Water, water, everywhere . . .

Privatised water: who's paying the price?

Privatised water: who's paying the price?

"Put a tiger in your tank!" roared the old Esso ad from the sixties, its seductive imagery of endangered mammal, fast car and petroleum industry creating - from our so-sensitive nineties vantage point - an audaciously un-PC message.

So here's a more right-on version for our times: "Put a hippo in your tank!" More than two million of us have already. The hippo is a small plastic bag provided free by the water company, the tank is your toilet cistern and the effect is to save a litre or more of water with every flush.

The extraordinary thing about this is that so many people have bothered to stick the bag inside the loo at all, because most of them will have done it out of pure personal principle (or an inexplicable penchant for fishing about in small water tanks). There's nothing else in it for them: no warm glow from being part of a great national effort towards water conservation, and certainly no financial reward. In the four-fifths of homes where water is not metered, we can flush the loo all day, every day, at up to 10 litres a throw, and spend not a penny more in water charges.

On 27 July the water regulator for England and Wales, Ofwat, will announce draft price guidelines for the water companies for the next five years. This periodic review promises, for the first time since privatisation in 1989, to cut our water and sewerage bills and, most consumers will think, not a moment too soon. We are grateful for the rise in water quality that a raft of European directives has forced on the privatised companies (not that we're persuaded actually to drink the stuff); we grudgingly acknowledge the belated reductions in leakages brought about by infrastructure repairs that had been postponed indefinitely under the old nationalised regime; but we've never quite shaken off the conviction that water is ours: an essential public good, which, seeing as it drops out of the sky, should almost certainly be free. (In Scotland and Northern Ireland, where even more of it drops out of the sky, it is still public and it is still not free.)

The water companies, chastened by a decade of fierce criticism of fat-cat boardroom salaries and excessive dividend pay-outs, have been working hard on the public relations side and believe consumers are at last getting the message that there is a fair price to be paid for providing and maintaining high- quality water supplies. The regulator, cannily attuned to the government's own mood, is determined to keep the companies on a short leash, demanding price cuts and continuing gains in quality. That the companies can deliver this is in little doubt, at least in the short term. They have enjoyed high profits while continuing to lean heavily on customers to finance their outgoings, rather than looking to the market for additional borrowings or equity. A little squeeze next year will not hurt.

Water was always going to be the toughest utility to regulate as it is the most stubborn natural monopoly. Gordon Brown, the Chancellor, announced a review of the potential for water competition as part of his March Budget, but all has gone ominously quiet on the government front since then. Indeed in one area where legislative change could give competition a fillip - water abstraction - a promised DETR bill seems to have got stuck way down the bottom of John Prescott's heaving in-tray. (Another government promise - to look at introducing a pesticides tax to rebalance the enormous water clean-up cost currently borne by consumers - is also in limbo.)

So the regulator is left to dream up schemes to make the industry behave more as though it were in a competitive market. But, not for the first time in key policy areas, we are missing an important bit of context from the whole debate about how to achieve sensible, fair and effective water pricing. It is this: should we regard water as an infinite resource prone to occasional hiccups in supply (for which the customer will have to pay accordingly); or as one that requires constant, watchful management and a concomitant widespread shift in consumer behaviour, conservation design and pricing structure throughout the industry - from abstraction at source to flushing the loo? Only the government can send the appropriate signal on this one, and to do so it will need to have greater, greener courage and to apply a hefty dose of its precious joined-up thinking.