Examination of Witnesses (Questions 40-59)
ENVIRONMENT AGENCY
5 DECEMBER 2005
Q40 Mr Khan: Forgive me if this sounds
rude, but if you want to give us further evidence, please send
a memo; for the purpose of the oral evidence it is really important
you be concise because we have lots of questions. Of the estimated
savings identified by the NAO, between £1.4 and £2.5
million, you have explained you do not necessarily agree with
the top level of that bracket, how much of that do you think you
can achieve according to your own assessment of NAO targets versus
savings?
Baroness Young of Old Scone: We
believe we can save somewhere between £4.5 million and £4.1
million, but that would not be simply on the NAO recommendations.
That is on the programme of efficiencies we already had in place
in water management.
Q41 Mr Khan: Over what period of
time?
Baroness Young of Old Scone: Over
the next four years—three years in total, 3½ years
bearing in mind we are half way through the financial year.
Q42 Mr Khan: Do you think one of
the reasons why there may have been a delay in making the savings
is because the cost of the water resource management is met completely
by the charges on holders of the abstraction licences? Would that
be a de-motivating factor to you in making savings?
Baroness Young of Old Scone: I
am sorry, I did not catch that.
Q43 Mr Khan: The cost of the water
resource management, as I understand it, is met completely by
the licences. Is that correct?
Baroness Young of Old Scone: The
aim should be that the cost of water resource management should
be met by licence charges, yes.
Q44 Mr Khan: That has no bearing
on the apparent delay in making the savings identified in the
Report?
Baroness Young of Old Scone: Clearly
where there is cost recovery, one of the important things for
the Agency is to make sure it is able to demonstrate to chargepayers
it is efficient, and every year we have been able to show our
charges have gone up at a rate less than inflation as a result
of our efficiency programmes.
Q45 Jon Trickett: Paragraph 2.12
seems to indicate that at least two-thirds of £1 million
and possibly nearly £2 million a year is being funded by
the taxpayer which should be funded by those who are doing the
water abstractions. Is that right?
Dr King: If you are referring
to the component that is currently owned by water resources but
it in fact should be re-charged to flood risk management, so that
is correct, and that has been addressed.
Q46 Jon Trickett: So there is no
longer a single penny paid for by the taxpayer which should be
paid for by the licence holders?
Dr King: It would not be correct
to say there is not a single penny because what we have done,
we already made adjustments but we will continue to iterate that
as we get better information.
Baroness Young of Old Scone: In
fact, it was the other way round. The charge payers were paying
for things the taxpayer should have been paying for.
Q47 Jon Trickett: That is what I
said. I wonder whether you consider the statutory duty which you
have that the entire cost of water abstraction should be paid
for by the licence holders. That is a statutory duty, is it not,
on the organisation?
Baroness Young of Old Scone: Yes,
and in fact, the licence holders were over-paying in the past
and we have now adjusted that so that more of the charges fall
on the flood defence budget.
Q48 Jon Trickett: Yes, that is right
but the point is that it seems that the entire cost of the abstraction
should be borne by the licence holders. You were charging more
than it was costing. Is that right?
Baroness Young of Old Scone: Yes,
and we have now adjusted that.
Q49 Jon Trickett: Yes, on the average.
When it comes to the regional differences, there must be some
cases where the taxpayer is providing a subsidy and other cases,
because the variation is so large, where it is the reverse, and
it is only in the aggregate across the whole country that the
charge is too high. So, for example, in the North East region,
in Yorkshire, it is £10 roughly per 1,000 metres cubed, whereas
in Northumbria, which is part of the same region, it is £23
for the same item. Can you explain the wide regional differences?
Are they all accurately based upon the actual costs incurred?
Baroness Young of Old Scone: Many
of the variations are completely justifiable and understandable,
things like, for example, Northumbrian, which has the large charge
for Kielder.
Q50 Jon Trickett: I can read that.
I did not ask you why they were occurring. I asked you are all
of these variations justified?
Baroness Young of Old Scone: The
vast majority of the variations are justified. There may be one
or two where, as we learn more about activity costs and as we
standardise the charging system across our regions, we will be
able to produce a more accurate process, but it will be minor
items within it, not substantial ones. There will still be substantial
differences because of the difference in capital assets, in geology,
in the nature of the abstractions.
Q51 Jon Trickett: Yes, there are
always differences, but are you required by statute to charge
different amounts per region? Why do you not just charge a standard
charge across the whole country, since we all consume water?
Mr Barker: Our scheme of abstraction
charges is approved by the Secretary of State.
Q52 Jon Trickett: So I see.
Mr Barker: It is a scheme which
is regionally based and the charges within each region are set
to recover the cost of—
Q53 Jon Trickett: Why is it regionally
based? Why is it not simply a national aggregate and then charged
as a standard charge across? It strikes me that you must have
an extremely complex management system and costing system to have
to break it down by region.
Baroness Young of Old Scone: I
think the water companies would be very unhappy if they were having
to pay a standard charge, because they would be cross-subsidising.
I know that the economic regulator would be very unhappy and it
would fly in the face of cost recovery, which on a regional basis—
Q54 Jon Trickett: Why are you charging
cost recovery on a regional basis? Why?
Baroness Young of Old Scone: Because
their costs are very different. If they were all very similar,
I think it would be less of an issue.
Q55 Jon Trickett: We all pay tax
though, do we not? Our tax is not charged regionally according
to how well our schools function or our roads are maintained or
whatever. Why on earth should this be one?
Baroness Young of Old Scone: Environmentally,
part of the charge is also an encouragement for the efficient
use of resources and we—
Q56 Jon Trickett: By your Agency?
Baroness Young of Old Scone: No,
by the water companies and other abstractors, and the polluter
pays principle does very much support the idea that the real costs
of water abstraction ought to be borne by the people who can have
an influence on whether they abstract as much or not. If it were
a standard charge, there would be less of a real cost signal to
these abstractors.
Q57 Jon Trickett: Are your regional
boundaries coterminous then with the water companies?
Baroness Young of Old Scone: They
are not, but we calculate this on the water company boundaries,
not the regional boundaries.
Q58 Jon Trickett: So, for example,
in parts of Yorkshire which are being served by different water
companies, are you telling me that were there to be two companies
within Yorkshire, for example, they would charge two separate
fees?
Mr Barker: Our regional boundaries
are contiguous with those of the ten water and sewerage companies
and if there were two companies within one region, for example,
if you take our Midlands region, there is Severn Trent water and
there is South Staffordshire Water. They both pay the same charges
because they both belong in one region.
Q59 Jon Trickett: So are you saying
they are both equally efficient in every respect?
Mr Barker: Both the companies
are taking water from within that region and—
| 
