Politics trumps economics in debate over household retail competition

Domestic switching would not sit comfortably in the May government’s “Britain that works for everyone”. That was the message from Thames Water’s strategy and regulation director, Nick Fincham, when he gave the annual Beesley Lecture on water in London last night.

Fincham (pictured) complimented Ofwat on being thorough and transparent in the cost benefit assessment on household retail prospects it delivered to government in September.

But he argued politics not economics would dominate the decision on whether to open the market and that prospects did not look appealing “viewed through the policy lens”. Among the reasons he cited were:

  • at £8 at best, savings per customer are small;

  • given disconnection and prepayment meter installation are not options in water, those in debt and those who may struggle to pay could be either frozen out of the market by suppliers unwilling to carry the risk, or end up paying higher prices to cover the risk;

  • the wider economic and political context post Brexit is uncertain; and

  • even the Consumer Council for Water is not enthusiastic.

Fincham observed that when the gas market was opened, Ofgas worked “hand in glove” with the DTI. The situation with water is “a world away” from that, he said, with Ofwat waiting along with everyone else to hear what the government decides. He argued that over the past ten to 15 years, “decision making responsibility has slowly moved away from regulator and towards government” and hence that it would be the government alone making the choice on water.

Eileen Marshall CBE, a member of Ofwat’s Advisory Panel and with a distinguished career in regulation, responded with support for the introduction of a household market and disagreement with Fincham’s wider case.

See the December print and digital edition of THE WATER REPORT for full coverage.