MPs are conducting a far-reaching inquiry into the future of the water industry which will examine everything from flood defences to industry financing and climate change.

The All Party Parliamentary Water Group, led by Elliot Morley, the former Environment Minister, is hoping its independent inquiry will help to influence government strategy at a time when water is being dubbed a more precious commodity than oil.

Mr Morley has called for evidence from the industry and other stakeholders and will hear oral evidence during three sessions in February. He hopes the inquiry will be as influential as previous inquiries by the All Party Parliamentary Group for Small Shops.

The former minister wants to pull together the latest thinking on the future direction of the water sector, the role of regulators and the influence of consumers.

In a call for evidence, the group said: “It has become clear, particularly following the summer floods, that greater leadership from government and the regulators, including Ofwat and the Environment Agency, is required if the wider water sector is going to meet the multitude of challenges with which it is faced.”

The cross-party group believes that the existing framework of the water industry, which was effectively put in place when the industry was privatised in the 1990s, is not suitable for tackling the new challenges that concerns over water resource management and climate change have brought.

The aim of the inquiry is to come up with firm proposals and recommendations for reform of the sector. It will feed into existing consultations begun by the Department for Environment, Food and Rural Affairs on government water strategy.

This is a critical time for the water industry, which is approaching another five-yearly price review in 2009. The price review will set tariffs and determine the level of investment in the industry’s infrastructure for the next ten years. Meanwhile, the Government is set to publish its own water strategy early in 2008.

The inquiry will consider how successful the existing framework of privatised companies has been. It will also consider the impact of a new breed of water company owners – the banks and infrastructure funds that have been buying water assets in recent years.

It will also look at the role of the financial and environmental regulators and investigate whether or not they have been given sufficient power to incentivise water companies effectively. The question of who should provide the investment in the sector needed to meet European directives on the environment will also be considered.

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