Memorandum from the Public Utilities Access
SUSTAINABLE DEVELOPMENT, THE ENVIRONMENTAL
PROGRAMME, AND THE AFFORDABILITY OF WATER
Founded in 1989, the Public Utilities Access
Forum (PUAF) is an informal association of organisations that
helps to develop policy on the regulation of the public utilities
providing electricity, gas, communications and water services
in England and Wales. PUAF facilitates the exchange of information
and opinions between bodies concerned with the provision of those
utilities to consumers with low incomes or special service needs,
such as the elderly and people with mental and physical disabilities.
It draws the particular problems of such consumers to the attention
of the industries, the regulators and other relevant bodies, promoting
the adoption of policies and practices that cater for their needs,
exchanging information about service provision and promoting research.
The difficulty that a significant number of householders
face over paying for water is long-standing. Because of increasing
charges and burgeoning water debt this difficulty is now coming
to the fore and requires reconciliation with the water industry's
rightly ambitious but costly environmental programme. Our institutional
and procedural arrangements for managing this reconciliationfor
"doing sustainable development"are unsatisfactory.
In addition to recommendations the Committee may wish to make
to deal with the difficulty encountered in the present Periodic
Review, we invite the Committee to consider recommending that
Ministers establish procedures for securing sustainable development
in a routine and considered fashion. We draw attention to some
measures that might in the longer term be available to remove
the affordability obstacle to achieving environmental protection.
1. In submitting evidence to the Environment,
Food and Rural Affairs Select Committee enquiry into water pricing,
the Public Utilities Access Forum concluded that between two and
four million householders in England and Wales could not afford
their water charges, that no effective measures were in place
to assist them, and that the increases in charges anticipated
as a consequence of the Periodic Review would significantly worsen
their water poverty.
2. Noting your Committee's concern that the environmental
programme should not fall victim to inappropriate considerations,
we would think it unfortunate if the present stage of the Periodic
Review were to be seen as a contest between environmental and
social objectives. We take it as axiomatic that the "three
pillars" of the Government's sustainable development strategyeconomic,
social, and environmentalhave to be accommodated together
for our water services to be sustainable.
3. Our institutional arrangements for achieving sustainable
development are underdeveloped and we illustrate this in the diagram
below. The upshot is that we presently lack the facility to settle
the current impasse in the Periodic Review in a satisfactory wayit
looks set to be the kind of contest we deplore. The arrangement
in which Defra, the Department with environmental responsibility,
has lead responsibility for sustainable development cannot be
considered satisfactory. As well as being effectively leaderless,
the sustainable development enterprise has no institution that
it can look to to champion social protection, in the way that
Defra and other bodies represent environmental concerns and Ofwat
carries the torch for economic considerations. There is the no
place at the table for social protectionin fact, there
is no table either!
THE ABSENCE OF INSTITUTIONAL REPRESENTATION
FOR THE SOCIAL DIMENSION IN SUSTAINABLE DEVELOPMENT
Drinking Water Inspectorate
English Nature Countryside Council for Wales
4. Anxiety about the affordability of water that the
Environment, Food and Rural Affairs Select Committee has expressed
has taken the Periodic Review by surprise because the industry
regulator has over the years steadfastly declined to be drawn
in any meaningful way into social protection concerns, and in
addition, because Government, in movingcorrectlyto
abolish disconnection for non-payment of charges, failed simultaneously
to address the question of the affordability of charges. Dedicated
provision for water charges in the social security benefit that
preceded income support has been discontinued, and the water charges
capping arrangement known as the Vulnerable Groups Regulations
has been blighted by the double weakness of being far too narrowly
drawn and by a virtually total failure of take up. In consequence,
so far as the water sector is concerned, sustainable development
has neglected the social dimension and has limited itself to dealing
with environmental sustainabilitystill indeed a common
understanding of "sustainable development".
5. A key device that is in theory available to ministers is the
opportunity afforded by the 1999 Water Industry Act to offer guidance
to the regulator on approval of company charging schemes. Prior
to the implementation of new charges in April 2000, the Government
set out its concerns, stressing fairness and affordability, and
dwelling on the burden that water charges were to low-income consumers.
The Government emphasised its enthusiasm for "social tariffs".
Yet once again, the regulator proved unwilling to countenance
social considerations in his economic regulation of the industry,
and the initiative failed.
6. In the present review, the neglect of social protection is
apparent in the Secretary of State's Initial Guidance to the Director
General of Water Services. The Secretary's claim runs, "The
Government's policies for the water industry embody the principles
of sustainable development, covering economic, environmental and
social aspects" (introduction). But whereas "The water
environment" gets a section to itself, social protection
creeps in anonymously in a sweep-up section at the end, perhaps
as "Water charging", trailing along after "Sewer
flooding", "Odour and nuisance", and other matters.
The sub-section about water charging starts off boldly enough:
"Policies affecting water price limits must take account
of the need for essential water services to be affordable"
(7.7.1.). But the critical issue in affordability is non-payment,
and this is addressed as follows in the sub-sub-section "Customer
The Government believes that customers should pay their water
charges and that companies are entitled to recover those charges.
The Government will consider ideas from Ofwat or the water industry
for changes to help achieve this. However, the Government remains
committed to the view that no-one should be deprived of water
services in their home essential to their life and health because
of an inability to pay.
The proposition this amounts to is as follows:
Your water will not be cut off because you can't afford your
bill; however, we think you ought to pay and we will consider
together with the regulator and industry ways of making you pay.
This is the stuff of satire and cannot be expected to encourage
the regulator to enter the field of social protection.
7. Difficulties over affordability are not new. In a report Paying
for Quality, published a decade ago, the then water regulator
examined the affordability of water services to low income consumers
amidst anxiety about the cost impact of new obligations contained
in EC Directives. For householders residing in areas with high
water charges the forecasts for income support claimants were
for burdens approaching 10% of income for single parents and 14%
for pensioners. The surfacing of the long-standing issue of affordability
at the present time may be attributable to its emergence as concern
about debt following the abolition of disconnection for non-payment.
8. There are basically two approaches to affordability questions.
One is to continue the Ofwat declared policy of cost-reflective
charging, ". . . a customer's bill should, in general terms,
reflect the costs which that customer imposes on the water and
sewerage systems . . .", and then devise schemes of income
support or tariff adjustment to deal with affordability. The other
basic approach is to meet affordability head-on and treat the
water industry as better suited to some variant of tax revenue
funding. We presently have the relic of the latter approach in
the three-quarters of English and Welsh householders who pay by
the rateable value link to a now redundant arrangement for local
taxation. Elsewhere in the UK, Northern Ireland has for the moment
wholly tax-based industry funding; Scotland links charges with
householders' council tax valuation. For different reasons in
those two countries the arrangements are currently the subject
of review and dissatisfaction respectively. With the burden of
water charges in England and Wales in relation to income of some
consumers already exceeding the average charge in relation to
income by a factor of ten or more, the Committee may wish to recommend
that Government consider whether it remains desirableas
hitherto since English and Welsh water privatisationto
rely so fully on the cost-reflective approach to funding the industry.
The question is undoubtedly complex, but the array of available
"levers" to satisfy the requirements of sustainable
development is large. One such, which is emerging at the present
time, is the Office of the Deputy Prime Minister's review of local
government funding. A re-casting of the tax base for local government
funding may offer a full or partial answer to a search for a water
industry funding arrangement that is affordable for householders,
and the Committee may wish to consider whether the ODPM review
might usefully include that consideration.
9. Witnesses to the EFRA Select Committee's enquiry into water
pricing mused about the possibility of the cost of environmental
obligations being met out of general taxation, and the collective
nature of the benefits of environmental protection gives this
suggestion force. We are aware that the supporters of cost-reflective
charging consider full cost recovery desirable. Nevertheless,
it is our understanding that Article 9 of the Water Framework
Directive (Recovery of costs for water services) is not inflexible,
and if it agrees that the limits of cost reflective charging for
water have now been reached, relaxation of the full cost recovery
principle may be something the Committee would wish to consider.