fit for purpose to meet future policy challenges…’

‘The extent to which Ofwat has contributed to the achievement of sustainable development…’

‘How effective the current arrangements, involving Ofwat and the Consumer Council for Water, are in protecting water consumers and ensuring that their views influence the way the water sector is managed and regulated…’

‘The value for money Ofwat provides, particularly in comparison with other economic regulators…’

‘Ofwat’s approach to minimising the burdens from its regulatory activity…’

‘The scope for learning lessons from good practice by other economic regulators…’

These are all areas that Roger and I have highlighted in our previous research work and writing. For this reason, the overriding ‘fit-for-purpose’ test is going to be particularly fascinating to read about in the final report of the review! (If I manage to contribute to the Review, this will be a specific focus of what I’ll have to say, based on our fieldwork in the UK water industry over the past decade or so…)

We should also highlight though, a very contentious passage contained in one of the documents for the Ofwat review. It’s this one:

‘This regulatory regime [i.e. Ofwat] has provided the stable framework which has enabled companies to deliver £85 billion of investment in new infrastructure and better quality services, at the same time keeping household bills around £110 per year lower than they would have been without it.’

Well! Where do we begin with such bold claims? Firstly, I’d like to see the methodology, data and analysis behind whichever cost-benefit-analysis presumably determined the figure of 110 GBP lower bills per annum as somehow being directly attributable to Ofwat. What alternative arrangement is this CBA benchmarked against? How do they estimate what an alternative set-up might have achieved? I must say, this is an area that outpaces the complexity of even my most intellectually-challenging experiences with cutting-edge methodologies on policy evaluation and impact assessment! (You can read more about it at our lovely EURECIA project website…)

(As an aside, I’m aware that former Ofwat Director-General, Sir Ian Byatt, definitely had a penchant for ‘parallel-universe-opportunity-cost’ calculations like this… but still! [For instance, there’s his April 1969 paper – with A.V. Cohen – on an attempt to ‘quantify the economic benefits of scientific research’, where their approach is to try to calculate the economic impact of a selection of key scientific discoveries not occurring as and when they did. As a slight aside, this paper is a classic in one of my main academic fields – innovation studies – as it illustrates the difficulty of assigning hard cash figures to fundamental scientific research. Basic research is a rather intangible area and papers like Byatt and Cohen’s have been widely acknowledged to be interesting, but significantly limited as a way of evaluating returns from investments of this kind. If you’d like to read more on this point, my former PhD supervisor wrote a great book back in 1986 that reviews this issue; it’s called ‘Post innovation performance’…])

Secondly, I would contest that’s there any unique or enduring value behind Defra’s ‘monument syndrome‘-esque trumpeting of its headline figure of ’85 million of investment in new infrastructure and better quality services.’ So, that’s a mere 85 million GBP for new infrastructure and better services, is it? So… Does this statement factor in the ‘opportunity costs’ incurred for suppliers, inventors and innovators that have been trying for several decades to effect a ‘paradigm shift’ in the traditions and culture of the UK water industry towards more sustainable, fit-for-purpose practices? Are ‘better quality services’ defined here as ones that are resilience to future, climate change-related challenges to water, energy and other input resources (like chemicals)? Given what we’ve seen inside and outside the UK water industry over the past 20 years, we have serious doubts that they are!

Besides other commentators seem to agree. Utility Week pointed out that there are serious concerns within the industry – e.g. Severn Trent, who recently indicated the UK water industry ‘needs to invest £96bn over the next 20 years, adding to its existing £33bn debt, in order to make much-needed improvements to infrastructure and adapt to climate change risks’ (reported by BusinessGreen) – and that there’s little time for the Coalition Government to implement new policies contained in the forthcoming 2011 Water White Paper, given that the 2014 Price Review is fast-approaching.

Given that the recommendations of both the Cave and Walker reviews are effectively still on hold due to budget concerns – as we noted after seeing the Coalition Government’s early statement about its policy plans – whether implementation of the findings of the Defra review, and their incorporation into the water White Paper, will be made similarly conditional remains an open question.

Lastly, if you do feel inclined to respond to the Defra review yourself, to save you some time – given the tight deadline – here’s a quick list of the themes you’re invited to address (once again from Defra’s ‘call for evidence’ document):

‘1. Statutory framework and decision-making – i.e. Ofwat’s application of its statutory duties and reflection of government guidance in its decision making. Will future challenges require changes to the way Ofwat operates? What are the risks to changing Ofwat’s duties and the respective roles of Government and independent regulator?

2. SustainableDevelopment – i.e. how far are Ofwat’s decisions leading to sustainable outcomes?

3. Relations with other regulators and water and sewerage companies – i.e. experience of dealing with Ofwat, and of the way Ofwat works with other regulators.

4. Protecting, serving and representing customers- i.e. the effectiveness of the current arrangements involving Ofwat and the Consumer Council for Water.

5. Value for money – i.e. Ofwat’s approach in comparison to other regulators both in England and Wales, and in other countries.’

Good luck!

Update (15/11/2016): Featured image added from this source.

Duncan Thomas

3 comments

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s