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Mr. Deputy Speaker (Mr. Michael Lord): Order. We must now turn to the next debate.
Surface Water Charges
1.30 pm
Jacqui Smith (Redditch): I am glad to have this opportunity to raise an issue that is causing significant financial problems for community and public bodies in my constituency, throughout the county of Worcestershire and I suspect the entire area covered by Severn Trent Water. I draw the Minister's attention particularly to the effects of the change in charging for surface water drainage for non-domestic customers that has been implemented by that company. I ask the Minister to ensure that the Director General of Water Services considers this change and its disproportionate and damaging effects in detail.
The duties of the regulator, as laid down in the Water Industries Act 1991, state that the director general
Surface water drainage is part of the sewerage service offered by water companies and, until 1990, Severn Trent Water charged all its customers on the basis of rateable value. Since then, new customers and those with substantially altered properties have been charged on the basis of surface area. The company is now in the midst of a three-year plan to convert all existing customers from the rateable value basis for calculating charges to a system based on the total site area that the properties occupy. That transfer of the vast majority of non-domestic properties is causing the difficulties that I shall address. It is also important to note that my research and contacts with other water companies suggest that no other water company has chosen to make that change.
As the director general points out in his "Report on Tariff Structures and Charges 1999-2000", companies currently charge for surface drainage in a variety of ways. For example, they charge as part of foul sewerage charges through the volumetric tariff, as a flat fee within the fixed charge or through a combination of both, by reference to the rateable value of the property, or via a charge related to the surface area that drains to the public sewer. Severn Trent Water appears to be the only company that has chosen the last option.
I accept that there appears to be a certain logic in charging for drainage on the basis of the size of the area drained. However, as I will demonstrate, the results of that change in practice have been far from fair or logical. The director general may have foreseen some of those difficulties in his 1991 report on water payments when he said that, although surface and highway drainage raised a number of charging issues, recovering the costs associated with those services by reference to the volume of water delivered to customers--that is, instead of the surface area--might be simpler than, and just as good as, other approaches. When I look in detail at the effects of Severn Trent Water's decision, I believe increasingly that the director general was right.
I want to consider in detail the implications of those changes on two types of customers: first, village halls and community centres; and, secondly, schools within
Worcestershire. I was first alerted to this issue about a year ago when a village hall in Feckenham in my constituency contacted me. Prior to September 1997, it had paid water bills on the basis of its rateable value. In September 1997, a meter was fitted and it therefore moved to the new site area method of calculating surface water drainage. The effect of the change was a 310 per cent. increase in the charge for sewerage services. The new sewerage charge would have been more than the total water and sewerage bill before the change and the surface water drainage element was by far the largest component of the bill. We should remember that the charge was levied for the service of draining rain water from a property. Can that really be the most costly part of the provision of water and sewerage services?
An administrative difficulty associated with the change became evident at this point. After the village hall appealed to Severn Trent Water, the company surveyed the site properly and agreed that some parts did not drain into its sewers and could therefore be removed from the site area calculation. To the company's credit, it has clearly been willing to put right the many mistakes made in calculating the surface area. However, those mistakes occurred originally because the work of estimating the surface area was put out to contractors who referred simply to ordnance survey maps and made no attempt to determine whether any parts of the total surface area, such as playing fields or lawns, did not drain to the areas served by Severn Trent Water. Furthermore, although the site area taken into consideration was reduced, the Feckenham village hall was left with a 165 per cent. increase in its sewerage charge.
Severn Trent Water and Ofwat have made much of the company's willingness to consider an abatement when part of a site does not drain into the company's sewer. However, for the vast majority of the community and public services affected, that will be just a drop in the ocean--or should I say the sewer--compared with the significant effect of the shift from rateable value to surface area charging.
Following my intervention and pressure from the village hall committee, the Feckenham village hall received a stay of execution as Severn Trent Water agreed that the basis of its surface water charging could revert to rateable value. However, without a change in policy, the village hall volunteers will have to meet the increase next April. The Hereford and Worcester community council and Action with Communities in Rural England--ACRE--have also highlighted the difficulties caused by the company's policy, providing examples of one Worcestershire village community centre that is facing an £800 increase in its water bill and another village hall that will see its bill increase from £550 to £2,000 per year.
Following publicity about the issue, I was contacted by Worcestershire county council which expressed its concern about the effect of the change in water charges on its public buildings, particularly schools. Due to the administrative difficulties and complications inherent in the new system and disputes about the surface areas that should be included in the calculations, Worcestershire county council only recently received detailed information from Severn Trent Water about the effects of the charging changes. The overall effect of this change alone will increase water bills in the county by nearly £200,000.
One school in Inkberrow in my constituency faces a yearly increase of £2,560--or 1,106 per cent.--in its water bill. Another school faces an increase of 779 per cent. and one of the smallest first schools in the town faces an increase of £787--or 449 per cent.--in its water bill.
Mr. David Lock (Wyre Forest):
I am grateful to my hon. Friend for giving way. As a fellow Worcestershire Member of Parliament, I assure the House that this problem affects the whole county. Does my hon. Friend agree that the Government did not allocate extra money to health and education in order to top up Severn Trent Water's dividend? Does she agree also that this problem affects not only schools and community associations but commercial premises? A chain manufacturer in my constituency faced a 250 per cent. increase in his water bill. After we argued the case with the water company, the increase was reduced to 6 per cent. Throughout the Severn Trent Water area, businesses face rising water bills, and the jobs of our constituents are under threat merely so that that company's already massive profits can increase.
Jacqui Smith:
My hon. Friend makes a good point, and I know that he has been active in raising the issue.
My particular concern is schools. In my constituency, water bills for schools will increase by a total of £24,000 next April. As my hon. Friend pointed out, that money must come from tight education budgets when, as we all agree, it should be spent in the classroom to improve standards.
When I wrote to Severn Trent Water and the Department of the Environment, Transport and the Regions last year about my concerns, both pointed out that any change to charges will result in winners and losers. I agree, but in this case we must consider who will be the losers and the disproportionate extent to which they will lose.
Mr. Richard Burden (Birmingham, Northfield):
Like my hon. Friend, I have raised this issue with Severn Trent Water and Ofwat and received the same reply about winners and losers. The problem does not relate to rural areas alone, although my hon. Friend rightly stressed their importance, but to urban areas, commercial premises, schools and public buildings. Surely we need more research to find out who are the losers and whether some are subject to undue discrimination. I asked Ofwat and Severn Trent Water what research they did before embarking on the policy, and I await the response with interest.
Jacqui Smith:
My hon. Friend makes a powerful point, and I shall refer to that later in my speech. I am grateful that hon. Members on both sides of the House have raised the problems caused by the charges set by Severn Trent Water.
The company has argued that the change will be revenue neutral, but if that is the case, some of its non-domestic customers must think that Christmas has come early. Of course, anyone who substantially gained from the change would be unlikely to contact their Member of Parliament to complain, but given Severn Trent Water's assertion and the village halls and schools
that are facing the significant losses that I have outlined, it is, as my hon. Friend the Member for Birmingham, Northfield (Mr. Burden) said, incumbent on the company to provide evidence to the director general about the customers who will gain from the change and the extent to which they will benefit.
To return to my point about the nature of the losers, I am concerned that the losses appear to be hitting community and public facilities. The effect of the change is regressive in that it hits services that have little ability to find money to pay the increased charges. The determining factor for the organisations that have been hit badly by the change is the relationship between the rateable value of their property and the surface area that it occupies. In other words, the losers are the non-domestic customers whose property has a low rateable value but a high surface area. Those properties tend to be public buildings and they are predominantly in rural areas.
It is not only the nature of the losers that causes concern but the extent of their losses. Increases of hundreds of per cent. in sewerage charges are not isolated occurrences. It is not reasonable for any customer of a utility to face such enormous increases. Those increases are particularly unreasonable when they will also have social costs. Furthermore, the distorting effect of the change is demonstrated by the large proportion of the overall bill that surface water charges now constitute for many non-domestic customers. That cannot be a true reflection of the costs involved, which the director general set as a priority for charging schemes.
Having outlined the difficulties being caused by the change to surface water charging by Severn Trent Water, I ask my hon. Friend the Minister to undertake to instruct the water regulator--the Director General of Water Services--to consider in detail the effects of the change, with particular reference, as I have already said, to where the losses occur, the disproportionate nature of the increases and the extent to which the new system fulfils his demand that charges should more clearly reflect the costs of delivering the service.
I am encouraged that my hon. Friend will be able to do that following the extension of the director general's powers to approve charging schemes introduced in the Water Industry Bill. I am further encouraged by a letter sent to ACRE in February in which my right hon. Friend the Minister for the Environment stated:
"has a duty to customers to ensure that no undue preference is shown and that there is no undue discrimination in the way companies fix and recover charges, and that rural customers are protected".
My argument is that Severn Trent Water's surface water drainage charging policy does, and will, discriminate against non-domestic customers who are least able to pay and that it will also disadvantage rural non-domestic customers.
"Water companies will have the prime responsibility for considering and proposing their charges schemes. However, these will be subject to approval by OFWAT, and Ministers will have powers to ensure that particular issues are addressed in charges schemes".
Later in the letter, he stated:
"where charges for sewerage are covered by companies' charges schemes--including, for instance, surface water drainage--it will be for the Director General, under the provisions of the Bill, to consider whether to approve such charges schemes."
The director general should outline in his consideration whether Severn Trent Water should allow non-domestic customers to opt for their surface water charges to continue to be based on rateable values. That would be appropriate given the repeal of section 145 of the Water Industry Act 1991 in the Water Industry Bill. In its literature, Severn Trent Water has used the need to comply with section 145 as the justification for the change. Now that the need has been removed, it should offer customers the option to stay with rateable values for surface water charging.
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