Thank you. I’m delighted to be here to set out the Coalition’s new vision for the water industry - one of resilience, sustainability, efficiency, innovation and affordability.
Since I’ve been at Defra, especially over these harsh winter months, the importance of that first key word - resilience - could not have been impressed upon me more. In Cornwall, there was too much water, as local people dealt with floods that deluged their homes. I saw for myself the damage caused. In Northern Ireland, there was too little, as people queued in freezing conditions at the water tanks after burst pipes left thousands of homes without one of life’s most basic resources.
The response of Water UK during the freeze in Northern Ireland made a really good impression on me. I was reassured by both the efficiency of the mutual aid arrangement across the network, and by Pamela Taylor’s calm and practical advice. Please take the great credit you deserve from a grateful team of Defra ministers. So thank you Pamela for that, and indeed for your invitation to speak here today.
The Northern Ireland experience was a salutary one. It makes absolutely clear that we really do need to have new, longer term, strategic thinking.
The Big Freeze wasn’t confined to Northern Ireland. This has been one of the coldest winters many of us have experienced.
And earlier in the year it might not have seemed much like a ‘BBQ summer’. But we did have long periods without rain, one of the driest springs on record. This led to drought warnings and indeed drought in some parts of the country - most significantly in the North West. Climate change projections tell us that extreme weather is likely to become more common. That our natural resource and environmental challenges are going to increase. The Foresight Report published just a few weeks ago by Professor John Beddington concluded that global water demand could double by 2050, putting extreme pressure on the natural world.
In the UK, we know that we will need to face the challenges of a growing population and a more variable water supply. So the question that I want to answer is how the Government can best support the water industry as it faces up to these challenges. So that it becomes more resilient. So that we can protect ourselves against floods, reduce the impact of drought and protect ourselves from infrastructure failures. All against a backdrop of increasing demand.
I really see the Government’s primary role as giving the sector - and crucially its investors - reassurance and clarity. As Pamela said, the privatisation of the water sector has been a success story. £90 billion of investment has enabled the industry to radically improve its infrastructure and delivery. We need to continue to encourage and support that planning, to keep providing the evidence and data that you need to ensure a sustainable, secure supply of water.
Our National Infrastructure Plan, published late last year, addresses the fact that infrastructure sectors compete with each other for investment, and are increasingly interdependent. We need to make sure that the water industry is able to get the capital investment it needs for the future. This will be reflected in our planning system where sustainable development will be at the heart of decision making, helping to ensure a secure and sustainable access to water and waste treatment.
We have also been successful in incorporating water into proposals for our Green Deal. Another mechanism for effective planning for the future is through the climate change Adaptation Reports system. I’m glad to say that so far the Reports show that the industry is taking the issue seriously.
As well as having a secure supply of water, we need a sustainable one.
In the UK, households get through 150 litres of water a day. The tally is actually far higher when we look at the true natural cost - the water embedded in products we import. 140 litres in a cup of coffee. 18, 000 in a pair of jeans. Looking at it in the round, this figure goes up to four and a half thousand litres a day for each of us.
Stress on water resources around the world - from imported goods - threatens clean water supplies in local communities and also the certainty of our food imports and other supplies. So we need to look at how we can manage demand, and encourage lower consumption of water by businesses and households.
We will be looking in our forthcoming White Paper at the abstraction regime - to identify how we can access the water we need without damaging the environment, and setting out the direction for longer term reform to ensure that our water industry is as sustainable as possible.
We need to provide greater certainty to help water companies plan their investment for the future, and consider how they can access new sources of supply, and manage demand.
And water will of course be an integral part of another White Paper. Our Natural Environment White Paper. This document too will look at the options for tackling unsustainable abstraction in the short term, and options for improving water quality.
It’s clear from the responses to the NEWP consultation that many water companies see the merits of effective land management to protect and restore water supplies - because it delivers wider ecosystem benefits and cuts costs for customers. I’m encouraged that the appetite is there to provide good quality water and protect the natural environment.
I hope that you will continue to find new ways to work with local communities to address the sources of diffuse pollution - rather than simply rely on treating the effects. It comes down to the old adage that prevention is better than the cure.
United Utilities’ SCAMP and South West Water’s Upstream thinking projects have shown that, for relatively low investment, innovative river catchment approaches can deliver benefits for both customers and the environment. These are just two examples. I know there is a lot more good work going on. So we want to work with companies to develop the evidence of these benefits and to remove any disincentives to other companies following these examples and putting forward proposals at the next price review.
[EFFICIENCY AND INNOVATION]
As well as promoting sustainability, we want an efficient and innovative water industry. One that’s affordable for the consumer.
Professor Martin Cave’s ambitious report has argued for a more competitive, innovative and dynamic water industry. His vision is one in which companies are responsive to their customers. New entrants are encouraged to the market. Water is delivered more flexibly at more competitive prices. It’s a vision that I want to explore. We need a sector that can anticipate the challenges ahead. Faced with the increasing demand on resources, we need an industry that innovates. An industry that finds new opportunities to grow as it finds newer, better, and more sustainable ways of delivering.
But we need to move forward carefully, and be certain that companies can continue to access the investment they need at a price that is right for customers. You can be assured of that. So our forthcoming Water White Paper will respond to Professor Cave with both enthusiasm and pragmatism. It will describe the path to greater competition so that you all have a clear, predictable policy and regulatory framework to work within. As a first step, we will be seeking to lower the eligibility threshold at which non-household customers can switch suppliers, from 50 megalitres of water a year to five at the earliest opportunity - bringing around 24,000 more customers into the competitive market.
So resilience is important. Sustainability is important. And innovation is important. But all of us in this room know that affordability is vital. It comes down to the consumer, and delivering the right service at the right price.
Anna Walker’s review of charging for household water and sewerage services presents some very serious issues, and there are difficult decisions to be made. We know, for example, that we need to incentivise efficient use of water, but keep bills affordable for everyone. We have to get this right - and we’ll need the help of all of you to make sure that happens.
I have spoken at length about issues traditionally associated with the water industry. But before I finish I want to talk about something a bit less conventional - flooding and the role of the water industry.
A question I often hear asked is - Could and should water companies take a bigger role in managing the UK’s flood risk? It’s a sensible question; and I hope you will have seen and responded to our payment for outcomes consultation.
We propose a greater involvement of private investment where it is of mutual benefit to the local communities and investor alike. Each £1 spent on flood defences, saves around £8 in future flood damages. It’s a return on investment that makes sense.
I’ve seen for myself really good examples of water companies working with communities and local authorities to protect land, buildings and water supply against flooding; all parties benefitting from the pooling of their investments. This is exactly the kind of partnership working I want to see and encourage.
So there’s much for us all to consider here, and much to discuss this afternoon and over the coming months.
The regulators must be ready to respond to changes in the sector - and be ready to play their part. I’m encouraged by the steps Ofwat is already taking to reduce the regulatory burden on companies. And look forward to receiving the conclusions of the review of Ofwat and the Consumer Council for Water soon.
And underlying all I’ve said is the need to change attitudes and behaviour more widely. Water is a valuable resource - an essential of life. Abstracting it can damage the local environment. Delivery and treating it uses energy. We need to build understanding to help people value water more and use it more efficiently. Whilst ensuring that customers have the access they need to affordable services.
We’re clear on the outcomes needed; but we’re also clear that Government shouldn’t simply tell businesses and their customers what to do. We need to harness your expertise - and avoid heavy-handed top-down regulation. The White Paper will be tackling big, meaty questions. There’s a lot hanging on getting the answers right. So they must be evidence-based, and science-led. And, as I said, we won’t get them right without you - the industry that will be acting on the answers.