Utility Week

8 | 24TH - 30TH MAY 2019 | UTILITY WEEK Interview chancellor] John McDonnell's model would effectively take control at the Treasury. The idea of having councils on regional operating boards doesn't deal with the danger of top- down control," she says, referring to Labour HQ's recent intervention a er councillors in Haringey pursued a new homes partnership with a private developer. "When the national Labour party didn't like what it saw in Haringey, it stopped them," she says. "Council control of water is a figleaf because Labour councils in particular will be under an obliga- tion under a Labour party led by Jeremy Corbyn and John McDonnell to do what they tell them." Greater centralisation will also inhibit innovation, which utilities are crying out for and must be given room to develop at a local level, she believes. "I can't see nationalisation delivering that very local, bottom-up and devolved approach to meeting the challenges: we need innovation at a local level. Energy needs innovation as much as the water sector; I'm not convinced nationalisa- tion can deliver it." Crucially, she thinks renationalisation will fail to deliver the scale of investment that utilities need. "There's no guarantee that the investment needed by the industry, which is very significant, would be forthcom- ing," she says. Should an economic downturn trigger a "serious fall" in receipts to the Treasury, she warns that investment in water will dry up, adding that this is "exactly why the industry was privatised in the first place". She also denounces as a "real threat" Labour's pro- posal to scrap the statutory regulator Ofwat and absorb its functions into the government. "Ofwat has statu- tory independence, is answerable to government and is accountable to parliament," she says, "but the regulator needs to be independent." The ferocious criticism of water companies in recent years has obscured much of the good work the industry does, she says, adding: "Water companies are delivering some of the best water standards in the world. The water sector in the UK performs well." That doesn't mean she gives utilities an easy ride, though, as those who have observed her acerbic parlia- mentary cross-examination of water bosses can attest. "[The sector] needs to improve and corporate govern- ance is a problem," she says. "Many of the criticisms of water operators are justified, but there are better ways of addressing those criticisms rather than going for the blunt tool of nationalisation." She highlights the "real opportunities" to develop "more interesting" models of ownership, such as mutual and social benefit companies. "There is more demand for nationalisation than the sector likes to acknowledge," she warns. "The sector needs to be more innovative and address issues of core concern. I hope the water sector understands that it has to engage because otherwise the clarion calls for more dramatic solutions will just grow." But the key to improved standards, she believes, is not change of ownership but improved regulation, including a fresh look at the philosophy of economic regulation that governs the work of the UK's utility watchdogs. "We need to get away from the term economic regulation," she says, "because it's not just economic, it's much more broad-ranging. If the big challenge is decarbonisation, it's much more than that." In particular, Smith would like to see the price control framework give greater incentives for longer-term and strategic investments in the water system to tackle issues raised by climate change. The brevity of the existing control periods "deters and inhibits long-term thinking", she says. "Short-termism is a real problem. Flexibility is needed to give the green light to long-term investment plans over a number of price control periods rather than five years. It doesn't make sense to keep fitting invest- ment outlooks into a five-year cycle." She suggests another assessment mechanism could run alongside the shorter price control periods, and adds that price control should include initiatives to reduce demand as well as promote investment in supply infra- structure. "We don't want to see a hard infrastructure approach if that is unnecessary." As well as energy and environment, Smith's new brief extends to housing and local government. She welcomes the government's recent announcement that fossil fuel heating will be banned from new homes from 2025. But she also believes that the mooted Future Homes Standard must embrace sustainability as well as energy efficiency. "The home of the future needs to be not only energy-efficient but water-efficient," she says, adding that the domestic use of recycled water should be stand- ard. Ditto, all new homes should be fitted with smart technology to monitor energy and water use. And she wants the mandatory use of sustainable urban drainage systems (SUDS) to mitigate the risk of flooding within new developments. "We have to have SUDS as a matter of course," she says. Flooding is a big issue for Smith whose constituency was affected by the 2007 floods, which hit Sheffield. James Bevan, chief executive of the Environment Agency, should not be censured over his recent warnings that England faces acute shortages within 25 years if steps are not taken to improve water supply, she says. "If the chair of the Environment Agency feels it is necessary to use colourful imagery and very dramatic warnings about where we stand on future resilience, that should tell the government that it needs to focus a little bit more on this issue. The chair of the Environment Agency shouldn't feel it necessary to make such dramatic predictions." Smith's thinking on energy policy inevitably has a much more work in progress feel than on water. But she believes the government has been wrong to chop and change on energy policy, citing its decision a er the 2015 general election to scrap support for carbon capture and storage before reversing course two years later. And she argues there is a lack of focus at Westmin- ster on how to tackle the thorny problem of decarbonis- ing the heating system. "I don't take either of the major parties' policies on decarbonisation seriously as long as they fail to grapple with that issue," she says. It is the kind of knotty issue where she believes her new party's evidence-based approach to policymaking is particularly valuable. "Purist thinking in this area isn't going to help deliver the targets contained in the cli- mate change legislation," she says. "I don't believe that policy makers should develop harsh, divisive approaches to policy work. The Labour party seem to have a black and white view of the world – there are those on the side of the angels and those on the sides of the sinners – which does nothing to develop policy with real meaning. Things are always more nuanced at the end of the day." Utilities would no doubt like to see such measured policymaking. But whether Change UK makes waves will depend on the brutal realities of the ballot box. "Flexibility is needed to give the green light to long- term investment plans. It doesn't make sense to keep fitting investment outlooks into a five-year cycle."

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