Brexit – uncertain times for water services provision?
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The decision taken by the British Government to begin the process to exit from the European Union, the “Brexit vote”, has generated concerns as far away as India, Australia and South America. When the vote to leave was announced in June the British pound fell to a 30-year low. The latest financial commentary expects it to fall lower still.
The vote has however raised concerns in several areas.
From 2011 to 2015 the European Investment Bank (EIB) invested more than €29 billion in the British economy. 21% of the EIB investment in 2015 went to water services. It is unclear what the ongoing role of the EIB will be if a complete Brexit does take place. If the EIB was to reduce this level of investment there would be more expensive commercial financing options available, but this would inevitably impact on water pricing.
Another area of uncertainty involves people and skills. Free movement and the ability to attract technical skills from across the EU has been an essential element of many sectors - the water industry is no exception. 10% of infrastructure workers are reportedly born outside the UK. If sourcing labour from the EU is to be restricted or made overly complicated this could mean significant delays in implementing projects.
A number of issues have arisen in the procurement area. Public procurement in the UK and EU is currently governed by several EU directives that are applied through national legislation. In the UK, the Public Contract Regulations would not cease to exist if the directives no longer applied. There are several options the UK could explore in this area but one key consideration would have to be that if the UK continues to implement EU procurement rules, but no longer be a member of the EU, it would have no right to participate in the discussion on how the rules are developed and evolved. The UK would have compliance obligations but no opportunity to influence policy.
The industry body, Water UK, has pointed out that a wide range of EU rules have, over the past 25 years, been implemented by the water sector. They also note UK drinking water quality has improved to be world-class, the condition of rivers and beaches is greatly enhanced, and customer satisfaction with water services delivery has risen.
This latter factor, environmental protection measures, has generated considerable discussion. A group of fourteen senior experts have written to the Department for Environment and Rural Affairs Secretary of State, Liz Truss, to voice concerns over any departure from the EU directive regime.
Professor Sir John Laughton commented: ‘Never mind what you think of the EU generally, you have to be very careful what you wish for in terms of the impact of Brexit on UK natural habitats and landscapes. UK politics has a tendency to be short term and see the natural environment as an impediment to economic growth, and EU agreements help mitigate this by encouraging us to be more long term in our public policy.’
Britons have benefited greatly from EU environmental policy. Being inside the EU, Britain has been able to shape that policy, but would lose that ability if they were leave the EU. It is very likely the UK would still have to follow EU environmental laws if they wished to retain access to the EU’s single market. This would effectively reduce UK sovereignty rather than increase it. Paradoxically, membership of the EU is an essential condition for the UK to exercise some sovereign influence over the European forces that affect it.
Elsewhere, industry trade organisation British Water, said the decision to leave the European Union is certain to have a significant impact on a sector where considerable investment is driven by EU directives on water, wastewater and the environment.
The organisations chief executive was reported as saying that they recognise the significant impact EU directives and the resulting investment have had in driving improvements in water and wastewater quality and for the environment since water company privatisation in the 1980s.
In a briefing paper on Brexit the Chartered Institution of Water and Environmental Management (CIWEM) expressed similar sentiments: ‘Differing environmental approaches member state to member state could significantly undermine the principle of free trade within the European Community. Moreover, environmental challenges from air pollution to water quality have been understood as transboundary in nature and have required a multi-national approach to resolve. Taking this principle further, negotiations on global environmental challenges have been more effective as a bloc of collective national opinion and commitment.’
All in all the Brexit debate and subsequent vote brings considerable uncertainties for the water sector. There are major issues to be resolved around financing, staffing, procurement, access to markets and the ongoing development of environmental rules and health and safety requirements.
John Pfahlert
CEO