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Last Updated: Monday, 7 August 2006, 15:34 GMT 16:34 UK
Whose water is it anyway: Transcript
NB: THIS TRANSCRIPT WAS TYPED FROM A TRANSCRIPTION UNIT RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT: BECAUSE OF THE POSSIBILITY OF MIS-HEARING AND THE DIFFICULTY, IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS, THE BBC CANNOT VOUCH FOR ITS ACCURACY.

PANORAMA
Whose Water Is It Anyway?
RECORDED FROM TRANSMISSION: BBC ONE
DATE: 6:08:06


ANDY DAVIES: Millions of us in the UK are being told to save water and yet the water industry loses 5 billion litres in leaks every day.

KEELIE CICERO: It's disgusting, isn't it. I mean they're telling us we can't use our hoses and water our grass and garden, and yet they let this water just run away.

[flooded streets footage]

DAVIES: The privatised water companies have just made 2 billion pounds in profits, but our bills keep rising.

[addressing camera-shy water company over loudspeaker] Who gets a better deal, your customers or your shareholders?

Two water companies are now under criminal investigation amid allegations of corporate fraud.

[at water company reception] We'd like to speak to the managing director or any members of your board.

[footage of soaring street fountain from burst mains]

DAVIES: Some customers have decided they've just had enough.

JOHN HEMMING-CLARK: I am the hosepipe rebel of Chislehurst and I'm quite happy to tell you that I have been hosepiping my garden since May.

DAVIES: This July was the hottest month ever recorded in the UK. The country is getting hotter and hotter as global warming ushers in ever more sweltering summers. Perfect for those languid, sultry days outside, but it's draining a vital resource, water. Parts of Britain are experiencing a severe drought. There's been below average rainfall for virtually all of the last 20 months. Now 13 million people are subject to hosepipe bans.

IAN BARKER
Head of Water Resources
Environment Agency
If this hot weather continues, which it looks set to, then this is likely to be the most serious drought for the last century. Everyone imagines England as being a wet country but the reality is there's a lot of us crowded onto a small island, all using more and more and more water. So the amount of rain we have per person is less than Mediterranean countries or even some parts of the Middle East.

[TV Advertisement]

DROUGHT EMERGENCY!

Save or suffer, it's up to you.

DAVIES: The last drought of this scale to hit Britain was in 1976, itself the driest summer in over two centuries. The public revelling in what was then a very un-British summer, pulled together and heeded pleas for restraint. The cheeky slogan: "Save water - bath with a friend" captured the mood of a nation prepared for buckets and standpipes. Water consumption dropped by 25%. We asked a familiar face from those days to bring out the old weather map one more time.

[TV weather forecast]

MICHAEL FISH: The present drought is pretty bad for many of us. We're seeing severe water shortages in the south and in the south east. We've already had the hottest July ever recorded, and there's a risk actually that the drought may well spread to the Midlands and Eastern parts of England.

DAVIES: The severity of today's drought may echo that of 30 years ago but one thing has changed. That old standpipe spirit of '76 is in short supply and the water companies know it.

DAME YVE BUCKLAND
Chair, Consumer Council for Water
I think the big difference is that we're no longer the consumers of 1976, and we already know from talking to consumers that there would be a tremendous backlash for the industry if we got to a situation where there had to be standpipes. You know, there would be a real feeling that the industry had failed the consumer.

DAVIES: Some customers already feel the industry has failed them. In spite of the drought and the evident need to conserve water, John Hemming Clark takes great pride in openly defying his water company's hose pipe ban and risking a fine of £1,000.

Are you worried that your neighbours are going to snitch on you? I mean that's what people are being encouraged to do.

JOHN HEMMING-CLARK
They don't need to snitch on me, I've written to Thames Water, I've told them. I've told them I'm watering my garden. I wrote to them in May.

DAVIES: What was their response?

HEMMING-CLARK: Nil! Absolute nil! I haven't heard a bean out of them.

DAVIES: Would you rather they wrote to you and said we're going to fined you £1000?

HEMMING-CLARK: I would love them to. That's the problem, isn't it. I would love them to write to me and say: "We're going to take you to court." I'm afraid it's a bit of a cliché to say that I want my day in court but that's what I want to happen.

DAVIES: You're not doing this just because the BBC have turned up. You are using your hosepipe on a weekly basis, is that correct?

HEMMING-CLARK: Some days I've done it on a daily basis. I am the hosepipe rebel of Chislehurst and I'm quite happy to tell you that I've been hosepiping my garden since May.

DAVIES: John Hemming-Clark is not the only hosepipe heretic in the drought zone.

MICHAEL FISH: Across the South of England there have been plenty of reports of people flouting the hosepipe ban. 3,274 Thames Water customers have rung in to sneak on their neighbours. 2,334 in the Southern Water Region, 1,480 people snitched on their neighbours in Three Valley's Water and 420 South East customers were seen to be using a hose.

[footage: street fountain from burst mains]

DAVIES: Consumer dissent is not helped by the fact that some of the companies asking the public to economise are themselves guilty of wasting water on an epic scale. Leaks are inevitable but there are over 250,000 miles of largely antiquated water mains straining beneath the soil. But the amount of water being lost is still extraordinary. Every day across the UK five billion litres of this vital resource just vanish down the drain. To give you just a sense of the scale of these water losses, this is an Olympic sized swimming pool. Enough water to fill around 2,500 of these pools is lost every day through leaks in the UK, and that means for every household in the country on average a total of around 200 litres of fresh treated water is lost every en route to your taps. Leakage rates are highest in Scotland and Northern Ireland where water is still publicly owned. The 22 private companies who supply England and Wales have actually reduced leakage by nearly a third over the last decade. The problem is, they're still leaking over 3 ½ billion litres every day, and some countries keep missing their reduction targets.

Your boss here at the Environment Agency, Baroness Young, has said that the, quote: "profligacy of the water companies makes it hard to persuade the public to economise." Do you go along with that?

IAN BARKER
Head of Water Resources
Environment Agency
I agree with that wholeheartedly. It is very difficult for members of the public to think well why should I save water when companies are leaking so much.

DAVIES: This leak in Manchester last year sprang from the pipes of the United Utilities water company. The nearby home of Elsie Bracegirdle was flooded. These photos were taken by her son-in-law Herb.

HERB BOOTH
The mains water actually blew. I believe it was 4.30 on the 18th August last year. It was a plume of water.. fresh water going up higher than the rooftops, much higher than the rooftops. And they came back here at ten past eight next morning when everything had subsided, and when we went in it was just squelch, squelch, squelch, and all us carpets and my mother-in-law she never shed a tear, but you could hear it. It was just under 11 weeks before she moved back in. Got in touch with United Utilities by email and they sent us a letter saying: "Sorry for the inconvenience and disturbance caused, but we advise you to carry on paying your water rates so you don't get in arrears." They caused all this problem and yet still wanted our money which eventually they paid us back. We can't go anywhere else, if you want water, you've got to go to United Utilities in this area.

DAVIES: In order to radically reduce leakage, companies would have to raise customer bill significant to fund it. So targets are mostly gradual reduction, as set by the regulator OFWAT. Most of the water companies do meet these annual targets, but some have been failing to hit them repeatedly.

Since you've been boss at OFWAT, how many companies have missed their leakage targets?

PHILIP FLETCHER
Chair, OFWAT
About seven have missed the target once, but our focus is on¿.

DAVIES: But not just once. Thames have missed it four times in a row.

FLETCHER: Two companies have missed their targets seriously over a period of years, I would particularly pick out Thames Water which has not hit a target for six years. The other companies, United Utilities, slightly out of the focus at the moment because it's been raining in the North West, but they are very much in our sites for not delivering properly against leakage.

DAVIES: A few weeks ago we asked you to send us details of any burst pipes in your area. The name of one company featured again and again:, Thames Water, supplier to the capital and the Thames Valley region. A primary school head emailed to say he'd been trying for weeks to get a leak fixed. It was on the school's property so a plumber was called. He said he needed authorisation from Thames Water to turn off the main and make the repair. The school says this was refused, but Thames says permission wasn't required. In the stand off that followed, the leak went unrepaired and eventually the headmaster was forced into drastic action on the advice of Environmental Health Officers.

JULIAN THOMAS
Head, Ley Park Primary School, Herts
The leak has been for about five weeks now. We actually asked a contractor to come out. He came and had a look at it and realised where it was on the stop-valve. He needed the water turned off in the road which is actually Thames Water's responsibility. He phoned up Thames Water for authorisation and they wouldn't give it. I'm afraid we're closing the school for two days simply because the drinking water in the school it's not contaminated but there's a minute possibility, and because of that I don't want the children drinking the water.

PAULA POUNDER
It's disruption for the children more than anything. I mean obviously they're missing their education and it's just unfair really that they're losing so much time at school.

KEELIE CICERO
It's disgusting, isn't it. I mean they're telling us we can't use our hoses and water our grass and garden, and yet they let this water just run away.

DAVIES: After we'd packed up our cameras, the school informed the water company of our visit. The following day Thames Water turned off the mains, fixed the leak for free and the school re-opened. Recent profits from the water industry have been so good, some have been hyping it as: "The new oil." Profits are vital to attract investment but the water companies are monopolies and customers need protection from profiteering. That's why every five years it's the job of the regulator OFWAT to determine the prices companies can charge customers. In the past charges have been reduced. But two years ago the regulator allowed companies to raise their bills by 18% over a five year period. The question is, did the companies get too good a deal?

Source: Consumer Council for Water

MICHAEL FISH: So, how much money are the biggest companies making in pre-tax profits? United Utilities peaking at 652 million over the last financial year. Severn Trent is next with 395 million. Anglia Water is just behind with 372 million profit a year. Thames Water, the biggest leaker, is making 346 million. So not suffering much of a drought really in terms of income.

DAVIES: This is the Power Tower in Essen Germany. Headquarters of the German utilities giant RWE, the company which owns Thames Water. It's invested a huge amount of money in the British water industry, but it's taken its fair share out as well. During its six years of ownership RWE has withdrawn nearly one billion pounds from Thames in dividends. RWE have just announced that they'll soon be selling off Thames Water in a deal that could net the Germany Company a tidy profit of at least billion pounds, so we thought we'd pop along to RWE headquarters in Essen and ask them if as a parting gift to the people of London they might donate a few litres of their own German water.

[Davies arriving at RWE HQ in a tanker] 38,000 litres to be precise, not much, arguably, to ask of a company which back in England loses enough water to fill 23,000 of these tankers every day.

[at RWE Reception] Hello, hi. We're from the BBC Panorama programme in London and we just wanted to know if any of your executives, preferably the Chief Executive, might pop down just for five minutes and talk to us about the hundreds of millions of water your company loses in England every day.

RECEPTIONIST: Can you waiting please five minutes.

DAVIES: That's very kind, thank you. I also wanted to ask you if we could have some water.

RECEPTIONIST? Water for drinking?

DAVIES: Well it's not just a glass of water, it's about 38,000 litres of water.

RECEPTIONIST: Oh God!

DAVIES: We'll just wait outside. Thank you.

In England and Wales 20% of our water is lost in leaks. Here in Germany the leakage rate is just 7%. I've been out here about ten minutes now and no one is coming out. I mean there are a few people in there chatting away trying to come to some conclusion but I do hope they bring someone out because there are some really legitimate questions to ask here. For instance, how can they justify drawing almost a billion pounds in dividends from a water company and ask customers at the same time to pay more while they keep missing their targets on leakage?

After another 20 minutes of watching them watching us we headed back in for one more go.

Is it possible to do an interview with one of your executives?

MAN: No, sorry but you will get a statement later so please hang on.

DAVIES: Could we bring our cameras in just¿

MAN: No.

DAVIES: Can I ask you one question?

MAN: Please.

DAVIES: Okay, do you know how much water your company leaks per day in terms of quantity to fill those tankers?

MAN: Much more like this, we are fully aware of the situation you have in London.

DAVIES: Would you like to take a guess of¿ of how many tankers.

MAN: No, we are totally committed, fully committed to all the investments in our plans of Thames Water and we also know that our colleagues of Thames Water are doing their best to fix the leaks also in London.

DAVIES: Yes, but they've missed targets.

MAN: I know they've been missing the target and also the arguments from Thames Water and we are involved in these discussions and we are fully aware of what is going on there and we feel sorry for that what's going on, but as I said¿.

DAVIES: Could we, if you feel sorry for the people of London, we couldn't take some water back, could we?

MAN: No, come on, you will get a written statement and if you want you can wait for the statement but that's the only thing what you can get, you wont get any water.

DAVIES: Well we didn't get any water, we didn't get an interview, so we're going to get a statement, and if you're a Thames Customer and you're watching this programme, we tried to get some water and we tried to get an interview but we failed, and I'm sorry but we tried our best.

RWE faxed us soon afterwards to say that they were confident that everything was being done to reduce leakage and that they remained committed to Thames Water's investment programme. That is of course¿ until they sell the company.

Are you comfortable sitting there as the regulator when you read how many millions of pounds these companies are making in profits while customers are having to pay higher bills and in parts of the country use less water? Are you comfortable with that?

PHILIP FLETCHER
Chair, OFWAT
Profits are there to benefit customers in the long-term because the driver for a more efficient service and a huge investment programme. Where I wouldn't be comfortable is if the level of profits that were being made were excessive for the risk associated with this industry.

DAVIES: You don't think they're excessive?

FLETCHER: I do not think at this stage that they're excessive but I accept entirely that a verdict on that must be reached over the period of the price limits that have been set.

DAVIES: This isn't the first time that the privatised water monopolies have attracted public derision. In 1995 Yorkshire Water faced intense criticism for making too much money and leaking too much water at a time of drought. Emergency supplies were tankered in from Northumbria and relations with customers plummeted, particularly when the boss was caught out pretending that he too was doing his bit for the drought.

TREVOR NEWTON
Former Chief Executive, Yorkshire Water
I haven't had a bath or a shower now for three months, but I'm not recommending, I'm not asking, I'm not advising people not to take bath or showers, I just say it's possible to do it, and when somebody said it's not possible I said well of course it is because I haven't been taking baths or showers at home.

Daily Express

"Clever Trevor takes a bath at parents' home"

DAVIES: It soon transpired that Mr Newton was sneaking over the boarder to his mother-in-laws for a stealth bath. He was lampooned mercilessly in the press. What's striking now is that Yorkshire Water, once the laughing stock of the industry, is now the best in the business. It's been voted utility of the year for the last two years, and OFWAT now fates it as the industry's most financially efficient company and the best provider of customer service.

That's an extraordinary turnaround. How have you done it?

RICHARD FLINT
Director of Water Business Unit
Yorkshire Water
When you've confronted 1995 like we did and confronted the failure that we did in 1995, you realise that you never ever want to be in those sets of circumstances again. So we put constant and almost obsessive focus on us maintaining our standards and I saw the dark days of 1995, and like a lot of other people went through the public disapproval, not only professionally but also personally, and that isn't somewhere you want to be.

DAVIES: The company has made leakage a priority. The amount of water lost has dropped by over 40% in the last decade. They also say they've transformed their whole ethos of dealing with customers, and they were only two happy for us to witness their charm offensive at work.

LYNN: Good morning Mrs Brown. It's Lynn Morrison from Balfour Beattie's. Hi, I'm just checking that everything is alright with you following the problem with the low water pressure that you had last week.

MRS BROWN: Yes, it's fine now, yes.

LYNN: Right, we managed to get your supply restored then, did we.

MRS BROWN: Yes, you did.

FLINT: We have a whole programme which we are constantly looking at in terms of how we can improve service, how we can interrupt fewer customers when we're doing this necessary maintenance work, how we can make the experience they have of us a more enjoyable one and how we can respond more quickly to what their needs are and not just our company's.

DAVIES: It's now the turn of the country's biggest water company, Thames Water, to get a sharp taste of what it's like when the tide of public opinion begins to turn against you.

[footage: water running down gutter and into drain]

We got a call about this leak earlier this morning, for the last hour gallons of water have been literally pouring down the drain here. The irony is, just across the street, we've got a poster campaign asking members of the public to do their bit to conserve water.

[Poster]

Using a bucket and sponge to wash your car instead of a hosepipe could save you a £1,000 fine and 125 litres of water. Don't break the hosepipe ban.

DAVIES: Thames Water has been running a very distinctive poster campaign recently celebrating how much water they say they'll save.

[Poster]

Our new pipes will save this much water every 2 weeks]

A little rich perhaps for a company which has just been ordered by OFWAT to invest an extra £150 million of shareholders' money as a penalty for missing yet another leakage target.

ANDREW MORRELL: It does beg the question why spend this much in the papers advertising what they're saving and spend it on actually fixing the problem. The strange thing is, on the opposite side there's another article about another leak in the local area.

DAVIES: This IT consultant has set up the "Thames Waster" website. He says he's stopped paying a third of his water bill because Thames leaks a third of its water.

ANDREW MORELL
I've looked at the bill and I've worked out the amount that Thames Water bill me each year for water delivery, and I've worked out based on the percentage that they lose in leaks what I should take off the bill, and I figure that I'm going to save about £83 a year.

DAVIES: And are you going to go ahead with this?

MORELL: I've already stopped my direct debit payment so as soon as I start receiving the request for payment I'll be reducing the bill and writing the cheque accordingly.

DAVIES: You feel pretty strongly about this whole issue.

MORRELL: I do. There's nowhere else that I can buy water from, and I think Thames Water have used that as leverage against the consumer and it's time for the consumer to say enough is enough and stop paying them.

DAVIES: Few water companies would relish the challenge of replacing mains pipes in London. Nearly half of Thames Water's pipes are over 100 years old and they risk gridlock every time they dig up a road. They do little for their public image, however, when they resort to blaming events like the blitz, as they did recently, for some of their problems.

HEMMING CLARK: All they are doing is absolutely nothing.

DAVIES: What do you mean they're doing nothing? They're actually investing a lot of money in repairing pipes, in trying to¿.

HEMMING-CLARK: No, I'm sorry! A lot of money¿ it's a complete nonsense. They say that they're spending half a million pounds a day. Half a million sounds an awful lot of money, but when you work out how many householders there are in this country¿ in this Thames Water region, it works out about 6 pence per person per day.

DAVIES: If they're watching this now, they would say that this is a rather irresponsible and puerile response.

HEMMING-CLARK: It is a response, I'm sorry to keep interrupting you. Do you know, plugging their leaks, they have for the fourth time failed to meet the water leakage reduction targets that OFWAT have set.

DAVIES: Thames faces a significant credibility gap with its customers at the moment, doesn't it.

Dame Yve Buckland
Chair, Consumer Council for Water
Yes, it has got a huge credibility gap with its customers, and they are, of course, a very articulate and powerful set of customers, and that's created a shadow over the rest of the country. You know, we actually have places in the Midlands where people think there are water restrictions and think there are huge problems with leaks where they're not, just because of the Thames issue and what they're reading in the press every day. So this Thames issue has actually created a set of problems for the industry as a whole.

DAVIES: We've asked Thames Water repeatedly if they'd do an interview for this programme, but each time they've said no. So we decided to take some of the questions to them.

There were questions relating to missed leakage targets as well as their handling of the drought that we wanted to put to the company. We also wanted to ask about their recent admissions to the regulator over failed compensation payments to customers, but no one came out to speak to us. You know, it is quite staggering that this company refuses to do an interview because Thames Water¿ okay, they're a private company, accountable to their shareholders, but they also fulfil a public service to people who probably want to know why they're being asked to economise when this company is making £346 million in profits and still wasting hundreds of millions of litres of their water.

[calls to two executive type males entering building] Excuse me gents, do you work for Thames Water?

MAN1: No comment.

DAVIES: Do you work for Thames Water?

MAN2: Yes.

DAVIES: Can you answer any of those questions for us?

MEN: [ignore questions, walk by without stopping and enter building]

DAVIES: That's a no.

[calls to third man approaching building] Do you work for Thames Water? Can you answer any of these questions for us?

MAN3: Sorry, no. Maybe try the press officer?

DAVIES: Oh right.

[calls to fourth man approaching building] Do you work at Thames Water sir?

MAN4: Yes I do.

DAVIES: Can you answer any of those questions for us?

[man walks by and enters building without responding]

DAVIES: Well I'm sorry, but if these questions aren't going to be answered, at least they're going to be heard.

[takes loudspeaker from van and from the street puts question to executive types watching from upper floors windows] On behalf of your customers we'd like to ask you a few questions. Why have you not met your leakage reduction target since the year 2000? Who gets a better deal, your customers or your shareholders? Do you really believe your leakage levels do not worsen the drought situation?

Two days later Thames Water wrote to us. They said that they were spending more than half a million pounds a day repairing leaks and replacing pipes, that customers were their greatest priority and that for every pound they've paid in dividends to shareholders, they've spent another four pounds on improving their water networks. Their full statement is available on our website.

Privatisation advert 1989

If water was delivered to the door like milk, an average family would need 850 pints a day.

DAVIES: Since privatisation the water industry has achieved much. Over 50 billion pounds of investment has swept aside the once "Dirty man of Europe" label. Rivers and beaches are the cleanest in decades. Drinking water quality is among the best in Europe. But much of this has been funded by higher customer charges and a growing number of people are having trouble paying their bills.

DAME YVE BUCKLAND
Chair, Consumer Council for Water
There is about £900 million of uncollected debt out there. It seems to be rising year on year. Some of that debt is due to the fact that some customers simply can't afford to pay their bills. Others are "wont pays" you know, they're not paying their bills for other reasons. It is a massive problem for the industry and one of course that we all end up paying for.

DAVIES: Beyond the now well rehearsed arguments over leaking pipes and record profits, there is one story beginning to unfold which has the potential to destroy public trust in this privatised industry. Severn Trent is one of the world's biggest privately owned water companies. It has more than 8 million customers from Mid Wales to the East Midlands, and an annual turnover of a billion pounds. Everything was ticking along rather nicely for Severn until a former financial analyst decided to drop a depth charge into the murky waters of the company's accounting records. David Donnelly admitted two years ago that he'd made certain adjustments to the company accounts which in turn allowed Severn Trent to get away with overcharging their customers.

BBC Midlands Today
March 2006
DAVID DONNELLY
Former Finance Manager, Severn Trent
Severn Trent was lying to the regulator about the level of bad debt it was experiencing. There is a mechanism under current regulatory rules which allows companies to recover the cost of bad debts from certain customers through increasing charges to other customers. Severn Trent was artificially overstating that bad debt, and in doing so, was jacking up prices to customers in a way that couldn't be justified.

DAVIES: Donnelly says that he was acting on instruction from senior managers, a claim Sever Trent utterly refutes. The company does concede, however, that it past on deliberately miscalculated data to the regulator and in so doing overcharged customers by 2 million pounds, money they've since refunded. Severn Trent has also admitted in a separate instance that customers would have been overcharged by 40 million pounds in bills up until 2010. The serious fraud office has launched a criminal investigation into other aspects of this case. We asked Severn Trent on three occasions if they'd be interviewed for this programme, but each time they refused, so we opted for a more direct approach.

[at Severn Trent HQ] Good morning.

RECEPTION: Hello.

DAVIES: We're from BBC Panorama.

RECEPTION; Right.

DAVIES: And we'd like to speak to the Managing Director or any members of your board.

RECEPTION: Okay.

DAVIES: Thank you very much.

We wanted to ask the company what would have happened had this case not been exposed by a whistleblower. A press officer soon appeared.

PRESS OFFICER: Sorry, we're not going to be putting anyone up for interview at all. We did explain to your editor that we wouldn't be taking part in the programme, certainly not without any notice to us at all. So if you do need anything, there is information on our website, information about the OFWAT report is found on their website, so if you want to go and take your information from there you're very welcome but we're not going to be taking part in the programme, as we explained back when we were originally asked.

DAVIES: No reassurances to customers?

PRESS OFFICER: They've had every reassurance. All the information is out there, it's in the public domain, which is why you can go and find it for yourselves.

PHILIP FLETCHER
Chair, OFWAT
We've drawn the conclusion that Severn Trent delivered to us inaccurate information. There is a strong suspicion of actual deceit, deliberate misinformation, that is why we drew the issue to the attention of the serious fraud office. We take it very, very seriously.

DAVIES: But the story doesn't end there. Just over two weeks ago the Serious Fraud Office announced it would be holding a further criminal investigation into another water company, Southern Water, again over misreporting of data. OFWAT has also just announced that it's investigating Thames Water over the issue of its failed compensation payments to customers.

FLETCHER: In Southern's case the Serious Fraud Office very recently has announced that it has also to investigate their obviously the possibility of criminal offences, of deliberate deceit. That has not yet arise as an issue at all in the Thames issue. For all three companies there are very serious issues about the culture of the staff, or in parts of those companies, and it's the companies' responsibility to sort that out. It is also the companies' job - and we hold them to account - to ensure that customers are fully reimbursed for any adverse consequences which arise from these failures. All of them are on notice that we intend to fine them because we take so seriously this failure on their part.

DAVIES: It was an employee of Severn Trent who sparked the first serious fraud office investigation, not the regulatory team at OFWAT. And that raises serious questions about OFWAT's competence to police this industry.

DAVID DONNELLY
Former Finance Manager, Severn Trent
There are two issues here that need to be considered. The first is, has the Water Company been caught with its hands in the till? Yes it has, frankly, and I believe that's evidenced in OFWAT's report. But the second and perhaps more crucial issue is the question of whether the regulatory process protected Severn Trent customers, and whether that regulatory process is continuing to protect them and has protected water services customers right across the country and I don't believe it has.

DAVIES: On one of your fact sheets on your website you say that you regulate at arm's length wherever possible. Isn't it about time you just got a little bit closer into the industry and scrutinised them a lot more rigorously?

PHILIP FLETCHER
Chair, OFWAT
We obviously need to ensure that we've got all the information we need to ensure a monopolist is doing the right thing. When we find evidence of failure, we investigate it very thoroughly.

DAVIES: I put it to you in the words of one commentator recently, he said: "You, the regulator, are just too wet. You need to get a lot tougher on this industry on behalf of customers out there."

FLETCHER: I wouldn't accept that we're soft or wet. We are a regulator who does the job as it needs to be done, and yes, if we get things wrong we need to learn from our mistakes as any organisation does. But has the company, all of the companies here, the 22 companies been put under pressure to do their job properly, to be more efficient - yes - over a 15 year period. Where's the evidence for that? In the levels of service, the levels of investment, the huge improvement in what has been achieved for a significantly lower bill than would have been necessary if OFWAT had not existed.

DAVIES: The reputation of this industry has taken a battering. A recent opinion poll for the BBC suggested that more than half of us would like to see the water industry renationalised. Hardly a realistic proposition given that three years ago the companies were guaranteed at least 25 years notice of any return to public ownership. The truth is, the privatised industry, for all its problems, is still outperforming its publicly owned rivals in Scotland and Northern Ireland. It just needs to convince the pubic that they're getting the best deal.

BUCKLAND: The water companies are going to have to step up to the plate to think about how they really engage their consumers because consumer confidence is absolutely central to the industry. It's not as though, as a monopoly, they can shrug their shoulders. They need to retain consumer confidence so that consumers pay their bills so they remain attractive to the investors, and that was the lesson learnt by Yorkshire Water in particular.

DAVIES: People are angry with the water companies. The industry has got a big problem on its hands, hasn't it.

FLETCHER: It has, and I would go further, I'd say some customers at least are also very angry with their regulator, with OFWAT for, as they see it, not protecting them properly. Now we see it as absolutely at the core of our job that we protect customers from the effects of monopoly. So we are accountable first to Parliament but we also have an accountability to the customers of the water companies. We need to make sure that the lessons from the current experience are fully learnt and we shall be doing so.

DAVIES: As temperatures rise in the UK and the population grows, water will become an increasingly precious resource. Ever greater demands will be placed on us, the consumer, to conserve our water. It's a challenge which first requires some in the industry to win back our trust.

If you'd like more information on tonight's programme please visit our website where you can comment about the film and view past programmes. Panorama will be back in the autumn.



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