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May 16, 2006

Economic Illiteracy Outbreak!

Ooooh, this is a bad one. Councillor Gavin Ayling:

I am livid about the water ‘crisis’. Crisis is often an over-used word. A crisis really should be an event so sinister, so apalling that there is little hope of recovery.

Ok, hosepipe bans and all. Understood.

That water is charged for probably serves a social function rather than an economic one. Maybe people waste more water if it’s free at the point of use…

Well, yes, that social reason is that economic reason. We need to limit usage somehow and with very rare exceptions we find that price is a good way of doing this (although note that not much of the UK actually has metered charging yet).

But as a general point water should be free.

We’ve got a shortage so we should make water free? Eeeek!

All right, all right, that’s a bit over the top. I actually quite like GavPolitics so I shouldn’t be too mean.

He goes on to point out that the water companies will be continuing to make profits while people are limited as to how much water they can use. A fair enough point and one that actually means we want more charging, not less, for water.

In most of the UK currently you pay water rates. Flat fee for your household (based on a similar calculation to council tax I think). What we actually want is pricing of the marginal use...water metering everywhere (perhaps with a free minimum to keep the poverty lobby happy). If we actually had this then the water companies could only make a profit if there actually was water coming out of the taps....which is I assume what he wants.

We might also make reference to his anger at leakages from the pipes. It’s around somewhere, that Ofwat report on leakages from the four different water supply regimes we have in the UK. England, private for profit companies. Wales, not for profit mutually owned private company. Scotland (I think still) government owned company. Northern Ireland, direct supply from govt department.

Which system reduced leakages most? Yup, the first. It was the profit motivation wot did it.

Diagnosis? The problem is not too much market, it’s too little.

May 16, 2006 in Economics | Permalink

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Comments

When we lived in NZ recently, there was a lot of public worry about a water shortage in the Canterbury Plains and in Christchurch. Lots of letters in the papers etc - and NOT ONE suggested metering. Bonkers.

Posted by: dearieme | May 16, 2006 2:20:01 PM

Okay, I did jump on this rather!

The market is currently insufficiently free. The solution is either more liberalisation or, assuming the framework doesn't change, greater exertion of the regulator's influence.

Posted by: Cllr. Gavin Ayling | May 16, 2006 3:09:04 PM

A friend of mine who is one of those lucky people to already enjoy a metered water supply discovered that she was paying roughly double what her neighbour was. As she is single and her neighbour had children this seemed a tad unreasonable.

A little investigation revealed.. a leak! Leak fixed, environment sorted, everyone happy.

Evil free markets at work, eh?. Gotta love 'em.

Posted by: Bishop Hill | May 16, 2006 3:22:00 PM

Or one could say: England, private for profit companies. Wales, not for profit mutually owned private company. Scotland (I think still) government owned company. Northern Ireland, direct supply from govt department.

Which system is about to experience shortages, hosepipe bans etc? Yup.

Now, one could argue that, under certain circumstances, metering would be good for the companies, as it might be easier politically to drive up the per-unit rate than the flat rate.

Also, one could argue that shortages would be good for the companies, as they would increase pressure for metering.

One could further argue that there are examples (Enron, for one) of utility companies deliberately causing shortages through strategic non-maintenance to further their own ends.

But that would be paranoid.

I don't suppose TCS has taken any money from water companies recently, has it?


Tim adds: Ajay, I’m afraid that I slightly resent that implication, that my writing here or at TCS is actually directed by those who fund DCI. Be a gent and retract that part of it will you?

As to where the hosepipe bans are: noted the pattern of rainfall across the UK? Where the population growth is?

Posted by: ajay | May 16, 2006 5:43:08 PM

Happily. I believe that the only reason you write in favour of water metering is that you honestly believe in it, and that TCS has never paid you to take a position in which you did not honestly believe.

I'm using TCS as an example of a organisation that is funded by companies (such as Exxon) in order to promulgate opinions (such as "Kyoto bad") which benefit the companies, while appearing to be independent. I'd expect this sort of push by the companies to be accompanied by lots of pro-metering articles.

Posted by: ajay | May 16, 2006 6:24:14 PM

"Or one could say: England, private for profit companies. Wales, not for profit mutually owned private company. Scotland (I think still) government owned company. Northern Ireland, direct supply from govt department.

Which system is about to experience shortages, hosepipe bans etc? Yup."

There again, it might be something to do with other factors altogether like, I don't know; rainfall? usage?

Interesting article about Scottish Water here.

Posted by: Bishop Hill | May 16, 2006 8:35:35 PM

Tim/Ajay - alternatively, one could remain system-agnostic, and suggest that the reason English water companies have spent more money and time on addressing leaks than their Celtic counterparts is simply that southern England is short of water...

Posted by: john b | May 16, 2006 8:41:12 PM

One should never forget that water companies were forced to spend billions to comply with EU regulations thats there customers would regard as less important than actual water supply.

Posted by: EU Serf | May 17, 2006 9:46:36 AM

What we need is meters everywhere to incentivise water companies to actually provide water from the people they are not currently serving. We also need a choice of supplier but that's not going to happen in any real sense just as the gas isn't.

Posted by: Cllr. Gavin Ayling | May 17, 2006 9:58:19 AM