Need to know: the week ahead and the week just gone

The Intelex team look back at highlights from the weekend, and what’s coming up this week:

The story this weekend: The Sunday Times Business section included a great article by Danny Fortson on Ofgem’s proposed investigation of the energy market by the Competition and Markets Authority. With an overview of the political pressures facing the Big Six, and the possible implications for investment, the article is a must read for anyone interested in regulation and the politics surrounding energy policy.

The debate this weekend – Saturday’s Guardian will have made for difficult reading for the leaders of the Better Together campaign, which is overseeing efforts to convince Scots to vote no in September’s independence referendum.  The paper revealed comments by an unnamed Minister that an independent Scotland could in fact be allowed to keep the pound – despite claims to the contrary by all three Parties and the Governor of the Bank of England.  The Minister, who The Times speculates was Defence Secretary Phillip Hammond, and others suggest was Oliver Letwin, said that since the UK wants to keep Trident in Scotland and the SNP want a currency union ‘you can see the outlines of a deal’. The Labour Leader of Better Together, Alistair Darling, told the Today Programme that currency union can only work ‘if you have a single Government’. The SNP has predictably seized on the comments, with the Deputy First Minister Nicola Sturgeon responding that the No campaign may be reaching a ‘common sense’ view and deriding Better Together for relying on ‘bluff’.  The Scottish Secretary Alistair Carmichael admitted on Sunday Politics that it is ‘not impossible’ that the yes campaign could triumph – and the general consensus after this weekend is that with less than six months to go until Scots vote on whether to sever their ties with the rest of the UK, Better Together need to step up their game.

The analysis this weekend: Andrew Rawnsley’s excellent piece in The Observer casts light on the five main internal rifts threatening the Labour Party. Labour’s internal differences are no longer traditional ‘left vs right’ internal issues, as they were ‘in the good old, bad old days when Labour had a strange compulsion for committing suicide in public’. Instead they ‘are more complex and various’ and include: ‘Thirty Five Percenters v Majoritarians’; ‘Transformers v Realists’; ‘Devolvers v Centralisers’; ‘Ed v Ed’; and ‘Gloomsters v Zennists’. An intriguing read for both those who wish to see a Labour government in 2015 and those who want to see the Party’s support vanish into the haze as the election approaches.

Coming up this week: Reform has today published a new report entitled ‘Solving the NHS care and cash crisis’, co-authored by Lord Warner, a former Health Minister in Tony Blair’s Government. The report calls for radical changes to funding and care to prevent the NHS destabilising other public services.  Speaking on the Today Programme this morning, Lord Warner argued that ‘the mood is changing…we cannot go on funding from income tax an NHS that is not fit for purpose’. These sentiments are reflected in the report in which he argues that NHS funding from general taxation should rise only with inflation to avoid starving the rest of the public sector of resources. The report also argues for higher ‘sin’ taxes on alcohol, tobacco and sugary foods, means-testing of NHS ‘Continuing Care’, plus a £10 per month NHS membership charge and other patient contributions are needed for the NHS to survive the next five years of austerity. Labour have already dismissed the suggestion, as they believe in an NHS ‘free at the point of use’.


Water industry to be next target in ‘cost of living’ crisis?

Intelex team member Jennifer Lipman looks at the possibility that the water companies could become the focus of the ongoing debate about the cost of living.

Over the last few weeks, Britain’s energy companies have replaced politicians and journalists as public enemy number one. Since Ed Miliband’s conference pledge to freeze energy bills, it’s been open season, with MPs, columnists and commentators rushing to sneer at the energy chiefs and their justifications for rising bills.

But the fact that the heat is on for them doesn’t mean that all the other sectors that serve the general public will manage to escape scrutiny – and the water industry is no exception.  Privatised in 1989, every so often a newspaper will splash with a story about high water bills, but by and large the sector has escaped public wrath in recent months.

The regulator, Ofwat, tends to be seen as more rigorous than Ofgem, given that its remit allows it to set price controls for consumer bills that are reviewed every five years, although there are claims that it is not powerful enough, and it came under particular fire from the PAC in 2007. Last month it rejected a request by Thames Water to increase customer bills by up to 8% next year, arguing that the company’s claim of £291m extra costs did not stand up.  Thames Water is set to appeal, but the ruling shows willingness on Ofwat’s part to use some muscle.

But as both parties strive to convince voters that they are best tasked with resolving the cost of living crisis / helping hardworking people, water companies and the overall industry look set to assume scapegoat position.  Speaking at a press conference this week, Miliband said it was time to look ‘at all markets to make sure they are working properly and that includes the water industry’.  He added that he was aware concerns had been raised and that it should be scrutinised make sure it is working ‘for the benefit of consumers’.  As voters place utility costs high on their lists of worries, the question will be whether Labour seeks to capitalise on the support for the energy proposals and introduce a new promise affecting water companies.

Miliband is, however, not the only one attuned to this.  Last week MPs went to the Backbench Business Committee claiming cross-Party support for a general debate on concerns relating to the state of the water industry. Tory Robert Buckland quoted figures showing that water bills have gone up 40% in recent years, against ‘falling real investment in the industry by the water companies’.  He also drew attention to excessive boardroom pay and alleged tax avoidance (something that the Chancellor is expected to challenge with an announcement at the Autumn Statement) and concluded that ‘families are hard pressed at the moment on utility bills and water bills will be part of their budgeting’.  Later in the submission Conservative MP Charlie Elphicke referred to the ‘debt casinos that these water companies have turned into’.

MPs will now debate reform and infrastructure of the water industry and consumers’ bills on Tuesday afternoon, led by Harlow MP Robert Halfon – who last month responded rather enthusiastically to John Major’s suggestion about a windfall tax, and is known for championing issues that affect day to day spending, such as fuel prices.  In a piece for the New Statesman today, he writes that ‘we have to recognise and condemn the behaviour of the big corporate utility companies. Not just energy, but across the board: water corporates and oil behemoths act just as badly’, and quotes his findings that at one water company, the average bill increased by 33% at the same time their director’s  pay went up by that amount.  Given that whereas energy customers are able to switch suppliers – albeit a cumbersome process for some – the majority of water customers cannot choose who supplies their water, we can surely expect MPs to call for reform that truly boosts the competitiveness of the industry.   And they will also be likely to pressure the companies to cut costs; as Phillip Collins, writing in The Times today, points out in a piece on energy companies, the companies are ‘the only people who can stop the rot… and the only way to do that is to cut prices’.

So how will the Government respond? No doubt aware of Miliband’s intervention, and likely not wishing to appear as wrongfooted as he has done on energy and on the wider cost of living issue, Cameron’s spokesman said today ‘there will be some progress next week which Defra will be doing on the water industry and water bills’.  He added that the Prime Minister ‘wants regulators there to look at the industries they regulate’ and make sure that they are robust.  It is being suggested that there will be an announcement on this next week.

The obvious course would be for the Government to act on industry reform focused on competition and fairness via the Water Bill, which is currently trickling through parliament.  The Bill already includes measures to enhance choice in the retail market by allowing business customers to switch suppliers, and is intended to pave the way for new competitors to enter the market, along with measures on flood protection, drought management and the regulatory structure. Labour have already signalled that they plan to introduce a social responsibility clause into the Bill, and it is likely that as the Bill goes through they will seize on the argument made by the Fabian Society that they should link the ‘debate on water bills to the cost of living crisis’.  But no date for the Second Reading of the Bill has yet been set and, asked in the House this week when this might be, Andrew Lansley admitted he could not say.

As the winter freeze draws near, it looks like water will be at the top of the political agenda. Welcome news for the bosses of the energy firms – less so, for those running the water companies.