10 April 2000

JOB LOSSES IN THE WATER INDUSTRY

You wrote to me on 21 March about various representations made to you by MPs, trade unions and others about announcements of job losses made by water companies.

You asked me, and the other regulators of the water industry, to ensure that companies are not compromising their ability to meet their legal obligations.

You comment that companies will seek to reduce their costs wherever possible, in the interests of greater efficiency. I believe this is greatly to be welcomed as it enables the regulator to reduce prices charged to customers and enables Government Ministers to achieve greater environmental benefits.

You and I discussed the quality and environmental obligations to be placed on water companies when setting their price limits for the next five years. I am sure we can rely on the Drinking Water Inspectorate and the Environment Agency to enforce the achievement of the objectives then set out.

As far as service to customers is concerned, for example pressure problems, continuity of supply, foul flooding and response to customers' letters, we will continue to monitor the companies' achievements through the annual returns that they send to us. Where companies are not performing satisfactorily we will take such action as is necessary - as we have done in the past. We will also ensure that the leakage targets which we set for companies are achieved.

Subject to achieving objectives, I hope that companies will continue to increase their efficiency. Thus while we will measure their expenditure, in order to record greater efficiency, we will not expect companies to achieve any particular level of expenditure.

You refer to risks which might jeopardise compliance with legal obligations. Regulators are, of course, concerned with compliance, ie what happens. There should, however, be incentives on companies to avoid failure. I have sought to strengthen these.

I am sure you are right in stressing the need for companies to make a proper balance between saving costs and any risks which are inevitably part of business decisions.

I will place this letter on our website. I am also copying it to those to whom you copied your letter of 21 March.

I C R BYATT

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