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Why empowering consumers is the way ahead

Scotland has been breaking significant new policy ground.

It comes at a time when there has never been greater disillusionment or a sense of powerlessness by consumers, in the face of corporate behaviours such as that of banks and power companies, when more people are disengaging from politics

People disengage because they believe involvement has little impact on outcomes that affect them, not least in bringing offending boardrooms to account. It is a bad place to be, and the political and policy community is increasingly looking at how it may be possible to genuinely engage and empower people in the face of their growing fatalism.

The policy change comes in the unlikely field of utility pricing.

Scotland is unique in the UK in maintaining its water services in public ownership, though with a requirement to operate in a commercial manner. A monopoly provider of services, Scottish Water's household bills come as part of Council Tax billing. In a number of ways our water provider is different from any normal commercial business.

Scottish Water's performance has improved dramatically, but to move further forward the Water Industry Commission for Scotland wanted Scottish Water and its customers to benefit from a much more direct relationship between them, and to really empower customers.

The way to achieve this was to invite a willing and expert company, and a customer group appointed for the purpose, to find agreement on the company's business plan for a six year period ahead - the investment levels and priorities, prices, and performance measures.

For both parties there was an incentive. The regulator said if the company and customer group could agree, within parameters of what was likely to be acceptable, the regulator would be 'minded' to accept the deal. The regulator making clear that should agreement not be possible, both parties would need to set out precisely why, with this being played out in public.

Following extensive customer research, detailed scrutiny of what the company wanted, and an intense period of discussion and negotiation, a deal was concluded between the company and the customer group in February, then accepted by the regulator. The resulting Draft Determination of Prices is now subject to public consultation by the Water Industry Commission.

The process breaks new ground, as do the specifics of the deal reached. Not only was it negotiated by a customer group, the prices secured are below the lower CPI inflation over the coming six years (higher RPI being the former inflation benchmark); a fixed price increase of no more than 1.6 per cent for each year through to 2018 and indicatively to 2021, providing stable and predictable prices. Investment priorities are firmly focussed on customer priorities established through customer research - such as improved water quality, and reducing sewer flooding, visible leakage, and low water pressure.

New customer focused performance measures will affect performance incentives and delivery; and customers can expect an ongoing role in key decisions. The deal stands in stark contrast to recent experience in other utilities.

Regulatory price control expert, Prof. Stephen Littlechild, has hailed the process as "a more thorough investigation and understanding of customer preferences than in the past or than would otherwise have taken place as part of a conventional price control review."

Are there lessons to be learned for application in other settings? The inspired decision of a regulator in asking a regulated company and its customers to find agreement or explain why not, is the force at the heart of this process.

To have any hope of agreement demands company transparency with customers. It is easy to see how this force could be applied to other utilities - power, rail and the like - but also in wider regulated sectors.

But beyond this, might there also be lessons within the delivery of wider public services - moving beyond much more traditional forms of consultation, to real empowerment in the decisions that matter to consumers and citizens?

What works for one sector may not necessarily be directly transferrable, but the potential of really empowering consumers is clear. The experience piloted in Scotland's water industry, with the active support of Scottish Government, is surely worth exploring for other contexts.

The empowering process delivered for water runs with the tide of wider public service reform objectives of engaging and empowering people, of tailoring services to customers' needs, and co-producing outcomes.

Might it also help address the fatalism felt by too many consumers of key services?

Peter Peacock chaired the customer group established to negotiate with Scottish Water, the Customer Forum for Water http://customerforum.org.uk/

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