Examination of Witnesses (Questions 120-136)
3 MARCH 2004
MR BOB
BATY, MS
PAMELA TAYLOR
AND MR
CERI JONES
Q120 Paul Flynn: Why is it set to rise?
Ms Taylor: Because we will need
to implement the Water Framework Directive. What concerns us is
if the only way of implementing the Water Framework Directive—which
we hope will not be the case—is to say that there is more
and more end-of-pipe solutions that we are looking for, more kit
to be put on the end of pipes, then this will cost even more.
If you contrast that £7 at the moment, which is set to rise,
say with South West Water £4 in the year for the environment
programme, that cannot be right.
Q121 Paul Flynn: It is a problem that
the farmers and farming industry are not paying and there is really
no pressure on them to reduce them. What is diffuse pollution?
Is it mainly silage, pesticides—
Mr Baty: Cattle grazing—in
the ground and it rains and it washes into the river.
Q122 Paul Flynn: So in this case the
polluter is not paying.
Ms Taylor: Exactly. When Bob mentioned
beaches and how there are some that are not under his control,
that will be because it will be washed off from the land.
Mr Baty: That is the river just
going into the bathing area.
Q123 Paul Flynn: This does not come out
clearly in your written evidence as far as I can see.
Ms Taylor: Sorry if it does not.
Q124 Paul Flynn: Perhaps you could give
us some more on this.
Ms Taylor: Of course.
Q125 Joan Walley: I am slightly struggling
with the need for investments, which may not have been apparent
at the start of the periodic review however many years ago and
which has come up very quickly on the radar screen, perhaps in
relation to the serviceability of pipes for example, which might
prevent pollution in one way or another. I am not exactly sure
in relation to the sequencing of the need for action and getting
that into the long-term periodic review and whether more could
be done to get greater flexibility so that we could all sign up
to an environmental inspired programme that would be fit for purpose
as far as the water companies were concerned and also as far as
the needs are concerned, where there clearly are ongoing problems;
but because we have missed the boat, we have had to wait a very
long time to get the next boat, as it were.
Ms Taylor: I think that what we
are both saying is that the chunks of five years may have been
appropriate in the beginning when the industry itself had to do
the work and could put its arms around the work in terms of if
it was our responsibility; but now, as we look forward to more
complex circumstances, and we look at the time frames that are
coming in for other directives—the Water Framework Directive,
the Revised Soil Directive and so on—we are looking at time
frames that are quite, quite different from the periodic review
type frames. We are going to need to find a more flexible way
of going forward and a way that is transparent and has the confidence
of stakeholders.
Q126 Joan Walley: Do you feel that that
is being taken care of, and in the sequencing of how things fit
together there is a framework in which you can do that; or what
needs to change for that to happen?
Ms Taylor: I think what we fear
is that when we get towards the end of the current process, when
prices have to be set, we will then see there are still some issues
unresolved and we will have to attempt to agree with the Economic
Regulator and in discussion with the Environmental Regulators
as to how these issues, which will be outstanding, should be resolved.
We do foresee that that will be a challenge.
Q127 Mr Challen: With customers nationally
£434 million in debt in the last financial year could you
tell me if there are regional variations in levels of debt between
Northumbrian Water and South West Water?
Ms Taylor: Yes, there are differences
company by company. I am afraid we do not have the actual figures
with us but we could let you have that information.
Chairman: That would be helpful.
Q128 Mr Challen: Could you give us a
brief description of why that might be the case, these variations?
Mr Jones: I am not sure about
the regional variation. I think it is clear that the rising level
in customer debt is an issue in all regions to a greater or lesser
extent. We are going to see that having an impact on bills going
forward. Just last year we had an interim price increase in the
North East and about half of that was due to increases in customer
debt since the ban on disconnection, so it is a significant issue.
Historically our levels of debt have not been particularly high
but it is a growing issue and regardless of the starting position
it is increasingly a significant issue round the country.
Ms Taylor: It is a relatively
small number of people but the relatively small number of people
is getting more into debt. As far as the companies are concerned
for the people who cannot afford to pay they have a range of payment
schemes to try to help people, a charitable trust that was set
up, there are free phone help lines, and so on. If you are a customer
who is not paying, if your bills are increased next year you are
going to continue to be a customer who is not paying and that
debt will increase. Whilst we are talking about an increasing
problem in terms of the amount owed we do not know yet whether
it will be an increasing problem in terms of the numbers of people
who cannot afford to pay. It is something that I have written
to the Secretary of State Margaret Beckett about and it is something
that we very much want to engage with her on and with consumer
groups as regards people's ability to pay.
Q129 Mr Challen: This is a major issue
in the periodic review as well, is it?
Ms Taylor: We believe it is an
issue that we should as a responsible industry want to address.
It is something that we cannot address alone. There may well be
some social issues that Government could help with. North of the
border it is dealt with in a different way from south of the border.
Q130 Mr Challen: It does sound like an
affordability issue, what can the Government or Ofwat do to help,
have you put forward any specific proposals?
Ms Taylor: We have talked to Government
about measures they might be able to introduce, ways in which
we might be able to help customers through social security, and
so on. We have looked at a raft of possible measures and we are
continuing to have discussions with Government departments on
that. I am pleased that Margaret Beckett has said that she specifically
does want to engage in looking at this.
Q131 Mr Chaytor: If I just can add to
that, is there any evidence that the level of debt varies according
to householders who are on meter or paying according to the ratable
value of their house? Is the method of calculating the bill a
factor in the level of debt?
Mr Baty: I do not know about that
relationship but one of the options we do when people are on an
unmeasured arrangement and getting into debt if it is going to
be cheaper for them to have a meter, to get them on to a meter
as soon as we can. I am not sure on the relationship, I will have
to look that up.
Q132 Mr Chaytor: The implication of that
advice is that those on unmeasured bills save money with a meter,
the implication of that is that the ratable value system is a
regressive system, it is more expensive for poorer people.
Mr Baty: It depends on the individual
circumstances, it is not a clear-cut arrangement.
Q133 Mr Chaytor: How do you feel about
that as the basis of the system? Do you feel that the ratable
value system provides a fair bill in relation to the typical consumption
of different kinds of properties?
Mr Baty: It is up to individuals
to choose on that basis. Customers who think they are going to
save money by using a meter switch over to a meter.
Ms Taylor: If they are wrong they
can have it taken out after a year if they are not satisfied.
Mr Baty: It will depend on individual
circumstances as to what is the most appropriate way of paying.
Q134 Mr Chaytor: Would the general approach
of water companies be to make up the shortfall as a result of
debt through this interim charge or would you also consider making
cuts, and if that were the case would the environmental aspects
of your work be the first target?
Mr Baty: Once we have the regulatory
contract for the five years we are obligated to deliver the output,
and that is what we monitor on an annual basis, and it is monitored
very assiduously. The option for not delivering is not something
that is open to us because, quite rightly, the Regulator will
take issue if we have not delivered an output he believes within
the five year contractual arrangement we are obligated and have
been funded for. If the change to that funding stream is affected
by circumstances outside our control then there is the opportunity
to go back to the Regulator and explain to him the background
and he will take due process and he will make an adjustment if
necessary.
Mr Jones: Part of that scrutiny
will be to satisfy himself the companies have done everything
they could to manage the debt position.
Q135 Chairman: Picking up on the final
part of Colin Challen's question, there is a feeling amongst some
that when there is pressure on budgets, when the Government is
looking to keep bills down it is always the environment that gets
itself into the firing line first, is that an impression you share?
Ms Taylor: I think it is an impression,
how accurate this is we are not sure. We do not want to demonise
spend on the environment but if you took a red pen to the whole
of the environmental spend you are still going to see prices rising.
It would be wrong to say that the only problem with all of this
beautiful system is the environment, it is not. As far as we are
concerned the environmental spend should be considered fairly
and sensibly along with all other aspects of the spend.
Q136 Chairman: It is as important. Thank
you very much and thank you for your evidence and also your written
evidence.
Ms Taylor: Thank you very much.
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