Why aren't water firms being forced to cut leaks?

flooded roadTim Ireland/PA Wire/Press Association Images

As the wettest drought in living memory continues, there's shocking news from Ofwat. It told The Guardian that more than half of all water companies will not have to cut leaks at all in the next three years, and the water industry as a whole will only have to reduce them by a paltry 1.5%. The 3.4 billion litres of water leaking from the system is apparently just hunky dory.

So why are the rules so lenient during the worst drought for 25 years?

Low targets

It would seem like a no-brainer that when the system leaks a quarter of all water that passes through it, something drastic ought to be done. Ofwat has been in charge of setting leakage targets for just over 20 years, so is in the frame.
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The newspaper discovered that in all, 11 companies have been set a leak reduction target of zero for 2015 (that's more than half of them). Shockingly the worst-performing company, Southern Water, missed its latest target by 16% but will actually be allowed to increase its leaks by 6% in the next three years.

Even over the very long term - 25 years - water companies are only expected to reduce their leakage by 10%.

The Guardian pointed out that although leaks have reduced by a third since privatisation in 1989 - and the industry has invested almost £100 billion in stopping leaks in that time - over the last 12 years the year-on-year trends have seen as many rises in leaks as they have falls.

So why aren't targets more stretching?

An Ofwat spokesperson told AOL that there needed to be a balance. He explained: "It would cost about £100 billion to replace all the pipework in the UK, and even then that would only cut leaks by half. To put that in context, that would add about £4,500 to every customers' bill. Given that the average bill is £376 and that most customers don't want to see their bills rising at all, clearly repairing all leaks at once is unaffordable."

He said that Ofwat's role was to "make sure there is a balance between an acceptable reduction in leaks and the cost to consumers."

The Guardian highlights that the water industry made £2 billion in profits in the last year, and paid £1.5 million to shareholders. However, this is drop in the ocean of what needs to be invested to cut leaks, so there's an argument that companies shouldn't be forced to make no profits at all in favour of repairing leaks. As a general business model for an industry over the long term, it's just not going to prove an attractive business to be in.

On the other hand, there is surely room for a more demanding leak reduction target than 0%.

Fortunately Ofwat insists that companies will be expected to do more during the drought. The spokesman said: "Often in times of drought we would expect companies to do a lot more to reduce leaks."

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