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Painting the full picture of the water industry

The letter that Environment Secretary Michael Gove sent to Ofwat Chairman Jonson Cox this week unwittingly risks painting a distorted picture of the water industry.

The industry is facing a time of increased scrutiny, and although it is right that we face open examination, it is important that we recognise the full picture of an industry that is delivering for its consumers.

We do not claim our sector is perfect, and we know that our reputation can never be taken for granted. But it would be wrong to give the impression that all the issues which Mr Gove raises apply to all companies in the sector – or that nothing is being done even where they do apply.

Take gearing, for example – a measure of how far a company’s operations are funded by borrowing rather than by shareholders. Not all companies are highly geared – but a number of those which are have started to change that, and Yorkshire Water for one has said it is going even further. And many increasingly are backed by pension funds – precisely the sort of responsible investors who value highly long-term financial resilience.

Then there’s his reference to offshore companies. A few but not all companies legitimately set up Cayman Islands firms to raise funds, but not for tax purposes. All of those companies are now looking at their arrangements, and three of them – Yorkshire Water, Thames Water and Anglian Water – have publicly pledged to remove them from their structures as soon as they can.

Or take profit, another issue Mr Gove raises. Ofwat has just set our industry a very tough challenge on the cost of capital – a record low for a regulated utility – together with high expectations for further improvements in service. All companies will find it more challenging than before to earn a return on their operations, and some more so than others.

Ultimately, water companies deliver a vital public service and they do it well. They took over an underfunded sector in 1989 at the time of privatisation and they have turned it around. They have invested £150 billion to help reduce leakage by a third, improve drinking water so that it’s now recognised as world class, and kept bills roughly even in real terms for the last 20 years. Not to mention the £25 billion being put into improving the environment, cleaning up thousands of miles of rivers.

Mr Gove is absolutely right to ensure that such a vital service is being delivered responsibly, and that shortcomings where they genuinely exist should be addressed. But let’s not allow that to obscure how much has been achieved to date – and the resolve and ability of companies to strive for better.