Select Committee on Environmental Audit Written Evidence


Memorandum from the Public Utilities Access Forum


  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 reconciliation—for "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 strategy—economic, social, and environmental—have 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 way—it 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 protection—in fact, there is no table either!





Environment Agency

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 moving—correctly—to 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 sustainability—still 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 debt" (7.7.10.):

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 desirable—as hitherto since English and Welsh water privatisation—to 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.

February 2004

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