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The water industry is a unique case because it has a statutory duty to supply water irrespective of whether
payment is received. It has no contract with customers, and hence limited information on them, and no ability to share information or impose special conditions for bad debt risk. Indeed, it is the largest user of the courts, with more than 180,000 claims in 2004-05. In comparison with other utilities, the level of bad debt over 2 per cent. is significantly higher than in the gas, electricity and other industries.
The situation is different in other sectors. If one does not pay ones council tax, the ultimate incentive to pay is the threat of prison. If one does not pay ones television licence, one receives a large fine, and if one does not pay ones vehicle licence, one gets a £1,000 fine. The water industry faces certain difficulties in that regard.
Some 20 per cent. of debtors owe 70 per cent. of the total debt, and 34 per cent. of debtors live in areas with average earnings. Total debt levels are highest in single female households. Debtors have low involvement in the credit market, and 46 per cent. of debtors are in the highest 10 per cent. risk category. Other interesting considerations have been found in research. Sometimes affluent singles and couples in exclusive urban neighbourhoods feature disproportionately among debtors, so debt is not a problem only for people who have problems paying their bills.
The industry is very aware of debt and is pretty good at finding innovative ways of dealing with it. There are helplines so that customers can discuss payment problems, flexible payment plans, charitable trusts and hardship funds. Sometimes it offers free water meters to reduce customer charges. It helps people to apply for direct payments from benefit via Water Direct, gives advice on the vulnerable groups tariffmetered customers on benefits who qualify can receive a reduced billand promotes debt advice agencies. Yorkshire Water sponsors local citizens advice bureaux, and has special tariffs and the Yorkshire Water Community Trust for customers who have problems paying bills. Wessex Water has a new tariff to help people who have special problems, and has various charitable and other schemes to help those in real difficulty.
So there is a problem. The industry is unique, with its statutory duty to supply, no contracts and limited information on customers. It has limited sanctions for non-payment and debtors continue to receive service, and data protection issues limit the tracing of non-payers. The problem with affordability is increasing with the increasing debt and the deprioritisation of water charge arrears.
What does the industry want? It wants more ability to share information on debtors and customers so that it can trace absconders and differentiate between debtors. It wants changes to do with Water Direct so that it is not a measure of last resort, including changes with benefits and the widening of application to non-debtors. It also wantsI have mixed feelings about thisresponsibility for charges to be extended to commercial landlords, because there is a particular problem with houses in multiple occupation. That certainly affects Bournemouth and West Hampshire Waterno doubt my hon. Friend is aware of those problems in his patch.
The industry would also like there to be changes to the tax credits and benefits system to link water benefits to council tax rebate. I repeat that it does not want to go back to the days of disconnection, but there
are various ways in which water flow can be controlled, as the House of Lords pointed out in its report. I believe that in Australia and other countries, companies use various methods to restrict peoples water flow rather than cut them off.
I think that we all accept that it is fine to provide water for basic needs such as flushing lavatories and for washing and cooking, but people who do not pay their bills can also run dishwashers, washing machines and sprinkler systems, and fill swimming pools, because there is no restriction on what they can receive, even if they can afford to pay their bills. That seems odd. I would like the Government to acknowledge that there is a problem and to consider introducing legislation to make it a little easier for the industry to control this growing debt problem that is causing higher bills for ordinary payers and that makes it far more difficult for the industry to deliver the environmental improvements that we all want and expect.
Sir John Butterfill (Bournemouth, West) (Con): Does my hon. Friend agree that it is necessary to focus on people who have the ability to pay but deliberately do not in the full knowledge that they cannot be cut off and effectively have a free supply? Those who cannot afford to pay are in a different category, but surely those who fall into the first category should be the subject of some constraintspossibly collection through benefit agencies if they receive benefits, or through restricted supply.
Mr. Syms: I agree with my hon. Friend. As I have illustrated with my examples from Yorkshire Water and Wessex Water, the industry is alive to and aware of the fact that some people have problems paying, and they have various schemes to reduce debt. Of course, if they had more information, they would be able to differentiate between their various customers. It is true that the sharp and the smart get away with taking foreign holidays while not discharging their responsibilities to othersby paying water bills, for example. That is a problem because some people realise that they can get away with things. Several public policy options must be considered to assess whether we can give assistance to the industry so that it can differentiate between the genuine customers in hardship and others, and so that it can bear down on the growing bad debt.
I do not intend to speak for much longer, because I know that the Minister wants to respond to some of my points. This is an important issue. If the Government do not respond to my points by telling us not only their intentions but what they are going to do about the situation, the subject will keep returning. There is currently £800 million outstanding. I suspect that if we do not consider the public policy implications of the industry, it will not be long before the debt is more than £1 billion. The burden will then really be falling on people, many of whom struggle to pay their bills as it is. Why should they pay for others, some of whom are wilful non-payers?
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Barry Gardiner): It is always a great pleasure to have you presiding over our debates, Mr. Cook; the phrase firm but fair comes to mind.
I am grateful to the hon. Member for Poole (Mr. Syms) for rightly raising this important issue. He asked the Government to acknowledge that there is a problem, and I am happy to do so in a straightforward way at the outset.
The importance of water supply and sanitation, and the regulatory arrangements put in place to reflect that, means that dealing with debt in this sector is not a simple process. The hon. Gentleman was right to highlight the fact that there are different categories of those who are falling behind in their payments profile and that it might be right to look at them in different ways. I must confess that I was no less than astonished to hear him admit and boast to the Chamber that he advised indebted individuals who came to his surgeries not to pay their water bills. I do not believe that such an approach should be a model of good practice for hon. Members, and I am sure that his local water companies will not be best pleased to find out that although this morning he may be championing a solution to the problem, in other modes he is actively part of it.
All customers are liable to pay their bills, and the overwhelming majority do so. In 2004-05 the percentage of revenue owing to companies was 7.6 per cent. after 12 months compared with just 2.5 per cent. after four years. So, although people fall behind over a 12-month period, two thirds of them catch up and make good their indebtedness.
As the hon. Gentleman outlined, bad debt is not solely a problem for the water industry. Arrears on utility and other household bills are quite common, particularly among low-income groups. Domestic gas and electricity prices also rose in 2005-06 and average debt rose in the light of that.
Every year, the Government publish their report on tackling over-indebtedness. Since the first report in 2004, we have made considerable progress in putting in place measures to help people avoid becoming over-indebted and to provide support for those in difficulty. We believe that those measures will, over time, bring about a substantial reduction in peoples vulnerability to over-indebtedness.
The hon. Gentleman was right about water being essential to public health. That is the reason the Government banned all forms of disconnection in 2000. Critics sometimes point to that decision as the reason for high levels of bad debt. Of course, there are some customers who cannot pay and others who do not or will not pay, but vulnerable customers must be protected. I am mindful of the remarks made by the hon. Member for Bournemouth, West (Sir John Butterfill) on that issue, and I will discuss it in a moment.
How can companies deal with those who will not pay? How does one identify those people? How does one ensure that one is not penalising the genuinely vulnerable? No one in this House would seek to penalise such people. The recent House of Lords Select Committee on Science and Technology report on water resource management proposed partial disconnection through trickle valves as a way to encourage households that will not, but could, pay their water bills. The hon. Member for Poole mentioned such approaches.
We believe that the prohibition on domestic disconnection is vital to protect health and hygiene. Anyone who agrees with that statement must agree also that devices which reduce the flow of water available for use to such a small trickle that it can take up to a quarter of an hour to fill the kitchen sink to enable washing-up to be done should be banned too.
We take seriously the problems of customer debt and debt collection, and we are keen to see debt well managed throughout the industry. Companies need to manage their bad debt effectively otherwise it may cause costs to other customers, but there must be a fair balance between customer protection and the ability of companies to recover their debts.
Some companies are clearly managing their debt more effectively than others, and there are big variations in debt between company areas. For example, there are two companies with similar customer profiles in the south of England that have totally different levels of debt. We believe that there is scope for those companies lagging behind to do more.
For those customers already in debt to water companies, there is the option of paying through the Department for Work and Pensions third-party deductions scheme, but we must look for ways to prevent households from getting into arrears in the first place.
Some customers have problems affording their bills and it is right that they do not have to fear being disconnected because of an inability to pay, but we continue to look for ways to help them. We are following up the recommendations of the cross-Government review of water affordability. We are examining a range of tariff structures, their impact on low-income households and their effect on company debt. We are carrying out a pilot study in the south-west, looking at how a range of measures can help low-income households with the water bills.
Some companies have taken their own initiatives on those issues. The south-west is the region with the highest bills, but it is also a region with relatively low average incomes. South West Water is expanding the Department for Environment, Food and Rural Affairs-funded affordability pilot in its area, at its shareholders expense, to households with debt problems across the region. Those households will have benefit-entitlement checks, meters installed as appropriate, and water-efficiency devices installed. I welcome that new approach.
DEFRA does not have an active role in managing companies debt levels, although it participated in the steering group for a research project on the problem involving the industry, Ofwat and Water Voice. The
industry regulator, Ofwat, monitors the debt situation, and where water companies customer debt increases greatly, Ofwat may take that into account in setting companies price limits. That allows the cost of a companys bad debt to be spread out over the wider customer base, butthis is an important caveatOfwat does not allow companies to pass on the costs automatically. It needs to be satisfied that the company is already using the enforcement methods open to it as efficiently and effectively as possible. I hope that that goes some way to allying the fears of the hon. Member for Poole that the overall costs of indebtedness were simply being passed on to other customers willy-nilly and that the rest of the water-consuming public, who pay their bills, were automatically then bearing the load for those who were unable to pay their bills or those who were less responsible in doing so.
One conclusion of the cross-Government review of water affordability was that Ofwat should review its debt guidelines to promote companies good practice in debt management. Ofwat consulted on amendments to those guidelines, and we understand that new guidelines will be introduced in the spring.
Debt is a problem, but not one that affects only the water industry. We must ensure that a balance is struck between the needs of companies and the needs of customers, and we look to the regulator to ensure that companies manage their debt in the most effective way.
The Government have taken indebtedness seriously since coming to office in 1997. In real terms, the incomes of some of the poorest people in the population have risen as a result of personal tax and benefit measures that we have introduced. In October last year, families with children were, on average, £1,500 a year better off, and families with children in the poorest fifth of the population were, on average, £3,400 a year better off. Other vulnerable groups include pensioner households, which were, on average, £1,350 a year or about £26 a week better off, and the poorest third of pensioner households were, on average, £2,050 a year or about £39 a week better off.
Yes, we can look at the indebtedness faced by water and utility companies. It is right and it is required often that those companies look at their portfolio of indebtedness, and try to use all methods available to them to help customers in the first instance, but to ensure, when they can, that they make those who are not prepared to pay, rather than those who are unable to pay, stump up and meet their obligations. The Government have tried to operate at both ends of the spectrum in not only looking at levels of indebtedness, but trying to ensure that those who are most vulnerable do not get into debt in the first place. I am confident that the hon. Member for Poole, who spoke so eloquently, agrees that it is much better for society to avoid people getting into a situation where they cannot afford some of the essentials of life, rather than waiting to see what can be done when they are in trouble.
Mr. Don Touhig (Islwyn) (Lab/Co-op): I sought the debate so that hon. and right hon. Members, who, like me, have serious misgivings about the plans of the Department for Constitutional Affairs to amend the Freedom of Information Act 2000 regulations, could explore the arguments with the Minister before the consultation ends on 8 March.
The Government have a proud record of having introduced freedom of information legislation; however, they propose to put it at risk, and for what? To change the rules that allow public authorities to refuse FOI requests on costs grounds would be mean-spirited and certainly unworthy of my party, and of my Government, of whom I am immensely proud. The DCAs proposed changes would allow authorities to refuse requests that they must currently answer. That would inevitably reduce the Acts effectiveness, limit the scrutiny that it provides and undermine the important progress that has been made towards more openness and accountability.
A Freedom of Information Act is not just important in itself. It is part of bringing our politics up to date, of letting politics catch up with the aspirations of our people and delivering not just more open but more effective and efficient government for the future.
The Act was an important step forward, but I fear that the DCAs proposed changes will take us in the opposite direction. The Act is widely regarded as a success. In a report, the Select Committee on Constitutional Affairs says that the Act has
already brought about the release of significant new information and...this information is being used in a constructive and positive way by a range of different individuals and organisations.
I had the privilege of serving as a Minister in the Wales Office and in the Ministry of Defence, and I confess that there were times when I found the demands for information under the freedom of information legislation irksome. Governments and local government do, and we must recognise it.
Mr. Peter Kilfoyle (Liverpool, Walton) (Lab): My right hon. Friend is right to emphasise the Labour partys long and honourable commitment to freedom of information. I am a former Minister like him, albeit a former Minister in the Cabinet Office, who dealt with FOI legislation when it first came before the new Labour Government. Does he accept that strands in the broader context of government, including the higher reaches of the civil service, the quangocracy that surrounds it and leading members of the Government, were always dead set against freedom of information from the word go?
I understand my hon. Friends point. Like many colleagues in the Chamber today from all parties, throughout my political life as a councillor and
as a Minister, the one thing I was a told was, If you do that, it would be setting a precedent. If we had not set precedents, we would still be living up trees.
I am proud of the fact that the commitment of my former Department, the Ministry of Defence, has impressed many observers. Information that the MOD has released includes anonymised details of investigations of alleged offences by soldiers in Northern Ireland, the types of boot used by the armed services, the number of service personnel failing drug tests and information about complaints of discrimination and bullying. On a lighter note, the MOD has also released its recipe for curried meatballs, and disclosed reports of UFO sightings in Wales, including a black object hovering over Rhyl, a flying disc over Newport and a spinning craft with legs flying over the valley where I live.
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