Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 20-39)

Wednesday 17 March 2004

Mr Philip Fletcher, and Ms Sue Cox

  Q20 Jon Cruddas: A suggestion came out here in recommendation E on page 8: "The industry or individual companies could achieve this by instituting a long-term programme (over perhaps 25 years) of surveys of a selected sample of different types of sewer."

  Dr Emery: In principle, that is what the asset inventory does, in a sense, after another four or five surveys. But the issue really is whether or not you do a complete new statistical study or whether you have a cohort of sewers that you continue to look at every five years. Over a period of time you will be able to detect whether or not there is a systematic rate of deterioration. That is where, in a sense, we are looking at a proportion of the sewers that they are looking at as a common proportion throughout these asset inventories. We are looking at the viability of that with the companies, and there is research going to be undertaken on that once we have this particular review out of the way. The issue at the moment, of course, is that the companies' plans are being based on use of the common framework, which looks at where they are, tries to identify the level of risk that they incur in doing the job of maintaining the services and what are the best intervention options to take in the sewer network to maintain the integrity of the system. This type of information would help long-term planning. Five-year planning is much more about the steps that are optimal to take in the next five years.

  Q21 Jon Cruddas: That was one thing that came out of the Report in terms of how I read it. The other one was the one that the Chairman touched on, how it interrelates with the dynamic of the housing market and future growth trends and, for example, the Government's plans around sustainable communities and the like. One thing that comes out of this is that, again, in the NAO language, there may be the need for more robust assessments of future demands on the networks. If you look over and above the common framework, if you look on page 30 at paragraph 3.11: "The common framework will provide more robust assessments of the capital maintenance needs but may need to be supplemented"—again, note the language—"by reviews of the need to increase network capacity in some areas." I just wondered more generally at what stage in policy development do you start plugging into some of the debates around new communities, sustainable communities and what is your role at an early deliberative stage in some of those discussions? I am MP for Dagenham, for example, so we sit right in the middle, and the smallest borough in London is planning some 25,000 new properties over the next 10-15 years.

  Mr Fletcher: I would not be surprised, though I have not made a specific study of the issues in Dagenham, to find that the problems of sewer flooding which your constituents may experience are due at least in part to the fact that new development has a pretty well absolute right to join the sewerage network. And therefore, those of your constituents living at the bottom of hills at important junctions in the sewerage network may well find that a sewerage system which was perfectly adequate when it was designed for what it was then required to carry has been over time and will increasingly in the future be subject to intolerable strain. There is a significant issue, which has been canvassed in some of the seminars that we have held on this, on whether there should be a continuing absolute right to effectively put problems on your neighbour down the hill by joining in.

  Q22 Jon Cruddas: Given that finite ability of the present system to deal with incremental housing, when you are talking about real qualitative shift in the proposed nature of housing, at what stage do you fit into those policy discussions? I see from appendix 2 that you are not statutory consultees.

  Mr Fletcher: No, nor would Ofwat want to be. There is, again, a live issue on whether the water and sewerage companies should be made statutory consultees, with several of them saying they should, helpfully, as part of the planning assessment, bring their expertise to bear. Not just on the issue of sewers and their capacity but, perhaps even more important, on the issue of supply of drinking water. Others of them say they would be looking at a lot of material, most of which they would not have anything in particular to contribute to, but at any rate, I think probably all would agree that it is good practice for a planning authority to consult with the water company and sewerage company when major new development is in train. I know that there have been discussions following the announcement from the Deputy Prime Minister with the companies and with the regional planning authorities and local authorities about the implications of the major new sustainable communities, all of which, though understandably, are in this very dry corner of England. So it is very much a live issue. Something can be done and various propositions are put forward, including the possibility of mandatory metering, and of building houses in a way that is good for the environment, uses minimal water and creates minimal waste water. All that we can do as individual householders is important but certainly when we are talking about major new communities, water in the future must be a key issue to think about.

  Q23 Mr Allan: I want to come back to an issue the Chairman raised, about the impact on individual customers. Particularly with reference to paragraph 2.4 on page 20 of the Report, it would seem to me to paint a frightening picture of what I would call absolutely classic blight on a property, which is that you have a property, it floods with sewage, and you cannot seek compensation from the water company because paragraph 2.5 goes on to tell us that Thames Water has established in the House of Lords that they do not have to pay compensation for damage to the property, only for loss of service, and you cannot get insurance cover. I just wonder, in the sense of being the body that is there to protect the customers, I assume, whether you can see any potential solution to that situation.

  Mr Fletcher: You have raised a number of issues there, and I will tackle them in turn. First of all, the issue of blight. That clearly does weigh with customers. When I have talked to people who have suffered sewer flooding, it is something that does concern them and may be one of the factors which almost certainly means that the less serious events, the external flooding, the sewage at the bottom of your garden—nasty enough—is not reported at all regularly by customers to their sewerage company. Partly because they are worried about what this might do to property values, and for not dissimilar reasons, I think it is one of the difficult balancing issues for companies when they are compiling their at risk registers. Once a property is on the at risk register there is clearly a potential blight issue there.

  Q24 Mr Allan: Who can access the at risk register?

  Mr Fletcher: It is pretty well publicly available. It would be available for solicitors' searches. I am afraid I do not know the answer to whether it would be in the new house-buyer's pack, but it is the sort of thing that you would expect perhaps to see there. If you had a solicitor doing a rigorous job, they would certainly pick it up.

  Q25 Mr Allan: You could sue your solicitor if he failed to pick it up?

  Mr Fletcher: I suspect so, in the current litigious environment, and perhaps not unfairly. The at risk register means "at risk". It is not just a list of properties which have suffered sewer flooding. After all, thousands of properties are being removed, thank goodness, even over this five-year period, and hopefully more in the next five-year period, as the companies make progress in removing properties from that register. But it is also meant to look at those which have not flooded and yet might flood, but it must not be too all-encompassing for fear of unwarrantedly putting blight on people's homes. So it is quite a nice balancing act. You raised the issue of insurability. This is something which clearly both the Association of British Insurers and we are concerned about, and we have been talking to them. Their view is that there does not currently seem to be a widespread problem in practice, I am glad to say. It is part of a much wider issue on the insurability of a property subject to flooding from rivers following heavy rainfall, which we experienced particularly in not the last winter but the two winters before that.

  Q26 Mr Allan: The position there is that it is entirely at their discretion whether they choose to insure or not insure a property.

  Mr Fletcher: I think if they were here—and obviously I must not try to give their exact words—they would say insurers feel that they do have a responsibility towards their customers, and therefore they would normally stick by the customer but, of course, the customer may start to experience problems with the premium going up. The issue then is whether there is a competitive insurance market, and in general I think there undoubtedly is, even to properties which have suffered one unpleasant event. Certainly if that event is a blockage which there is no reason to think would be repeated, then I do not think there is a problem at all. For a property which is subject to repeated problems of sewer flooding, and the flooding in that case is due to hydraulic overload of the sewer, the thing that will put it at risk and mean it may well happen again, then there could be the odd problem. I certainly cannot say that there is no problem, and we need to keep working on this issue, which is one of the reasons why it is important that companies continue to get properties off the at risk register.

  Q27 Mr Allan: Going back to my colleague's comments earlier, you talked about the situation of, say, people buying a house. In a sense, the search can find out whether something is at risk or not, but you could buy a house at the bottom of a hill in Dagenham, they might build 500 new houses at the top of the hill, and your house can start to flood with sewage on a regular basis and you can lose your insurance and be completely blighted, and at the moment it seems as though, if Thames Water does not fix the sewerage pipe, there is nothing you can do.

  Mr Fletcher: If it were an issue as big as 500 homes at the top of the hill, I would expect Thames Water to be looking to the developer of those 500 homes for a very significant contribution to the cost of the additional sewerage capacity that will be needed to cope with that very significant additional development. The problem tends to arise much more with a couple of homes, a large bit of hard-standing for the new Tesco, and a series of other incremental things which eventually push the sewerage system beyond the point where it can cope, and especially if, as still tends to be the case with most of the older sewerage, it is an asset which both takes the sewage and storm drainage away.

  Q28 Mr Allan: From the customer's point of view—and we have all dealt with these as constituency cases—often when that happens their experience is that they get stuck with everybody blaming each other. The local authority is blamed for not clearing the gulleys, the housing developer is blamed for building the houses, the neighbours are blamed for something they have done, and you have this poor customer stuck in the middle, and what they want is for the water company to give them a service that is going to work year in, year out. It does not seem as if the teeth are really there to insist on that. A lot of this is about saying it would be too expensive to guarantee a perfect service, therefore tough luck.

  Mr Fletcher: There is always this rather hard aspect that someone has to pay for this in the end, and we cannot do it all at once so it is very important to prioritise, to recognise that this is an unacceptable event and to make progress in dealing with it. But I too could match your stories from talking to people who had to go round to their neighbours three streets away, where the new pumping station was to be put to deal with their problem, to help convince them that this little pumping station, buried beneath the surface, was somehow not a blight on those who were not affected by the sewer flooding at all. So there are these issues. There are also issues which are very intractable and difficult to get into where there is uncertainty about who is responsible for the flooding. Parliament passed the Water Act at the end of last year, which has yet to be brought into effect, which included provision for the adoption by the sewerage companies of private sewers, which affect some constituencies more than others. Clearly, if the Government requires the sewerage companies to adopt those private sewers, which I bet are for the most part in much worse condition than the public sewers which the companies have been working on for the last 15 years, we will have a whole new crop of problems.

  Q29 Mr Allan: Can I just confirm that the water companies have the statutory powers to insist that developers pay towards sewerage systems?

  Mr Fletcher: Yes, but there is always a lively debate about just how big the load is. We certainly look to them to push and to ensure that they get every penny, because otherwise the customers have to pay as a body, but the developers ought to be paying for new development which puts strain, whether on drinking water or on the sewers.

  Q30 Mr Allan: Did you take a view on the Thames Water case? It seems to me that if water companies did end up having to pay compensation for repeated flooding, that would provide quite a strong incentive for them to sort it out and, without that, it is hard to see where the incentive is.

  Mr Fletcher: Could I take that in two parts? First of all, there is this important case, Peter Marcic v Thames Water, where the Court of Appeal took the view that Mr Marcic, who had suffered not internal sewer flooding within his home but repeated and nasty episodes of external flooding to his surroundings, was entitled to compensation under the law of nuisance, under the common law. There was also an issue of whether the Human Rights Act applied. The Lords in their judicial capacity effectively reverted to what everybody had previously understood was the state of the law. These are assets effectively providing a public service, where you cannot do everything at once, and where an individual customer holding up his hand and saying "Me first" is liable to create an awful lot of confusion about priorities. The view of the Lords was not that this was unimportant, as I read it—on the contrary; it is very important—but there are avenues which Parliament in legislation has created and which actually put a significant responsibility on Ofwat, on me as the Director General, to ensure that the companies are properly carrying out their duty of securing effectual drainage of their area. At each five-year price review period working with the companies and with the customers to ensure that we are taking proper account of this nasty event and making steady progress in eliminating it. I do hope that when I get the final business plans from the companies I shall find myself able to put significant further pressure on reducing these at-risk properties.

  Q31 Mr Allan: My final point is on that. We see in the Report here that Thames Water, in particular, managed to remove 10,000 at risk properties. Page 17, paragraph 1.21, explains that you put requirements on the companies to get rid of the at-risk properties but one way to read that is to say that a removal of 10,000 properties from Thames Water's register looks a bit like cooking the books. I wonder whether the incentive really is reducing the number of properties at risk or reducing the number that are declared to be at risk.

  Mr Fletcher: We look very hard at a company that says "At a stroke, we have solved our problem" by just eliminating properties on definitional grounds. Having said that, there are the real issues, some of which I outlined earlier, in ensuring that at risk means at risk, that you do not have properties there where the risk has been dealt with by improvements to the sewerage system. You constantly update it. You make sure you have not included properties on the basis of inadequate hydrological modelling which may identify properties that are not really at risk of being flooded given the particular configuration of the sewerage. So we, so to speak, did not object, but I do not believe that the industry can take huge credit for the substantial dip in the figures that you see between the years 2000-01 and 2002.

  Q32 Mr Allan: Are new properties being put on in the kind of circumstances that we have described, for example, in Blackburn, where you described the properties that appear to be at risk now?

  Mr Fletcher: They will be assessed on whether this was blockage, a one-off problem that will not be expected to recur, or rather the identification of a problem that could recur and which would result in new properties being added to the register. This is a treadmill where we shall never get to the end, but hopefully we shall yet find ourselves making steady progress.

  Q33 Mr Allan: You are confident you have not got one of these targets problems, where you set a target, they meet it, it does not necessarily have any bearing on reality but they are the figures you have asked them to send in?

  Mr Fletcher: We have a dilemma. Our constant push for all our targets is to be looking at outcomes, not merely outputs. If we took an outputs target and left it at that, we would say to the companies "Right, solve X problems for Y pounds over the five years." In our view, that would not be good enough. It would be human instinct for the companies to do all the cheapest ones first. They do tend to do that, though we insist, and to be fair, they also take care to try and prioritise so that they are not just doing the cheap ones, but they are also doing the nastiest ones, even if they are expensive. But we also look to them in terms of outcomes to be showing that they are making progress along that treadmill, that is, they are not just saying, "Aren't we good? We have solved 3,000 problems." They are saying, "We have made real progress against consistent definitions in reducing the number of properties at risk within our area."

  Q34 Mr Jenkins: Mr Fletcher, when you saw the NAO Report, were you surprised? Were you pleased by certain parts and disappointed by others?

  Mr Fletcher: I quite welcomed the title. This is an issue which all too readily can be forgotten. If the NAO and the Comptroller & Auditor General in their wisdom had put a question mark at the end of this title, I would have thought, "Well, I always accept the fairness of the National Audit Office but perhaps that is a bit harsh." What they have actually done is to say out of sight, certainly; not out of mind. This is something we could forget about, we have not forgotten about it, and we are looking to make real progress in dealing with it.

  Q35 Mr Jenkins: I do not think we are harsh in this Committee in any way, shape or form, but we do ask certain questions. One of the things I was surprised at was the reference you made to storm water going into sewerage systems. I thought we had stopped that years ago.

  Mr Fletcher: In terms of major new development, we have. For example, the sustainable communities to be created under the Deputy Prime Minister's policy initiative I have no doubt will separate out storm water from sewage, and those who dwell in those communities will be the better for it. But it is extraordinarily hard retroactively to fit whole new sewers in to carry storm water away. As every member of the Committee knows, there are enough issues about water companies digging up the streets to cure leakage in the water mains, to repair water mains, to deal with sewage problems.

  Q36 Mr Jenkins: For 50 years we have separated storm water from sewage, have we not?

  Dr Emery: No, I am not certain about that. It tends to rely a little bit on practice in the individual companies whether or not it is feasible in the particular circumstances to separate it or not. The majority of the system is a combined system. Of course, road drainage tends to be separated. There are some elements of surface water which are separated, but still a substantial proportion of the system is primarily a combined system where the rain water coming off properties goes in with the other.

  Q37 Mr Jenkins: I understood historically the need for rain water to go down and flush the system through, which may be a good thing, but with the new Tesco car park, an area of a couple of acres of hard standing, I should have thought that most of that would have gone into a storm water system rather than a sewerage system.

  Dr Emery: No, a lot of that will go into a separate system, and of course, the question these days would be for it to be a sustainable urban drainage system where in fact it percolates down into the groundwater without actually going into pipes. That is the favoured route, but you are still left with quite a large number of houses, paving areas, building conservatories, increasing the impermeable area on the property which when it rains it gets into the sewers. The issue at Dagenham may well be that people building conservatories, building hard standing, is creating more run-off straight into the sewers, which cannot cope when you get a big storm event.

  Q38 Mr Jenkins: It must vary across the country, but in my part of the world no storm water has gone into the sewerage system for more than 50 years. It is too expensive to operate a sewer system, and we have become quite good at natural drainage. I love the idea of this one-in-100-year storm. It has happened three times in the last 10 years. I do not care what happened in the last 90 years. I am more interested in what is happening today when I see different parts of the country having summer storms, when the system cannot cope and it looks as though it is becoming more regular and in the same places time and time again. Have you taken that into consideration?

  Mr Fletcher: The shorthand writer will not have been able to put my vigorous nodding on the record, so can I put it on the record now? Of course, any customer who experiences this is going to find it intolerable, and will not be put off just by being told it is a totally exceptional event. I think that is a fact of life. Some will be totally exceptional events, and it would in my view be wrong to expect customers as a body to be paying over the odds for huge tranches of concrete that is not strictly going to be needed except very exceptionally. But in the sort of circumstances you have postulated, where it is quite clear one in 100 was wrong, it is not one in 100, the sort of climate change event we were talking about—and I could have added that the Association of British Insurers is also concerned about this sort of evidence—will mean that the companies and the regulators need to keep a close watch on past assumptions, which may no longer be valid, and to react accordingly.

  Q39 Mr Jenkins: I would also like to revisit your comment with regard to an automatic right of developers to join the existing system. Planning committees consider roads, and road development might have an automatic right to join the road system. But they are refused if the road system cannot take the extra traffic generated, and planning committees do that quite regularly. If you are saying they do not consider this in relation to water companies and the sewerage system, would you like to see that as part and parcel of the statutory obligations on planning authorities to undertake that assessment?

  Mr Fletcher: I would certainly like to see planning authorities, and of course their officers, more regularly—and again, I think this particularly applies to drinking water more than waste water, even though the latter is very important—considering in the dry South-East what the implications of the new development are for this essential to life.

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