Memorandum submitted by 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.
SUMMARY
1. On a test of affordability derived from
the Government's fuel poverty strategy, between two and four million
householders in England and Wales cannot afford their water charges.
The households most affected are those living in areas where charges
are high, and those receiving means tested social security benefits.
2. A number of initiatives are in place
to address water poverty or have been considered, but none has
been successful. In particular, the Labour Government's attention
to benefits provision has not been sufficiently redistributive
to make water affordable to all.
3. The number of households unable to afford
water would increase significantly if prices were to rise by the
levels announced by companies in their draft business plans.
EVIDENCE
Affordability
4. The UK Fuel Poverty Strategy declared
that 10% of a household's income is the maximum people can reasonably
be expected to spend on fuel. Thus, for any individual household,
it is possible to say whether or not they are experiencing fuel
poverty—whether or not fuel is affordable.
5. The "poverty line" for fuel
was established by examining the expenditure on fuel of householders
in the lowest three income deciles. At the time the enquiry was
undertaken in 1988 it was found that taken together those households
spent 10% of their net income on fuel. Applying this method to
water charges, it has been found that the corresponding threshold
for water is 3%: that is the amount that, in aggregate, the lowest
three income deciles spend on water. Equipped with that figure,
it can readily be ascertained whether water charges for a particular
household are affordable by expressing them as a percentage of
their income. The average of all households' expenditure on water
is just 1% of income.
Number of households experiencing water poverty
6. It is not known precisely how many households
face water poverty, in that that they are obliged to spend more
than 3% of their income on the amenity because no relevant data
are available - however, it is possible to suggest what the order
of magnitude might be. The most recent statistic offered by the
Department for the Environment, Food and Rural Affairs in its
assessment of water affordability in the context of sustainable
development is for 1997-98 and shows the proportion of households
in Great Britain spending more than 3% of their income on water
charges to be 18%, or, some 4.3 million in total.
7. In a recent study, analysis of the anonomised
records of 400 households' applications to two water charities
showed that applicants needed to spend on average between 4% and
5% of their net income on water. Additional data allowed comparison
of the profiles of these applicants' water poverty and fuel poverty
and similarities in the distributions of the two "poverties"
suggested that the magnitude of water poverty might be of the
same order as that of fuel poverty. The number of households in
fuel poverty is a matter of controversy at the moment because
of disagreement about the appropriate way to calculate household
income: it appears that something of the order of between two
and four million householders in England and Wales experience
fuel poverty.
Regional variation in water charges
8. Water bills are far from standard items
in household budgeting; they vary greatly depending on where people
live. Twenty-four companies supply water and/or sewerage services
in England and Wales and their charges vary markedly, the highest
being more or less double the lowest. There has been a tendency
for regional differences in water charges to increase during the
period since privatisation.
The water poverty of social security beneficiaries
9. Wherever they live, householders' water
charges have over recent years risen faster than social security
benefits. The affordability of water for people who have a safety
net social security benefit income is readily examined, in notional
terms, by taking average water charges and comparing them with
published benefit rates. Table 1 shows the proportion of their
income that the very poorest benefit recipients in England and
Wales are obliged to spend on water. It is notable that all but
three of the expenditures shown exceed the 3% threshold suggested
for water poverty. The table also includes categories of householder
paying water bills at twice or more, and in one case four times,
the threshold. This pressure on the very poorest households in
England and Wales would be increased significantly were the presumed
increases in the forthcoming review to come in at the 30% level
indicated by the companies in their recently published draft business
plans. The figures in brackets in Table 1 show the proportion
of income taken by water charges increasing (except for one case)
by between one and four percentage points.
Table 1
WATER BILLS AS A PERCENTAGE OF SOCIAL SECURITY
BENEFIT INCOME, 2003-04 (%)
| Jobseeker's Allowance—single person £2,841.80 pa
| Jobseeker's Allowance—couple
£4,459 pa
| Minimum
Income Guarantee—single person £5,309.20 pa
| Minimum
Income Guarantee—couple
£8,101.60 pa
|
Average combined bill—
South West Water (highest charging company) £342 pa
| 12 (16) | 8 (10) | 6 (8)
| 4 (5) |
Average combined bill—
Thames Water (lowest charging company £202 pa
| 7 (9) | 5 (6) | 4 (5)
| 2 (3) |
| Average measured bill £209 (England and Wales)
| 7 (10) | 5 (6) | 4 (5)
| 3 (3) |
| Average unmeasured bill £245 (England and Wales)
| 9 (11) | 5 (7) | 5 (6)
| 3 (4) |
| | |
| |
The figures in brackets show these percentages recalculated
on charges inflated by the 30% average increase announced by companies
in their draft business plans
Water debt
10. Water debt is rising. Data collected by Ofwat over
the last four years show that on nearly all measures companies
have been less successful in collecting revenue from domestic
customers. About a fifth of householders are now in debt to their
company, owing on average £150. The regulator announced in
early October that two companies had asked him to undertake an
interim review of their charges in part because of increasing
customer debt, which has led to higher debt-collection costs and
loss of revenue; following a similar process last year Ofwat increased
price limits for two other companies whose claims had also included
unexpected debt recovery costs.
The abolition of disconnection for water debt
11. Since 1999 householders who do not pay their water
bills can no longer have their supply disconnected. Thus water
"deprivation" does not arise when people cannot afford
their bills—though some with metered supplies may ration
their use, and an unaffordable bill may result in other necessities
being foregone. But to suggest that water poverty is not therefore
a concerning issue is to confine consideration to the material
aspects of water supply. In wealthy Northern societies, "poverty"
is almost entirely a matter of being excluded from the mainstream
of the culture than it is a question of suffering physical deprivation.
It is householders' inability to pay their way in meeting bills
for essential services that is damaging—being able to afford
this most basic need is critical to social inclusion.
12. One view of rising water debt is that it is a consequence
of companies' diminished effectiveness in recovering debt, especially
since their sanction of disconnection for debt was removed. This
view would be that some consumers, having been granted an unconditional
"right to water", had decided not to pay their bills.
However, we cannot be sure that consumers are aware of the change
in the law. Some studies have shown that consumers still think
companies can cut off their water if they do not pay their bill.
But this is not to suggest that the removal of disconnection has
been without consequence. People unable to afford to pay their
bills and at a loss to know where to turn may now be in a position
to procrastinate for longer, all the while nevertheless fearing
the worst.
Measures purporting to address water poverty
13. Five measures may be examined in considering our
collective arrangements to address the affordability of water
bills and these are shown in Table 2. They are benefits and tax
credits, the real-terms water price cuts implemented in 2000,
charitable provision, the Vulnerable Groups Regulations, and social
tariffs. Two points are to be made about these measures. First,
none of them has been effective in eliminating water poverty.
Second, there is a vast difference in the scale of the measures
listed, so much so that it is almost misleading to group them
together. The assistance to people who often do not know how they
are going to make ends meet has been immeasurably greater through
improvements to benefits and tax credits arrangements than through
the water price reductions; and those price reductions similarly
dwarf charitable and Vulnerable Groups provisions. The benefits
and tax credit measures are effective—if the language may
be forgiven—in redistributing the affordability of water.
But massive though they are in relation to their companion measures,
they have nevertheless been insufficiently redistributive. Furthermore,
none of the measures addresses the regional imbalance in water
charges and last price review's reduction was the first and seems
most likely to be reversed at the next review.
Table 2
VALUE AND CHARACTERISTICS OF MEASURES TO ADDRESS WATER
POVERTY
| Measure | Annual value (£)
| Addressing | Addressing absolute or relative affordability
| Redistributive? |
| | |
| |
| Benefits and tax credits | several billions
| income | relative | insufficiently
redistributive
|
| Prices | 0.5 billion | price of water
| absolute | not redistributive
|
| Charities | 3.5 million |
income | relative | insignificantly
|
| Vulnerable Groups | 0.2 million
| price of water | relative |
redistributive |
| Social tariffs | nil | price of water
| relative | potentially
redistributive
|
9 October 2003
| 
