Memorandum submitted by WaterUK
COMMITTEE INQUIRY—FINANCIAL
INCLUSION
1. We are pleased to have the opportunity
to submit written evidence to the Committee for its inquiry on
financial inclusion. The Committee's focus in this respect is
very welcome, and can only help to clarify the policy issues involved
in this extremely important and difficult area of Government policy.
2. Water UK is the representative body for
the regulated water businesses in the UK. We are a policy-based
organisation and represent the industry's interests with Government,
regulators and stakeholders in the UK and in Europe.
3. Water UK has been actively lobbying Government
to introduce reforms to address the affordability of water services,
having made representations to Defra as part of the Cross-Government
Review of Water Affordability, undertaken in 2004. Papers previously
submitted to Defra on benefit reform and data are attached to
this response. (Not printed)
4. WaterUK has also worked closely with
consumer groups, principally the Consumer Council for Water (formerly
WaterVoice), the National Consumer Council, the National Association
of Citizens Advice Bureaux and Help the Aged, in seeking to persuade
Government of the need for reform to address the growing issue
of water affordability.
5. Water UK strongly believes that as part
of any review of financial inclusion the issue of water affordability
needs to be considered. Reform of the existing Water Direct Third
Party deduction scheme operated by the Department for Work and
Pensions, coupled with wider reform of the tax and benefits system,
should be undertaken to assist consumers. We believe these reforms
would fall within consideration of the Treasury Committee's review
as part of the 6th area identified within the terms of reference:
"The benefits of financial inclusion and
the extent to which financial inclusion measures can contribute
to combating poverty and reducing barriers to employment."
6. Much of the Government's financial strategy
centres on bank accounts and the use of direct debits for budgeting.
Many consumers on low incomes are reluctant to use basic bank
accounts other than as a repository for receiving and then withdrawing
cash. Costs associated with bounced payments levied by banks are
commonly given as a reason why switching to direct debit from
a cash-based approach will not be considered by consumers. Such
fees for `bounced' direct debit payments typically range from
£15 to £39 per transaction.
7. The Department for Work and Pensions
operates a direct payment scheme that allows deductions to be
made directly from benefit and paid to creditors, such as water
companies, known as Third Party Direct Deductions. Currently this
scheme is restricted to allowing consumers or their creditors
to apply for deductions to be made only when a debt has already
accrued, and additional costs such as court fees have potentially
been levied on the consumer.
8. Changes to the Third Party Direct Deduction
scheme could be made which would provide consumers with greater
choice and flexibility in how they manage their budget which could
prevent debts building up and additional costs being incurred
either from costs levied by creditors in pursuing debts or potentially
bank charges incurred when payments are returned unpaid being
avoided, therefore helping to combat poverty.
9. We propose that there is a need for improvement
and expansion of the Third Party Deductions Scheme to enable the
scheme to be proactively used by consumers as a budgeting tool
of choice.
10. We believe the scheme should:
— Be promoted as a budgeting scheme,
available to all consumers on benefits and tax credits at the
outset of their claim. It would then be a payment option of choice,
not a last resort mechanism for tackling debt and the potential
increased costs which may already have been incurred.
— Enable consumers to join the scheme
and remain on it once arrears have been repaid to prevent the
movement on and off the scheme as debt is first repaid and then
accrued again.
— Be extended to include all income
replacement benefits (including Working Family Tax Credits)
— Enable consumers moving from one
benefit to another as they move towards employment to remain on
the scheme automatically, hence maintaining ongoing bill payment
and encouraging good money management skills where appropriate.
11. Research undertaken jointly with Ofwat/WaterVoice
and undertaken by Accent Marketing and Research[321],
indicated that consumers who face difficulties in meeting their
water bills would welcome the choice of joining the Third Party
Deduction Scheme at the point they began to receive benefits and/or
became responsible for paying their water charges.
12. Whilst reform of Third Party Deductions
as proposed would significantly improve consumers' ability to
manage their bills, and avoid potential costs of debt recovery
action and other costs, in isolation these reforms will have limited
impact in tackling the wider issues associated with water affordability
and hence its impact on the wider financial inclusion agenda.
Water UK's evidence papers submitted to Defra (enclosed) detail
further reforms we believe will assist in tackling this difficult
issue.
13. We noted with interest the announcement
by Northern Ireland Minister, Sean Woodward, of the launch of
a Government scheme, funded through general taxation, which will
cap water charges at 3% of income for all eligible low-income
households in Northern Ireland.
We believe innovative and direct measures by
Government are also required throughout England and Wales to truly
address problems of water affordability and to assist with financial
inclusion more generally.
14. We are grateful for the opportunity
to make these comments and would welcome any further questions
from the Treasury Committee in due course. Any enquiries about
this response should be made to Philip Mills, Director of Water
Services at Water UK (tel 020 7344 1833).
January 2006
321 "Paying for Water" 2003. Back
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