Core values by John Blundell in The Business

IT IS strange how a national disgrace is also a comedy. Our “shortage” of water attracts every fallacy of economics. It also attracts barmy solutions. I particularly enjoy docking Arctic icebergs off Essex. I chortled that Yorkshire Water’s possible new corporate logo could be a cactus. May I suggest the natural water engineer – the beaver – would be the perfect mascot of competence for any water company?

When anything is scarce any economist will tell you it must be priced. A precious moment there – unanimity among economists. Water use is not priced. If we had no electricity bills or gas bills I promise you we would have power shortages. We would be exhorted not to make toast or to take baths with our best friends or perhaps enjoy cold showers alone. Putting a price on an item transforms our appreciation of it.

I saw this vividly from my own younger son. When we lived in Virginia in the US we had a water meter at the front of our home. One of my son’s domestic duties was to water the plants. He diligently turned the tap off after filling each can. After we moved back to Britain I noticed he no longer turned the tap off. When I questioned him he said as there was no meter, it didn’t matter anymore. As he was only five at the time I was impressed he had grasped a truth that eludes our older policy­makers.

I have other memories of the cultural difference when pricing is present. My American neighbours washed their cars with buckets. Brits use hosepipes. In one sense pricing is such an obvious response I feel slightly ashamed of the banality of the idea. How much more exciting to offer all sorts of poetically beautiful but economically daft ecological water solutions.

What would the great Victorian engineers who gave every city huge volumes of water make of our feeble but comical stories of sustained drought? They do not seem to have even recognised the problem. If a town prospered it was obvious – erect reservoirs. Some fine valleys in Wales were dammed and great tunnels watered ­Birmingham, Manchester and Liverpool.

These were not the first water management triumphs.

The 18th century canal engineers did not complain of water shortages. They built supplies. Where I was brought up in Cheshire, nearby Rudyard Lake was my playground – a feeder reservoir for the canal network that nourished the Industrial Revolution.

I do not doubt that the water companies have a sort of excuse in that the weather has not brought the rains they might have expected –but with water meters they could raise the price and human nature would correct the shortages. Markets have a cybernetic quality.

Naturally “privatisation” is blamed by many commentators. Vicious profit-­seeking water companies are “uncaring” as well as incompetent. Yet it seems to me the evident underinvestment is a badge of the decades of public ownership rather than capitalist squalor. The uniform tales of ancient pipes leaking more water than they deliver to customers is part of our shared appreciation of the water companies. Yet why are our water pipes not renewed? We would be ferocious if electricity or gas were stuttering through old pipes. Britain has been rewired for our digital services. What is the difference?

Are water company staff self-selected or filtered to be inept? Phones and every other domestic utility are priced – they are information rich. They have feedback.

Why can the water companies not meter their precious resource? Can you not guess? Here be politicians. Water meters frighten local and national politicos. Even during the privatisation process – which should have been all about commercial freedom to act – water pricing was barred. Even the regulators felt circumscribed.

In one sense human beings may never learn. When the Roman emperors proffered “free” bread for the proletariat they seemed amazed when the granaries were emptied. Of course they blamed the venal speculators and the sly Carthaginians. British politicians thoroughly enjoyed war austerities, and preserved and even extended “rationing” long after the Nazis had gone and the liberated German economy was surging. It seems fair to observe our “free” National Health Service is merely a reworking of the imperial delusion of price-less bread baskets.

Those of us who are not water engineers can only offer some ideas that seem to elude the professionals.

The Home Counties may be parched but Britain is not. Why can more water not flow from the rain-sodden parts of the kingdom? Our canals have not dried up. Do they hold a simple secret? Could it be enough reservoirs? The largest manmade lake in Europe, Kielder Water, keeps all of Geordieland watered. It would be downhill from those hills to the taps of Greater London.

It would be wrong not to concede the water companies find us changing our habits. Are we so difficult to predict? Our average home usage has risen from 124 litres per day to 201 litres in 10 years and, more dramatically perhaps, the average home does not have six people but 1.2 individuals. London will have a million extra people by 2015 all wanting more water to wash and flush and launder.

There is a near certain law of economics – I term it Blundell’s Law – that whatever politicians do achieves the opposite of their declared policy intentions. Banning hosepipes, telling us to leave our flower beds as well as our cars, insisting we contain our improvident behaviour will all only add to our exasperation. This “shortage” is entirely contrived. It is bogus. It is achieved by our leaders being frightened to price something that is valuable and semi-finite.

If demand is increasing it seems natural to recommend enhanced supplies. Land may be at a premium in the arc of the Southeast of England but there is no shortage of sites for further reservoirs. I think Rutland Water in Leicestershire is a delight for wildlife … but it serves millions of taps. Water UK, the public voice of the water companies, explains British demand for water has risen 1% a year for the past 50 years. Yet only an artificially constricted industry would regard this as a headache. UK GDP has been growing at more than twice that rate. A lively commercial competitive water market would not regard ever more thirsty customers as a threat. To the capitalist it is a splendid opportunity – if they can charge.

The Water Act of 2003 makes it a legal duty on the water companies to announce counter-drought measures in 2007. It will be a statutory (that is to say politician-­driven) obligation. Is there any surprise they are testing these powers today? I wonder if we are seeing a subtle power play by the normally docile water industry? All these counter-measures may trigger the adoption of water-pricing – meters in plain language. Just imagine if Tony Blair were urging the gas and electricity suppliers to deliver costless fuel to every home. Everyone would see the absurdity. Yet say it of water and you are regarded as wise and “green” and “sustainable”. There is a residual streak in our minds that thinks denial is vaguely virtuous.

So, forgive the prosaic quality of my prescriptions – more reservoirs, newer pipes but above all pricing. There, and I avoided any jokes about the power of cricket as a God-teasing rain dance ritual.

John Blundell is Director General of the Institute of Economic Affairs.