Environmental protection

Cave Review of water markets

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Terms of reference

1. The Secretary of State for Environment, Food and Rural Affairs, the Chancellor and Welsh Ministers have commissioned an independent review of competition in the water and sewerage sectors. This fulfils a commitment to bring forward a review of the eligibility threshold and a wider review of the competition framework and complements ongoing work by the economic regulator, Ofwat.

2. The review will have the principal goals of increasing efficiency of water use and delivering benefits to both business and household customers. The review will consider the scope to deliver benefits and drive innovation through developing competition and contestability in all aspects of the supply chain in the water and sewerage sector and will recommend changes to the legislative and regulatory frameworks needed to deliver those benefits, recognising the circumstances in England and Wales.

3. The Review will include an assessment of the costs, benefits, risks and feasibility of extending competition and contestability in water and sewerage services by looking at potential models in liberalised markets, best practice in other industries and demand from stakeholders. This will include consideration of the impact of proposed changes on:

  • availability and sustainability of water supplies;
  • prices;
  • quality of service;
  • public health;
  • environment;
  • encouraging water efficiency;
  • innovation, research and development;
  • investment in infrastructure; and
  • reducing regulatory burdens.

4. It is very important to Government that the interests of household customers are protected in the round, and vulnerable customers in particular. The review will consider changes that can be made to the current regime through secondary legislation as well as changes that would require primary legislation. It will include consideration of:

the eligibility thresholds;

statutory water supply licensing provisions, including the cost principle and policy on access pricing generally;

extending access to sewerage services;

Ofwat’s powers in relation to competition;

statutory inset appointment provisions;

relevant issues surrounding the abstraction of water; and

any other specific changes that would deliver benefits and drive innovation through further competition and contestability in water and sewerage services in England and Wales.

5. Ofwat, the industry regulator, holds a formal advisory role for Government. Ofwat is carrying out its own work stream considering how best to further competition in the water and sewerage sector. This review for Government will draw on Ofwat’s work and will advise ministers on the outcome of Ofwat’s review.

6. The Review will report to the Secretary of State for Environment, Food and Rural Affairs, the Chancellor and Welsh ministers.

Page last modified: 11 June 2008:
Page published: 25 April 2008

Department for Environment, Food and Rural Affairs