Is domestic water competition dead?

The benefits of introducing competition to the domestic water market were an industry talking point before the general election. But does a minority government make continued debate pointless, asks Lois Vallely.

For at least two years, a cloud of ambiguity has hovered over domestic reform in the water retail sector, and the shock result of the general election has done nothing to dispel this uncertainty.

In a tighter run race than most had expected, the water sector has narrowly escaped renationalisation under Labour – for now. However, Tory plans for domestic retail competition are still yet to be confirmed or disregarded.

Behind the scenes before the election, many market participants had come to think of domestic competition is inevitable – the sector is the glaring omission to consumer choice in utilities they reasoned.

But with no clear government line on the proposal, a definitive timeline for opening the market was lacking and prompted Ofwat chief executive Cathryn Ross to push government for a  “swift decision”.

In the wake of the election results, Lord Redesdale, chief executive of new entrant The Water Retail Company, said domestic competition is “dead in the water”. It’s a strong statement, and there has so far been little to gainsay it.

The domestic reform idea was first floated in 2015 by then chancellor George Osborne. Since then, little information has come from the Department for the Environment, Food and Rural Affairs, aside from a few murmurings in March from water minister Therese Coffey that it is “still on the agenda”.

It is understandable that water competition is not currently at the top of government’s agenda. It is faced with the rather more pressing matter of beginning Brexit negotiations as a minority government.

And is competition in the domestic water market even a good idea? Calculations of consumer savings have so far shown meagre potential and the closest market comparator – energy – has failed to inspire political or public confidence in its competitive structure. A price cap and other interventions loom.

Additionally, Redesdale outlined two major problems with competition in the domestic market. One: the non-household market has, to date, shown that small margins make competitive water retail business cases difficult to build. And two: there’s not going to be the legislative will or time to deliver it.

Striking a more pro-market pose however, Bristol Water’s chief executive Mel Karam, told delegates to Utility Week Live last month that the benefits the energy sector has experienced from retail competition are a good lesson for water and that he would personally welcome domestic, if it was combined with a liberal water trading market.

And despite the modest consumer savings forecast by Ofwat in its cost-benefit review, Southern Water has predicted that bundling could magnify the consumer benefits of a fully open water market. Analysis conducted by Economic Insight suggested savings could be as high as £150 per year per household, if water were to be parcelled up with energy and broadband services

So, is domestic competition dead? Despite a seeming crisis of confidence in competition in its traditional Conservative heartland, maybe not yet.