OfWat to open water market to competition. Could letting the likes of Tesco in lead to cheaper bills?

The water industry has had it too easy for too long and while this is a welcome move, more needs to be done to make market work

OfWat’s ideas are as much aimed at improving service standards and fostering innovation as they are aimed at lowering bills (Getty)

Could Tesco Water be about to join Tesco Mobile? Or how about finding a Lidl surprise on your monthly bill?

Water watchdogs are keen to see it happening. Under proposals they have just unveiled, new entrants which could include supermarkets, or energy companies, or anyone else who fancies a crack, would be able to buy water from the existing water companies at a wholesale price before selling it on to you and me.

OfWat, the water regulator, thinks the consumer might benefit from the competition this would inject into what is currently a moribund market that forces us to buy from our local monopoly provider.

About time too, you might say. Just don’t get too excited. Implementing its proposals might end up costing quite a bit and those costs would inevitably end up getting passed on to the consumer.

OfWat reckons there could still be savings but they might amount to no more than £8 a year off your annual bill, if you ever get around to switching.

Its ideas are, however, as much aimed at improving service standards and fostering innovation as they are aimed at lowering bills. Water companies are little loved, and have little incentive to innovative on behalf of their customers.

OfWat makes the point that only a couple of them make use of apps at a time when you could overload your iPhone with offerings from just about every other consumer-facing business on the planet.

A little heat from a few new entrants might serve to change that. At the very least, their impending arrival ought to concentrate the minds of executives in what has become one of the cosier corners of British industry.

There are, of course, potential dangers inherent in such a move, but OfWat does at least appear to have given them some thought.

Wholesale water prices will remain capped to stave off the risk of companies using a free-for-all as an excuse to raise them.

The regulator has also talked about implementing measures to protect vulnerable consumers. They’ve too often been the losers from the free-for-all in the energy market, for example, a market that, at one point, had produced such a dizzying array of tariffs and prices that even someone with a double first in economics might have struggled to work out which was best for them.

Water UK, the industry trade body, wasn’t exactly jumping for joy when it released its response to the plans, and that says a lot.

“Extending retail competition to over 20 million households could secure potential benefits for domestic customers, but would also be a major undertaking and so deserves to be given very careful consideration,” it said. “We look forward to a timely decision from Government which helps sustain the stability the industry needs to continue successfully meeting the needs of its customers.”

With an emphasis on the latter presumably. The Government is unlikely to introduce the necessary legislation until the end of the current Parliament, so there’ll be plenty of time for the lobbyists to get to work.

They will need to be resisted because if the plans are implemented sensibly they have a lot to recommend them.

The only real caveat is this: the focus on the retail market, and the potential of price cuts for consumers, does rather take the focus away from the wholesale prices levied by water companies and whether they too should be cheaper than they currently are.

The water industry is funded by vast weight of debt and it has proved catnip to overseas bidders, precisely because it offers all but guaranteed profits and steadily rising dividends.

It’s fair to ask whether OfWat has always secured the best possible outcome for the consumer in the past. The attractiveness of the sector to those bidders rather suggests not. And what about all those leaks?

The reform proposals unveiled by the regulator are a still welcome development, but this is an industry that needs to work better for its customers. OfWat’s suggestions represent only part of the work that needs to be done to achieve that aim. Still, I suppose every little helps, as the Tesco slogan goes.