Examination of Witnesses (Questions 169
- 179)
WEDNESDAY 3 NOVEMBER 2004
MR MAURICE
TERRY AND
MS ANDREA
COOK
Q169 Chairman: You are extremely
welcome. May I thank you for your written evidence to the Committee.
As MP for the Fylde, can I thank you, Mr Terry, for the way you
have helped me with the odd constituency query, which I have written
to you about. That is much appreciated. You appear today in your
capacity as the Chairman of WaterVoice and the Chairman of WaterVoice
in the North-West. You are accompanied by Andrea Cook, who is
the Chairman of WaterVoice Northumbria. We are delighted to see
you. Let me start by asking you for your overall impressions about
the way in which this particular review has been conducted.
Mr Terry: From a customer perspective,
I certainly think it has been much better than the last review.
Let me say that right from the outset. Initially, it has been
done in a very transparent way with that as the declared objective
of Ofwat. The real thing that has been a distinct improvement
is that at all stages in the process all the stakeholders have
been involved and have participated in the discussions, and that
is something which did not occur at the previous review. As WaterVoice,
we have had particularly effective discussions with, for example,
the Drinking Water Inspectorate, and we have been very close to
them. We have had very useful discussions throughout the process
with the Environment Agency in trying to understand their perspective
and share our perspective with them. I think, from that perspective,
it has been much improved. Also, we work very closely with the
industry. One of the things right at the very beginning that we
did this time, which I think was very significant on behalf of
customers, was to undertake two pieces of market research conducted
right at the outset, if you like to try and set the scenario for
customers and for customer issues. I think that worked very well.
We are perhaps a little less comfortable with the process at the
draft determination stage, which was in August. There were two
particular areas. There is a lot in the draft determinations.
What we have had to do as committees is to try to unwrap that
and uncover whether the issues that customers told us about directly
and in the market research had been addressed. We found that quite
difficult. In many cases we could not get that information from
Ofwat and we relied on the company to do it. We have got there,
and we have made representations to Ofwat about the fact that
we thought at this last stage there was a little less transparency
than there had been at the earlier stage. That is one thing about
the draft determination. The other area—and I will ask Andrea
Cook to say a word or two about this—is about the way the
numbers have been presented.
Ms Cook: Chairman, one of issues
that we have had to look at is the extent to which customers understand
the information that they are provided with. In the majority of
instances Ofwat refers to average figures. Sometimes it is quite
difficult to be an average person. The 17% that is quoted by Ofwat
as being an average bill can, for example, be 29% as an increase
for metered customers in the south-west of the country and 35%
for unmeasured customers. That is quite a distance away from what
is regarded as an average figure. It is a question of us wanting
there to be perhaps more information provided to customers when
it comes to final determinations.
Q170 Chairman: May I just stop you
there because you said you had difficulty with the figures. In
table 1 of your evidence, just explain to me, and I can understand
the difference between the point you were just making a second
ago about the typical measured bill and the typical unmeasured
bill, if this average annual household bill is a national figure.
Mr Terry: The number there is
a regional figure. That is the average for the region.
Q171 Chairman: I see how you have
worked it out. If typically measured is going up by plus 29 and
typically unmeasured is going up by plus 35, how can the overall
average increase be 17?
Ms Cook: This is the point that
we are making. We have given you these figures. We have done the
calculations based on what a typically measured bill is relating
to a customer with average consumption where consumption remains
constant. We have provided this variance, if you like, between
a typical measured bill and a typical unmeasured bill but the
information that Ofwat provides when it gives the draft determinations
within the regions, through its press releases, is this figure
of 17%. Understandably, customers in the region look at this figure
of 17%, and say. "That does not relate to my bill".
Q172 Chairman: Does that include
industrial users as well as ordinary users?
Mr Terry: No, that would be the
household bills.
Q173 Chairman: You are telling us
that Ofwat are saying that in the south-west, in the example you
have chosen, their projected increase over the five years is 17
and, depending on whether you are measured or unmeasured, it varies
between 29 and 35 by your calculation?
Mr Terry: The way you express
it is a little confusing. I think we are just highlighting the
actual point that we are trying to make that the way the data
is presented is confusing. The average bill, which is, if you
like, the total revenue from household customers divided by the
total number of households, rises by 17%. There is no doubt about
that. An average hides a number of impacts. You are able to look
at the so-called typical bill, which is the average consumption
and the average rateable value, and that is the sort of discrepancy
which we find customers have some difficulty in understanding.
We just raise it as an issue about the clarity of the output.
Q174 Chairman: I must admit I am
still a bit lost but I take the point.
Mr Terry: I have to say, Chairman,
that it is not an easy concept and we struggled with it as well,
but I am assured by the calculators that these numbers are actually
right. This is the way they are presented. What we are interested
in really is: what is the customer actually going to see?
Q175 Chairman: Before we move on
to questions of affordability, you were talking about the surveys
that you have done. In your evidence you identify improvements:
capital maintenance, drinking water quality, environmental programmes,
sewer flooding and security of supply. Those are the key areas
which I have assumed you think need attention.
Mr Terry: Yes.
Q176 Chairman: We have just heard
evidence, and you were sitting in so you heard it yourself, from
the water companies, which said that they have now found that
some of these key issues, like sewer flooding, they will not be
able to do. Thames will not be able to stop the water bubbling
up through the road. Their argument is that the determination
is going to be too tough. You argue that these things that I have
just read out are key issues for the consumer. If the consumer
is to be made happy and if the consumer is not to pay too much,
what, in your judgment, has to go into the proposals so that everybody
can have their cake and eat it in this particular case? Something
has to give here. The company says it has to do all these things.
You are saying it is too expensive but you have identified a wish
list. The companies are then saying, "Some of the things
on that wish list which are top of the customer priority tree
we cannot do".
Mr Terry: We actually do not believe
that some of the customer priorities are that expensive. If I
could just come to sewer flooding—
Q177 Chairman: Ofwat does because
Ofwat has chopped out sewer flooding—£900 million.
Mr Terry: Ofwat has chopped out
sewer flooding. The £900 million to which United Utilities
was referring was the total investment package: new build, new
quality improvement, investment, and so on. Part of that was sewer
flooding. If we look at sewer flooding, what we said, based on
our assessment of what customers thought was important, was that
the backlog, about 10,000 properties in round figures, ought to
be dealt with in the next periodic review. Let us get the backlog
out of the way and then let us try and make sure that on an ongoing
basis we can deal with newly arising properties as they arise
and deal with them out of maintenance. That is the approach which
we advocated. We are disappointed that Ofwat has not accepted
that as a target output. It is not for us to say whether the cost
associated with it is fair; that is a job for Ofwat. We are disappointed.
We have not got a national figure. I have looked at the numbers
in the north-west with United Utilities, which they have shared
with me. I would say that the cost of achieving the total programme
they want to achieve is something which customers would be prepared
to bear, even if it would mean a slight increase over and above
their current draft determinations, but an increase at a level
based on what customers have said is important to them and what
they should be prepared to bear. There are other things as well.
They majored, for example but not necessarily in the north-west
region, on issues around colour and taste of drinking water, again
things which are important to customers, which we believe need
to be rigorously examined but do not necessarily cost a lot of
money. I can understand why Ofwat believes they need to challenge
them. In our view, cutting the output is the wrong way to go for
those particular items.
Q178 Mr Drew: Can I be very clear
that your calculations are, as we say, for today's sewer problems
and that the proposals that have yet to come through, which you
are just about to be consulted on as to much more widespread adoption
of private sewers, would be additional sums required on top of
that. Have you done any calculations of what those additional
sums are?
Mr Terry: No, we have not any
calculations. The adoption of private sewers we believe is probably
the direction in which we should go. We do, however, have a little
bit of a caveat around that which says: would you please cost
that and say what it is going to cost the rest of the customer
base before embracing it. We do not know what that number is.
Intuitively we believe it is the right way to go. Before jumping
into new sewer problems, it would be useful if we could get some
measure of what this is costing. Therefore, I think that it would
be useful if there were some independently undertaken study, market
research, to say what customers are prepared to pay for and also
a piece of market research that asks: what is this actually going
to cost?
Q179 Ms Organ: In the earlier answer
to the Chairman we talked about the increase in the bill. We were
told at the first inquiry that we did into price reviews that
between two million and four million householders were having
difficulty and could not afford their water charges. We have just
talked about the average increase, but what that really means
for people in the south-west on an unmetered or metered situation
is that there can be an increase of between 29 and 35%. What evidence
do you have that this draft determination would mean a substantial
number, or maybe not, of people who are faced with the difficulty
of paying their bills, and particularly those on fixed incomes
and on low incomes? Obviously there is going to be a regional
pattern to that. What evidence do you have about that and what
should be done about it? What can the companies do?
Mr Terry: Can I ask Andrea Cook
to say a word about that. Andrea has been leading the thinking
process in WaterVoice around the whole issue of customer debt
and affordability. I would like to defer to her because she is
our in-house expert on that.
Ms Cook: May I say, first, that
WaterVoice really appreciates the fact that the Efra Committee
has taken an interest in affordability. It thinks it would be
fair to say it is only as a result of your recommendations that
in fact a review into that subject matter has been taking place
within government. We do feel that your considerations have given
it some impetus. Perhaps I can pick up on some of the points that
you were making about context. First, you are quite right that
the figure of between two million and four million is approximately
the sort of number that we would be looking at that would be affected
by issues of affordability. Certainly there are 2.2 million recipients
of income support and there are 2.5 million recipients of pension
credits. Whilst you cannot necessarily say that all of those people
will have problems, they are certainly all at risk. You can add
to that number of 4.7 million those people who are working, who
have families and who might also still be on a low income. That
is the part of the population that is at risk. There is a general
perception that water bills represent about one% of average income
for all consumers. You highlighted in your question the fact that
people on a low, fixed income are obviously in a slightly different
situation. We are very mindful of the fact that for that type
of person within the population their bills will be a substantially
higher percentage of their outgoings. In terms of the south-west,
can I give you some illustrations? The average water and sewerage
bill of £357 in 2004-05 represents 6.5% of disposable income
for a single pensioner on pension credit. By 2009-10, that becomes
7.6%. If you are a measured customer, it is 8% of disposable income.
If you are an unmeasured customer, it is 11%. The difference between
one% for most of the population and 11% for some is obviously
very wide. We can provide you with more detailed information about
some of these statistics and calculations to assist you. I can
add into that the wider economic context, the fact that we are
in a situation where we have increases in mortgage rates and council
tax, and we have heard announcements this week about further higher
increases for energy prices, for gas and electricity. Water bills
need to be seen against that background. It is quite clear that
if there are already people who cannot afford to pay their bills,
the prospect of higher prices in all of those areas is likely
to push people over the edge. If you then take into account that
outstanding revenue in the water industry stands at £893
million, and that is without any further increases in bills. As
that represents about a four% levy on those people who pay their
water bills, then we clearly do have a very considerable problem.
I hope you will forgive me for providing that by way of an introduction.
That is the background against which Defra have been looking at
the question of affordability. I would like to say that I think
Defra has approached this positively and constructively, as it
has convened meetings with stakeholders both collectively and
individually. It has also had an across-government steering group,
which I think has created limitations for itself. It has started
from the premise of the people in that group looking at their
own territories and from the concept that not everything is up
for change. In this particular area, we are looking at something
whereby government needs to make radical decisions rather than
just tinkering at the edges. It really needs to recognise that
economic and environmental decisions have social consequences.
In this area, the social consequence is an inability to pay for
water. It does require something really fundamental to change.
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