Affordability
47. The expectation of large increases in water prices
over the next five years and beyond has bought the issue of affordability
into the forefront of discussions over the current price review.
It is an issue that has been raised by all those involved in the
review process including the Regulator. In his letter to the Secretary
of State in December 2003 the Regulator voiced his concerns that
"bill increases will place real pressures on low-income customers".[54]
These concerns have also been raised by WaterVoice and the National
Consumer Council in their memoranda to us. The EFRA Committee
in its report on water pricing published last December concluded
that "people suffering from serious difficulty in paying
their bills should be helped through the benefits and tax credit
system" and that the Government should review this issue.
48. Increasing water prices has meant that water
bills are becoming a significant proportion of expenditure for
poorer households. In the South West Water region, which currently
has the highest water and sewerage charges, average bills have
more than doubled from £147 in 1989-90 to £342 in 2003-04
and according to WaterVoice are currently on a par with standard
gas bills from British Gas and 50% more than standard domestic
electricity bills.[55]
The National Consumer Council highlighted in its memorandum to
us that a pensioner receiving the Minimum Income Guarantee in
the South West Water area will be paying 6% of their income in
water bills and a single person on Jobseeker's Allowance would
be paying 12% of their income.[56]
Furthermore, the forecast increases in prices over the next five
years will significantly affect those on lower incomes unless
benefits are increased to take these into account.
49. We are concerned about the impact water bills
have on water customers on lower incomes, and we are aware of
the shadow that the issue of affordability has cast over spending
proposals, in particular environmental spending. We were therefore
glad to hear the Government's announcement, when it published
its principal guidance, that it intends to review this issue:
" I am concerned about the effects of water
bills, especially on those least able to pay. I will be reviewing
the way in which lower income households are helped with their
water and sewerage charges"[57]
In evidence to us the Minister gave the impression
that the aim was to look at best practice amongst water companies
as to how they helped those less able to pay.[58]
This does not go far enough. The review must look beyond company
best practice and examine options for the Government directly
to help those less able to pay, including by changes to the benefits
system.
50. If those who use water are going to pay for the
costs they impose on the environment, in accordance with the polluter
pays principle, water prices are going to continue to rise
for the foreseeable future. As result there will be an increasingly
large proportion of the population on lower incomes that will
find it difficult to pay water bills. If the Regulator is to continue
to price water realistically, as is his duty, the Government is
going to have to address this issue seriously. We strongly support
the EFRA's Committee recommendation that people suffering from
serious difficulty in paying their bills should be helped through
the benefits and tax credit system.
Affordability and Debt
51. Ofwat's figures show that for 2002-03 customer
debt stood at £781 million. In addition £93 million
was written off during 2002-03. According to calculations submitted
to us by Water UK the cost per customer of debt is currently just
under £10 a year.[59]
This is more than many companies are planning to spend on environmental
improvements and equal to efficiency gains that are expected over
the next five years: and it is a great deal more than the £2-3
per customer per year by which the Regulator was proposing to
cut the environmental programme.[60]
52. Water companies and the Regulator claim that
the main reasons for an increase in debts is the banning of disconnections
of household customers. This claim is not supported by joint research
commissioned by WaterVoice and Ofwat, which found that the ban
on the disconnection of domestic water supplies does not influence
payment of the water bill and that most customers are still convinced
that they can be disconnected for non-payment of their bill.[61]
The research also found that customers tend to pay whoever is
more persistent in contacting them for payment and that customers
and money advisors see frequent billing as a means by which to
raise the profile of the water bill in the household budget. This
would suggest that there are many ways in which water companies
could improve their approach to dealing with customer debt. However
this alone will not be enough unless measures are introduced by
Government to help those less able to pay.
53. We are very concerned at the increasing level
of debt to water companies, particularly as it is higher than
the amount most water companies are planning to spend on environmental
improvements over the next five years. It is unacceptable that
paying customers subsidise bad debt by an average of £10
per year, an amount which is likely to increase as water prices
rise unless the issue of affordability is addressed. This also
results in less money being available for other areas, including
the environmental programme. Water companies must improve the
efficiency of their billing and debt management systems to ensure
prompt payment by customers.
54 Ev70, Ofwat Memorandum. Back
55
Ev127, WaterVoice Memorandum, para 34 (Appendix 10). Back
56
Ev114, National Consumer Council Memorandum., para 6 (Appendix
6). Back
57
Statement from the Secretary of State on the Principal Guidance
to Ofwat, 11 march 2004, http://www.defra.gov.uk/environment/water/industry/review/mar04.htm. Back
58
Q 255. Back
59
Ev63, Water UK, Supplementary Memorandum. Back
60
Q26. Back
61
Paying for Water: Customer Research, Accent Marketing and Research,
September 2003. Back
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