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Water Reform

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Shaun Woodward): Today I have placed in the Libraries of the House copies of the Consultation Report on the Integrated Impact Assessment (IIA) of the Government's proposals for the reform of water and sewerage services in Northern Ireland, known as the Water Reform Programme. This also includes the final Equality Impact Assessment and final Regulatory Impact Assessment.

Consultation on the draft IIA took place from 29 November 2004 until 4 March 2005. As part of the IIA process a number of impact assessments were carried out on the policy proposals, drawing upon available quantitative and qualitative evidence. Assessments carried out included Human Rights, Health, Equality, New Targeting Social Need (TSN), Regulatory impacts and Rural Proofing.

The Consultation Report I am publishing today summarises and responds to the comments made on the various IIA impact assessments and on the Water Reform proposals generally.

The Government have listened carefully to what has been said throughout the consultation period and has noted the substantial level of opposition to the proposals, particularly the introduction of domestic water and sewerage charges. However, the Government have heard nothing to suggest there is a realistic alternative to the Water Reform Programme which is needed urgently to:

The Government have not heard a realistic alternative to increasing what people in Northern Ireland pay in local taxes and charges, compared with the position in Great Britain, as a vital step that must be taken if Northern Ireland is to have world class public services. In Great Britain average household contributions (including water bills) are £1,200–£1,300, whereas in Northern Ireland they are £550. The Government therefore remains committed to the introduction of the Water Reform Programme but, in response to the consultation, with revised or new policy in two key areas.
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The strongest criticism of the original proposals was that the new domestic charges would be neither fair, nor affordable, particularly for those on low incomes.

The Government understand these criticisms. The introduction of the new charges has been deferred until April 2007, partly to allow more time to ensure change is properly managed. However in view of their impact, the Government still intend to phase the new charges in over a three-year period, with households paying one third of the full charge in 2007–08, two thirds in 2008–09 and the full amount in 2009–10. The changes to the non-domestic charging regime will be introduced on the same basis.

Water and sewerage services in Northern Ireland are not yet of as high a standard as those in England, Scotland and Wales, reflecting the lower levels of investment over many years and lower levels of efficiency. The gap in standards is being closed rapidly in Northern Ireland with new investment of £1.1 billion in the period 2003 to 2008. However, in recognition of the gaps that remain, and the burden that the introduction of the new charges may cause, the Government intend to set the new household charges during the three year period to 2009–10 to achieve the average level of charges that will apply in England and Wales in 2009–10. A detailed charging scheme will be published in late 2006. A first Periodic Price Determination conducted by the new Economic Regulator is planned to be concluded in 2009. This Determination will set tariffs for 2010–11 onwards.

The three year phasing-in period to 2009–10 will provide an opportunity for the Government-owned company (to be known as Northern Ireland Water Limited) to continue the delivery of the ongoing investment programmes that should bring services up to necessary standards both in terms of water quality and wastewater treatment. Progress has also been made in the past three years to improve efficiency levels. However there remains a gap in comparison with performance in England, Scotland and Wales, reflecting the exposure of companies in GB to commercial pressures and their greater freedoms and flexibilities. The three-year transitional period will allow the company time to deliver a demanding efficiency programme to bring down substantially the cost of water and sewerage services in Northern Ireland in line with best practice in Great Britain. This will be a major and testing challenge for the new company and its workforce.

A Strategic Financial Review has been completed to provide advice to Government on issues such as the company's financial structure, efficiency, corporate governance and regulatory arrangements. This Review, together with the Government's conclusions on its recommendations, will be published shortly.

The Government consider that phasing charges in over three years, and setting them at levels equivalent to the average in England and Wales during this transitional period, is fair to the people of Northern Ireland and is also fair to other taxpayers and water charge-payers elsewhere the United Kingdom.

The greatest concern expressed during the consultation was that the new domestic charges would not be affordable and would create hardship amongst those on low incomes. To ease the transition, and in recognition of the relatively high levels of poverty and
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disadvantage in Northern Ireland, the Government's broad objective will be to ensure that low income households, particularly pensioner households, should not need to spend more than 3 per cent. of their income on water and sewerage services. To achieve this, a new Affordability Tariff will be available for those households who are eligible. This tariff will be based on income and will be set at a level equivalent to 3 per cent. of the single person's pension credit guarantee as updated by Parliament each year. Additional protection in the form of lower caps will be set for those with properties valued at less than £100,000.

Eligibility for the scheme will be determined through the social security system and not through any new form of separate means testing. All those who are entitled to Housing Benefit, Rate Rebate or the Special Rate Relief scheme currently being developed within the Review of Rating Policy in Northern Ireland will automatically be entitled to the Affordability Tariff. Householders in receipt of Income Support and Pension Credit who would be entitled to these passport benefits (but do not claim them) will be assisted in securing access to low income protection by virtue of their eligibility for Housing Benefit or Rate Rebate. In addition the Government have decided that 16–17 year old householders will have automatic eligibility for low income protection. Children leaving care will also be automatically entitled to low-income protection up to age 21. The cost of the Affordability Tariff scheme will be met from existing Northern Ireland public expenditure rather than other customers and this scheme will be reviewed after three years.

The other area where the Government are announcing new policy is on domestic metering.

The IIA consultation exercise revealed strong views in support of domestic metering but also significant opposition to it. While there are very good environmental reasons for metering, the high cost of metering and the issue of affordability of water charges raise real concerns. Many argued strongly that universal or voluntary metering would penalise large and lower income families.

In recognition of these conflicting views the Government are setting an objective of a managed long-term transition to widespread domestic metering as a means of meeting long-term environmental and sustainability objectives. This recognises that it will take time to introduce widespread metering given the costs associated with the installation of large numbers of meters. It also recognises that the introduction of metering will need to be managed to mitigate adverse social effects. To avoid these, the Affordability Tariff scheme should virtually eliminate any significant adverse impact that domestic metering might have had on low income households. The long-term transition will involve a number of steps.

In the short term, meters will be offered as an option to pensioner households. In practice this will only benefit pensioner households who are not eligible for the Affordability Tariff, with implementation at a rate of 2,000–3,000 households per month. This will further mitigate the negative equality impact on pensioners from the capital value charging regime. Metered charges should be lower than unmeasured charges for most pensioner households whose consumption of water is
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significantly lower than average households. This will particularly benefit the "asset-rich and income poor". Those opting for meters will be able to revert to an unmeasured charge within 12 months.

Meters will be installed in all new properties and first time connections and billed on that basis as a practical means of reaching the long-term objective of widespread metering—low income protection would be provided on the same basis as for unmeasured customers.

Where a meter is installed in a property, all subsequent occupiers will be subject to metered charges with no option to revert to an unmeasured charge. However, if the new occupants are eligible for low income protection their protection would be provided on the same basis as for unmeasured customers.

The policy would be subject to a review within two years with a view to extending the domestic metering option to further groups from 2009–10 thus making metering more generally available to customers. However any such proposals would need to be subject to equality impact screening.

The Government have taken time to listen carefully to the points made in the consultation. They conclude there is no realistic alternative to introducing domestic water charges and extending the existing non-domestic charging regime. However, the Government have amended their policy and are confident that the balanced package of measures announced today will deliver better water and sewerage services, provide benefits to public services generally in Northern Ireland and do so in a way that is fair, affordable and sustainable.

The publication of the Final IIA, and the announcement of these revised and new policies, closes the consultation on the Water Reform policy proposals. The next step will be to bring forward draft legislation reflecting these proposals. This is planned for spring 2006.

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