Paying for Water: Water Pricing and Equity in England and Wales Author(s): Karen J. Bakker Source: Transactions of the Institute of British Geographers, New Series, Vol. 26, No. 2 (2001), pp. 143-164 Published by: Blackwell Publishing on behalf of The Royal Geographical Society (with the Institute of British Geographers) Stable URL: http://www.jstor.org/stable/3650665 . Accessed: 17/08/2011 17:04 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Blackwell Publishing and The Royal Geographical Society (with the Institute of British Geographers) are collaborating with JSTOR to digitize, preserve and extend access to Transactions of the Institute of British Geographers. http://www.jstor.org Paying for water: water pricing and equity in England and Wales Karen J Bakker Over the past three decades, the business of water supply in England and Wales has been gradually transforming from the supply of a service to citizens, to the sale of a commodity to customers. The paper provides a genealogy of concepts of efficiency and equity in water regulation over the past thirty years, prior to evaluating the implications for water consumers of one aspect of this process - the shift away from policies prioritizing inter- and intra-regional equalization (implying a principle of social equity) towards policies prioritizing economic efficiency (implying a principle of economic equity) in water charging. In closing, alternatives to the current arrangements for domestic consumers are proposed. key words regulation water pricing distributive justice privatization utility regulation England and Wales Jesus College, Oxford OX1 3DW and Environmental Change Institute, School of Geography, University of Oxford email: [email protected] revised manuscript received November 2000 Introduction the water industry, and traces the evolution of policy and regulatory priorities in water charges to Over the past three decades, a change in the domestic consumers over the same time period. dominant discourse of national economic develop- Two specific developments are considered: the ment and of the role of the state in redistribution shift from policies promoting geographical equaliz- has transformed consumers' entitlements to utility ation to those resulting in differentiation of water services in England and Wales. The business of rates; and the trend away from rateable values domestic water supply, like other utilities, has been (intended as a proxy, however poor, for wealth) gradually evolving from the supply of a service to and towards metering (i.e. charges related to con- citizens at subsidized rates, towards the sale of a sumption). The analysis does not measure relative commodity to consumers on a full cost-recovery efficiency, but rather focuses on the implications for basis. This paper analyses the implications of this consumers of the substitution of the yardstick of ongoing process for domestic water users. economic efficiency for the goal of equalization.1 The first section of the paper details a genealogy The political implications of the associated dis- of concepts of efficiency in legislation and as placement of a principle of social equity by a applied in water regulation, from the nationaliz- principle of economic equity in water charging are ation of the water industry in 1974 to the present. considered in the third section. In the fourth sec- The second section of the paper contrasts concepts tion, the concepts of justice implicit in the recent of economic and social equity, details the inter- and re-regulation of the water industry are analysed, intra-regional equalization that was characteristic and alternatives to the current arrangements for of the early phase of nationalized management of domestic consumers proposed. TransInst Br Geogr NS 26 143-164 2001 ISSN 0020-2754 ? Royal Geographical Society (with The Institute of British Geographers) 2001 144 KarenJ Bakker A genealogy of efficiency monetarist constraints, the Government was left with two options: either devolve the costs of water National ownership (1974-89) quality improvement onto consumers through Neither technical nor economic efficiency were large increases in water bills; or continue to allow paramount performance criteria for the water water quality to deteriorate. The Government held industry before its nationalization in 1974.2 Rather, to its decision to prioritize the PSBR over water the security of water supply systems and public quality improvements. Whilst allowing increases health were prioritized. The principle that public in water bills - sometimes higher than the inflation ownership of and subsidies to the water supply indicator Retail Price Index (RPI) but often lower system were necessary-because of the multiple than required to meet investment requirements - it market failures to which water supply is subject encouraged greater efficiency in the water sector as (most importantly, monopoly and both negative a means of offsetting capital shortfalls (Simon and positive externalities associated with water 1986). and sanitation services) - had been widely adopted Subsequent legislation initiated and formalized at the turn of the century (Hassan 1998). Charges the transformation of the water industry in Britain for water were not determined by the necessity of 'from a public service to a business organization' cost-recovery, but set in light of the goals of uni- (Penning-Rowsell and Parker 1983,170). The Water versal provision and equitable access (Sleeman Act of 1983, for example, was predicated on the 1953), implying a concept of social equity accord- assumption that consumers were best served 'by ing to which consumers paid relative to their an efficiently run operation, providing the requisite means rather than relative to the costs they service at least cost' (MMC 1981, 264). Cost-benefit imposed on the system. analysis was introduced to the industry, and During this period, the water industry was attempts were made to introduce long run mar- regulated in a manner broadly consistent with the ginal cost pricing (Synnott 1985, 70). Efficiency aims of other nationalized industries. Water was measures were introduced; for example, job shed- regarded as a strategic resource, and water- ding in the industry dates from the early 1980s charging policy was administered in light of with employment levels peaking in the early 1980s Keynesian regional policies aimed at supporting and reducing substantially before privatization in full productive employment of spare regional 1989 (Figure 1) (O'Connell-Davidson 1993). By capacity (Swyngedouw 1989; Graham and Marvin the late 1980s, the nationalized industries were 1995). In common with practice in other utilities, best characterized as 'publicly regulated private water pricing policy was based on price discrimi- monopolies operating on modified market prin- nation and promotion of sales in markets where ciples' (Hay 1996, 53). Privatization consolidated demand was elastic, in order to spread fixed costs this transformation, and effected the important over output. The goal was to promote the fullest step of opening up avenues for the water utilities use of existing capacity, whilst attempting to avoid to access private capital markets. incurring the additional costs imposed by capacity During the nationalized era, water became constructed for peak load, particularly difficult in a highly networked, industrial product; with the water sector where a large proportion of capital privatization, its provision to consumers became expenditure goes to meet peak load capacity. a capital-intensive, and also highly profitable Technical efficiency - efficiency in water prod- business. This high profitability was not always uction-received greater emphasis in the period characteristic of the water industry. In the 1970s, following the creation of the Regional Water 'profits' were never mentioned in reference to Authorities in 1974, reflecting then-dominant water production; the term 'surplus', where one trends in administrative reform, and growing con- existed, was considered more appropriate for an cern over water quality rather than the previous industry supplying such a basic resource (Curwen focus on quantity (Hassan 1998; Jordan et al 1977; 1994). Water was considered to be a service, sup- Penning-Rowsell and Parker 1983). After 1974, plied at subsidized rates to citizens. It was also a the rate support grant, through which water bills strategic resource, and as with other such resources were subsidized by the state, was removed. Faced (e.g. coal), security of supply and planning for with the costs of renewing deteriorating Victorian- growth were the primary goals of managers. Water era infrastructure, but operating under strict managers enjoyed the 'quiet life' of the monopolist Paying for Water 145 80000 D WoCs 70000 *WSCS 50000 000 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 Note: Data for WoCs unavailable before 1979 Data Source: WSA (various years) Figure 1 Employment levels, English and Welsh water industry (1977-99)