Environment secretary Michael Gove has accused some water companies of exploiting their monopoly power by “playing the system”.

In a keynote speech at Water UK’s City Conference in London yesterday (1 March) he directly challenged the sector to be “transparent and accountable”.

Gove said water companies “play an absolutely essential role in all our lives which has no analogue in any other industry”.

But he said with monopoly power comes special responsibilities, including ensuring “the environment is not neglected and customers are not exploited.”

He added: “You make your money from a captive market. So, you need to show you’re playing fair.”

Gove described the water sector as a “commercial dream” due to its captive set of consumers, guaranteed income and a “certainty that your product will never go out of fashion”.

Although he acknowledged privatisation has brought “significant benefits and improvements” he warned it is crucial progress does not “stall”.

He praised the likes of United Utilities and Wessex Water for their “industry leading” ratings from the Environment Agency last year. And he also highlighted Yorkshire Water’s efforts in planting millions of trees to reduce the risk of flooding and Essex and Suffolk Water for a “great job” enlarging the Abberton reservoir near Colchester.

Meanwhile Anglian Water was praised for issuing the first-ever public utility sector Green Bond last year to meet the three-fold challenges of water scarcity, climate change and better environmental protection.

But he said despite private water companies having “contributed to the public good”, public concern about the way the water industry operates is “growing”.

Gove cited concern around leakage levels and a lack of investment in “new nationally significant supply infrastructure, such as major reservoirs”, since privatisation.

“The system is not working as well as it should,” he warned.

“Some companies have been playing the system for the benefit of wealthy managers and owners, at the expense of consumers and the environment.”

He said companies have not been as “transparent as they should have been”, and suggested they have “shielded themselves from scrutiny”.

And he said when there has been acknowledgement that change is required, far too often there has been “prevarication and procrastination, ducking and diving and dragging of feet.”

Gove accused some companies as appearing to be “intent on financial engineering just as much as real engineering”.

He said Thames, Southern, Anglian and Yorkshire “make particularly keen use of sophisticated financial engineering” having set up “multi-layered corporate structures of dizzying complexity involving multiple subsidiaries, some based offshore.”

The public sees an industry “slow to stop leaks, slow to repair them, slow to stop pollution and slow to say sorry”, he said.

Last year, Yorkshire Water and Thames Water, both vowed to close their Cayman Island subsidiaries. Despite acknowledging companies have said they will close their offshore financial arrangements, Gove said “excuse-mongering” about how long it will take to wind up the operations “just won’t wash”.

He reiterated his recent pledge to back Ofwat and said he would give the regulator “whatever powers are necessary” to get all water companies “to up their game and further lower consumer bills.”

He added: “Unless we see change, the pressure for renationalisation will only grow”, which he said would be a “backward step”.

Michael Roberts, chief executive of Water UK, said: “As companies investing private money to deliver a public service, it is right that we face informed scrutiny, particularly from politicians and regulators who have a role in representing the public interest. And for such an important sector, it is equally important that any criticism is based on fact.”

He added: “Because water is fundamental to all of our lives, companies fully understand their clear responsibility to act in the public interest.  For me, that boils down to doing the right thing in the right way, and tackling issues where they arise, because we want to maintain the high levels of trust our customers have for us.”

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