Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum by John Horam MP, Chairman of the Environmental Audit Committee, House of Commons (DWB 38)


  Thank you for your invitation to the Environmental Audit Committee to offer its opinion on the Water Bill, which your Committee is presently examining, in the light of our recent consideration of the 1999 Periodic Review of water price limits[7]. In the time available I can only offer my own general observations but nevertheless I hope they will be helpful.

  You particularly requested our view on whether the Bill adequately provides for co-operation between the various regulatory bodies and the consideration of environmental matters. The EAC's report, Water prices and the Environment, considered how far the process and outcome of the 1999 Periodic Review contributed to environmental protection and sustainable development. We found that the Periodic Review Process provided a fair and open system for determining water price limits and had a satisfactory outcome for the environment in terms of the nature and size of the capital investment programmes it planned to deliver. However, we felt that the five-year investment programmes were not set in a comprehensive, clear framework of longer-term policies and goals which curbed potential to contribute to the Government's overall policy vision. Instead there was a rather piecemeal approach, taking place in five-year bursts.

  Our particular concerns related to the arrangements for allocating funding for the maintenance and renewal of underground assets (sewers and water mains). The Committee was not satisfied that the present system allowed the water companies to manage and renew their sewers and water mains in order to develop appropriate levels of service to their customers on a sustainable basis in the longer term (paragraph 208).

  In terms of the Water Bill provisions, Clause 28 is pertinent to a number of our concerns. This clause allows the Secretary of State and the National Assembly for Wales (where relevant) to issue statutory guidance to the Director General of Ofwat (the "Director") setting out social and environmental objectives and ways in which the Director might contribute to these objectives and interpret existing duties. This statutory guidance would be an obvious means to ensure that the Government's long-term objectives are clear to the Director, in line with our recommendations.

  However, it is worth bearing in mind that the DETR already provides guidance to the Director during the course of periodic reviews on the nature of the environment and quality programme it wants to see delivered. It is not clear how this guidance would fit with that envisaged under Clause 28. This existing guidance is prepared with input from the Environment Agency and Drinking Water Inspectorate and I feel that it is important that any new arrangements do not reduce this contribution in any way.

  The EAC report made only one specific recommendation for primary legislation to be included in the Water Bill and this is also relevant to Clause 28. The Committee recommended that the Director General should have a specific duty to have regard to sustainable development (para 220). This is in line with the Government's own commitments. For example, in its response to the Committee's first report on the Greening Government initiative[8], the Government agreed that sustainable development should be central to all government policies and machinery. Departments are now required to consider whether to incorporate sustainable development into the aims and objectives of all new bodies when they are set up. This later requirement pre-dates Ofwat but the Water Bill presents a key opportunity to reassess the situation.

  The Committee felt that the Director should be directly accountable for ensuring that Ofwat makes a positive contribution to the Government's sustainability agenda. The guidance proposed in Clause 28 is not equivalent to an explicit statutory duty for the Director to have regard to sustainable development. It would also not provide the guiding principle which needs to be apparent to both the Director and the Advisory Panel (which the Bill seeks to establish).

  The Director's existing environmental duties (set out in Section 2 of the Water Industry Act 1991) are rather narrow, referring mainly to the conservation of: flora and fauna, natural features, sites, buildings and the protection of Sites of Special Scientific Interest (SSSi's). These do not reflect the Government's sustainable development strategy and the additional guidance, envisaged in Clause 28, may do little to ensure that environmental and social objectives are not treated as mere bolt-ons but are integral factors in the Director's decision making process. As the DETR acknowledged in its written evidence to our committee during our inquiry, the Periodic Review is a key area of work for Ofwat which can make a major contribution to the sustainable development agenda encompassing as it does, the need to protect the environment, meet consumer needs and consider the financial stability of the water companies.

  The Committee also acknowledged that Ofwat had made efforts to address its transparency since the last review but felt that the regulator had not yet struck the right balance between commercial confidentiality and operational transparency (para 102). Clause 39 requires the Director to set out the reasons for certain decisions and would therefore appear to make a contribution to redressing this balance somewhat.

  Finally, the Committee recommended that the Government should spell out its long-term aims for leakage reduction in the context of water resource policy and clarify in particular whether it wants to reduce leakage below their economic levels (para 231). The Bill provides the possible vehicles to achieve this: the Clause 28 guidance and the proposed new powers to allow the Secretary of State and the National Assembly for Wales to initiate proposals for new or amended standards of performance (Clauses 29 & 30). The DETR envisages that the latter will normally only be exercised in respect of standards which contribute towards the attainment of policies relating to public health and the environment and cite, as a possible example, leakage targets to prevent the waste of valuable water resources.

  I hope these comments are a useful contribution to your inquiry.

John Horam MP, Chairman

January 2001

7   HC 597-I (1999-2000), Seventh Report-Water Prices and the Environment. Back

8   The Government's response to the Environment Audit Committee's Report on the Greening Government Initiative, November 1998. Back

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