*Water UK chief executive Pamela Taylor sets out the water industry's blueprint for policy action to secure a sustainable future.*

The UK's water and sewerage companies have worked together to produce a blueprint for policy action. Published last month, the blueprint sets out the challenges the industry faces and four priorities to be addressed in order to meet them.

The water industry makes a significant contribution to public health, society, the economy and the environment. It has delivered much over the past 20 years, building on what went before, and is well placed to meet the challenges of the future. But the time is now right to see if it can do more - for its customers, the environment, the economy and society.

*Right time*

The time is right because the formation of a new government provides an opportunity to look with fresh eyes at individual policies, the strategic framework within which they sit, and more collaborative ways of working.

The time is right because the sector has just concluded a round of price reviews, which, for a regulated sector like water, are significant milestones and set the context for a number of years. Before long, preparations for the next review will start, but there is a short window of time to look forward at how best to meet the challenges of the future. This time - perhaps two years or less - must be used to identify, evaluate and implement required changes.

The time is also right because there is a clear appetite to consider reform, both in the water sector and more generally. As well as price reviews, there have been two independent reviews in the water sector. Companies, regulators and commentators are proposing changes. More broadly, reform is being considered in other regulated sectors - in energy, telecommunications, and in transport - and the turmoil in financial markets continues to have an impact on policy debates.

*Blueprint*

It is for these reasons that last month we published Meeting Future Challenges - A Blueprint for Policy Action.

Before looking forward to future challenges, and the reforms needed to meet them, it is necessary to consider their context, and the complementary roles of regulation and competition in the water sector.

The industry's success has been greatly assisted by stable and transparent regulation. The fundamentals of water regulation have largely been preserved since privatisation in 1990 and are one of the underlying reasons why the industry has been able to attract the necessary investment and improve overall performance.

*Evolving regulation*

The RPI-X+K framework has proved a powerful cost reduction mechanism, while the creation of regulatory capital value and the associated duty to finance functions has enabled improvements to service through large capital programmes.

While the basic regulatory framework is robust and should continue, it must also evolve to create incentives for the kind of solutions that will be needed to meet the challenges of the future.

Market forces have a significant role to play in promoting innovation and delivering services sustainably. Competition among contractors and equipment and service suppliers exists throughout the supply chain. Comparative competition between water companies has driven efficiency and service improvements. Market pressures have encouraged companies to be innovative in financing. All this benefits both customers and investors, but companies would welcome more forms of competition where it is in the interests of ­customers.

Competition is not an end in itself but should be seen as one of the tools available to policy­makers. Whether or not greater use of competition is made should depend upon whether it is the best tool available to spur delivery of the customer and government agenda for the sector.

*Managing risk*

As changes to the framework are considered, it will be crucial to manage the risk of losing the support of customers or the capital markets the industry depends on in order to fund investment in essential maintenance and service improvement.

There is broad consensus about the challenges facing the water sector: pollution of water courses; managing surface water, flooding and coastal erosion; managing water resources to provide an affordable public supply; reducing greenhouse gas emissions; and adapting the service to climate change.

These challenges are relatively well-defined and understood, as is the context in which they must be addressed. Companies' 25-year Strategic Direction Statements were well received. Customers are clear and consistent about what they want and what they are willing to pay.

*Reform priorities*

For the industry to successfully meet these challenges, taking both customers and investors with it, there are four priority areas for reform. These are set out briefly in the box and in detail in Meeting Future Challenges.

There is much the industry can, and must, do to take this way forward, but it cannot achieve society's goals on its own. It looks forward to co-operating with many different groups.

As a first step, we are holding a series of stakeholder round tables to identify where there are opportunities to work together to deliver shared objectives - because working together, we can deliver more for customers, the environment, the economy and the whole of society.

Pamela Taylor is chief executive of Water UK.