The Department for the Environment, Food and Rural Affairs announced yesterday that it will hold a consultation on whether water companies in areas where demand for water appears to be outstripping supply will be able to seek compulsory water metering.
As regular readers of this blog will attest, I am no fan of compulsion. Indeed, in normal circumstances I would leave it up to companies to dictate their own pricing policy and let it fall on their necks if they get it wrong. But the water companies are not normal companies – indeed, they are so heavily regulated that they are to all intents and purposes play-things of the state – and the pricing system they inherited from the era of the public utilities is entirely unsuitable (it is, as denizens of New Labour and scions of management training courses like to say, “Not fit for purpose”).
Simply put, the traditional flat fee system encourages over-consumption and waste. There is no incentive for the customer to control, let alone reduce, consumption. The same fee is paid whether one takes a shower or a bath, washes one’s car with a bucket or a hose, fixes or ignores a leaky tap. There is no long-term reward for paying that little bit extra to buy a toilet with different flush settings; water providers must appeal to our good will rather than our self interest when asking us to drop a hippo into our cisterns.
As well as encouraging over-consumption, flat-fees result in a hidden subsidy from poorer to richer households. Rich people use more water (as, indeed, they use more of most things – it is the urge to consume more that drives people to seek wealth): they have more cars to wash, larger gardens to irrigate, bigger baths and more Jacuzzis than their poorer neighbours. I would guess that there are more swimming pools on the Wentworth Estate than on the Chalk Farm Estate (the fact that the former has a website and the latter does not may give readers a hint as to why!). The water companies charge a flat fee that aggregates to their costs plus permitted profit, which means that single people living in small flats with no garden are paying part of the cost of the large family living in a detached house with an ornamental fish pond.
The economics of this alone are ghastly, but there are also environmental costs. Hosepipe bans across England were lifted this month, but their effectiveness was anyway limited. Last summer as I cycled through Penge I chanced upon a resident using a power-hose to clean his driveway. When I enquired whether this was illegal, the water company explained that while it was illegal to clean one’s car or water one’s garden with a hose, there was no ban on using it to clean the moss from between paving slabs (or even, I infer, turning it on and sticking the nozzle down the drain!). Government diktat is ineffective. So is goodwill: I may have two hippos in my cistern, but if none of my neighbours have one, I am foregoing a drop of water taken from a dwindling ocean.
Under a flat rate system we do not pay for what we consume; we pay a tiny fraction of what everybody consumes. Our own consumption makes no discernable difference to our bills so only a spirit of self-sacrifice or fear of being caught and penalised by the water-police constrains us. Effectively, demand is infinite whereas supply is limited. The only means of bringing demand back in line with supply is by making people pay for the amount they use. This will ease water shortages, reduce the environmental impact and end the subsidy poor households pay to rich consumers. This will not, as some dirigistes and doom-mongers claim, see poor families suffering “water poverty”, any more than charging us for the amount of food we consume has left people starving in the streets of Britain. In fact, poor households will probably see their bills fall even if they continue to consume as much as before, and they will have the choice to economise further and save money if they choose.
But, I hear you cry, are the water companies not themselves to blame for failing to reduce the enormous amount of leakage that sees 3.5 billion litres of water lost every day? The answer is of course yes, but the solution is not heavy-handed regulation. Just as government diktat is not a good way of curbing the excesses of individuals, so it is not a good way of curbing the excesses of companies. A better system would be to charge them for extracting water (just as we expect oil companies to pay rent for the oil they extract, as they are taking a resource that belongs to the nation) and let them recover the money from the customer. That way, the cost of waste would fall on the water company rather than the consumer (and the rents could be used to reduce taxes, easing everybody’s water bills).