Memorandum by John Horam MP, Chairman
of the Environmental Audit Committee, House of Commons (DWB 38)
REQUEST FOR EAC OPINION ON THE DRAFT WATER
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.
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
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
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,
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
7 HC 597-I (1999-2000), Seventh Report-Water Prices
and the Environment. Back
The Government's response to the Environment Audit Committee's
Report on the Greening Government Initiative, November 1998. Back