Memorandum submitted by Citizens Advice
(Ofwat 08)
KEY POINTS
— Citizens Advice Bureaux are dealing
with increasing numbers of issues relating to water debt. For
many CAB clients, particularly those who live in regions with
higher than average water bills, it is becoming increasingly difficult
to pay for their water bills. Rough estimates suggest that a single
person living in the South West and in receipt of jobseekers allowance
could be paying up to 16% of their income on their water bill.
— Such affordability problems are compounded by the
fact that there is a dearth of assistance available to people
struggling to pay for their water bills.— We argued
in our submission to the Walker Review's call for evidence that
the Review should recommend that a thorough analysis of affordability
is undertaken, including defining what it is to be in "water
poverty". Although somewhat arbitrary, setting such a figure
for "water poverty" would enable progress on affordability
to be monitored and encourage policy and practices to be developed
to ensure that people are able to pay for their water and sewerage
bills.
— In essence, there are two ways to
tackle affordability: (i) to reduce bills; or (ii) to boost people's
incomes. It is imperative that both approaches are explored.
— To reduce bills, consideration should
be given to whether the components which make up a domestic customer's
water and sewerage bill rightly sit there or whether it would
be fairer to look for alternative ways to finance them. For example,
we understand that a significant proportion of domestic water
and sewerage bills is attributable to environmental measures that
water companies are expected to undertake. And, to a large extent,
the cost of such measures helps to explain the large regional
variations in domestic bills.
— As well as looking at ways to reduce
bills, there is also a need to consider measures to boost incomes,
particularly in the context of benefit income levels. In our view,
the fairest and most efficient way to help people pay for their
water bills is by providing people with a reasonable income through
the tax and benefits system. However, should reform of the benefit
system not be forthcoming, consideration should also be given
to other methods of enabling those on lower incomes to be protected
from rising bills. The reluctance by the water regulator to countenance
cross-subsidies to ease affordability issues for certain groups
strikes us as odd since the water industry is already underpinned
by cross subsidies in the shape of both social and geographical
subsidies (although the move to metering means that the subsidy
based on the rateable value system is rapidly unravelling). In
addition, all customers pay £11 on their bills to subsidise
debt collection activities.
— It is also important to note that
as well as considering reform to the tax and benefit system, a
complementary approach is to make sure that people claim the benefits
that they are currently entitled to. Recent figures from government
estimate that almost £10 billion of means-tested benefits
went unclaimed in 2006-07.[28]
Some water companies already provide funding to Citizens Advice
Bureaux and other organisations to maximise customers' income
and, in so doing, to ease affordability difficulties. This important
activity should not be overlooked and the Government and Ofwat
should consider how to spread good practice in this regard.
1. INTRODUCTION
1.1 Citizens Advice is the national body
for Citizens Advice Bureaux (CABx) in England, Wales and Northern
Ireland. The CAB service is the largest independent network of
free advice centres in Europe, with 430 main bureaux in England,
Wales and Northern Ireland. Bureaux provide advice from over 3,300
outlets, including bureaux in the high street, community centres,
health settings, courts and prisons. All Citizens Advice Bureaux
are registered charities.
1.2 The CAB service aims are to provide the advice
people need for the problems they face, and to improve the policies
and practices that affect people's lives.
1.3 In 2007-08 Citizens Advice in England
& Wales helped 1.9 million people to deal with more than 5.5 million
issues. Benefits and debt problems are the main reasons people
seek advice from a Citizens Advice Bureau. CAB clients are often
disadvantaged and many are on low incomes or benefits, or are
disadvantaged in some way. For example, research by MORI for Citizens
Advice found that CAB users tend to be in social grades DE and
unemployed, or living in social housing.[29]
1.4 Citizens Advice welcomes this opportunity
to submit evidence to the Environment, Food and Rural Affairs
Committee's inquiry into the current Periodic Review 2009 of water
price limits being conducted by the Office of Water Services (Ofwat).
Whilst the inquiry's remit is quite broad and includes the conduct
of the review, how long-term planning for climate change and environmental
improvements should be paid for, and how the pricing review relates
to the Cave and Walker reviews and the draft Floods and Water
Bill, our comments relate solely to the inquiry's interest in
the affordability of water services, an issue on which we consider
that we have sufficient experience and expertise.
2. CITIZENS ADVICE
STATISTICS ABOUT
WATER AND
WATER DEBT
PROBLEMS
2.1 In 2007-08, bureaux in England and Wales
dealt with 1.7 million problems related to debt and of these 57,000
concerned water debt problems. In addition, bureaux dealt with
12,800 non-debt related water issues (involving issues such as
metering and billing). Graph 1 below shows how both the number
of water problems and water debt problems have both been following
an upward trend in recent years, though far more water debt problems
are dealt with.
Graph 1
2.2 As we can see from Graph 1, from 2006-07
to 2007-08 there was a 7% increase in the number of water debt
problems dealt with by bureaux. But looking at a two-year period,
we see that water debt problems dealt with by bureaux in England
and Wales have increased by 28% from 2005-06 to 2007-08.
2.3 Based on actual water debt problems
recorded for Quarter 1 to Quarter 3 of 2008-09 (totalling 44,461
cases), we might expect to see an annual increase from 2007-08
to 2008-09 of about 4% to a figure of approximately 59,500.
3. DEFINING WATER
AFFORDABILITY
3.1 We have argued that the Walker Review
should recommend that a thorough analysis of affordability is
undertaken, including defining what it is to be in "water
poverty". Although somewhat arbitrary, setting a figure for
"water poverty" would enable progress on affordability
to be monitored and encourage policy and practices to be developed
to ensure that people are able to pay for their water and sewerage
bills.
3.2 It may be that the measure most often used
in this context—namely those paying more than 3% of their
disposable income on their water and sewerage bills—is right
but it would be enormously helpful to have this confirmed. Once
this baseline is established, attention can then turn to the more
pressing matter of helping those who are in water poverty and
struggling to pay for their water and sewerage bills.
3.3 Along with a range of other consumer
organisations, we have recently written to Defra to express our
concern about its decision to cease monitoring and reporting against
the measure of water affordability (often referred to as the 3%
affordability threshold) asking that that it re-instate this measure
as soon as possible. In our view, the loss of the indicator will
leave a significant void in terms of awareness and understanding
of the problem of water poverty, undermine the affordability focus
of the Future Water strategy and contrasts with the policy approach
which continues to be followed for fuel poverty.
4. IDENTIFYING
THOSE THAT
HAVE PROBLEMS
AFFORDING WATER
4.1 The Cross-Government Review of Water
Affordability Report (2004) found that by 2009-10 it is expected
that:
— 30% of customers in the South West
will spend more than 3% of disposable income on water bills.
4.2 This provides a useful summary of certain
groups who may struggle to pay for their water and sewerage bills,
highlighting low income households and those in regions where
bills are high. Making rough estimates for the percentage of income
spent by people in receipt of certain benefits on their water
and sewerage bills demonstrates the extent to which these bills
can consume significant amounts of income and calls into question
the ability to pay for them.
4.3 Table 1 below shows the percentage of
income spent on a range of water and sewerage bills by single
people and couples on jobseekers allowance and pension credit.
It should be noted that such estimates may not be wholly accurate
since they are based on average water and sewerage bills and it
may be assumed that people on low benefit incomes are more likely
to live in smaller housing and therefore pay less than the average
for their water and sewerage bills under the rateable value system.
Nevertheless, the findings may be useful in drawing attention
to the large amounts of benefit income that can be consumed by
water and sewerage bills.
4.4 At one extreme, Table 1 shows that a
single person on jobseekers allowance would have to spend a staggering
16% of their income on their water and sewerage bill if they lived
in the South West. Such proportions are clearly insupportable,
and would seem to inevitably lead to large numbers of people who
are unable to pay for their bills, particularly when combined
with other rising household and utility bills.
Table 1
ESTIMATES OF PERCENTAGE OF BENEFIT INCOME
SPENT ON WATER AND SEWERAGE BILLS 2008-09
|
| Percentage of benefit income spent on water and sewerage bills for a single person aged 25 or over on jobseekers allowance (£3,146pa)
| Percentage of benefit income spent on water and sewerage bills for couple on jobseekers allowance (£4,937.40pa)
| Percentage of benefit income spent on water and sewerage bills for single person on Pension Credit—Guarantee (£6,450.60pa)
| Percentage of benefit income spent on water and sewerage bills for couple on Pension Credit—Guarantee (£9,846.20)
|
|
| Average household bill—South West Water (highest charging co)—£497
| 16% | 10%
| 8% | 5%
|
| Average household bill—Severn Trent (one of lowest charging co)—£292
| 9% | 6%
| 5% | 3%
|
| Average bill (England and Wales)—£331
| 11% | 7%
| 5% | 3%
|
|
4.5 However, it is not only people in receipt of benefit
income who may struggle to pay for their water and sewerage bills.
Those in receipt of what might be deemed "low" wages
(eg National Minimum Wage) may also find it difficult to pay for
their water and sewerage bills, particularly if they are single
or live in an area with high bills, as Table 2 shows.
4.6 Even someone earning £13,400 (gross) a year—recently
found to be the amount required to maintain a minimum, socially
acceptable quality of life in 2008 for a single working-age adult[30]—would
spend 4.5% of their income paying for water and sewerage if they
lived in the South West.
Table 2
ESTIMATES OF PERCENTAGE OF LOW WAGE INCOME SPENT ON WATER
AND SEWERAGE BILLS 2008-09
|
| Percentage of income spent on water and sewerage bills for a single person on the National Minimum Wage @ £5.73ph for 40 hours pw (£9,911.30 pa net)
| Percentage of income spent on water and sewerage bills for a single person on the "minimum income standard" (£13,400 a year before tax; £10,933.60 net)
|
|
| Average household bill—South West Water (highest charging co)—£497
| 5.0% | 4.5%
|
| Average household bill—Severn Trent (lower charging co)—£292
| 2.9% | 2.7%
|
| Average bill (England and Wales)—£331
| 3.3% | 3.0%
|
|
4.7 Cases reported by Citizens Advice Bureaux clearly
demonstrate the difficulties experienced by people paying for
their water and sewerage bills:
A single disabled man on benefits sought advice from a CAB
in Merseyside about how he could pay his water bill of £450.
He felt that there was nothing he could do to avoid sliding into
debt.
A North London CAB helped a client in receipt of income support
who looks after four children and her 88 year old mother. The
client was very worried about paying her water bill and felt that
the level of income support was not sufficient to cover daily
expenses and maintenance. The water company were insisting on
the bill being paid over a 12 month period and being inflexible
regarding smaller repayments or reducing the bill. The client
was also disappointed to learn that she would have to be in arrears
before there was a possibility of receiving any assistance.
A CAB in Gloucestershire reported a case in which their client,
who receives £130 per week in income support and incapacity
benefit, came to the bureau because he could not afford to pay
for his ever-increasing bills, including his fuel and water bills.
A CAB in Buckinghamshire reported that their client, a man
with long term physical and mental health problems, came to the
CAB for money advice since he had a number of priority debts to
sort out. The client was in receipt of short term, lower rate
incapacity benefit of £59.20 per week but his ongoing payments
for gas, electricity and water accounted for approximately half
his weekly income. Since it was difficult for him to meet essential
expenditure and have sufficient available income to offer creditors,
he decided to not use his gas heating because he could not afford
to pay this and his other priority commitments.
A CAB in South London reported that their client received
a water bill for arrears for £666.36. The family (parents
and four children) have a water meter and when they moved into
their current home they were given a payment plan for £15
per month, which they paid regularly ever since. Never having
had a water meter before, they were unaware that this was an inappropriately
low amount for a family of six. It is not clear why they were
put on a payment plan more appropriate for a single person, but
language difficulties may have been a factor. The clients have
now received a statement dated 08/01/08 showing a debt of £666.36,
and a new payment plan requesting that the client pay £92
per month from March 2008. The clients are on a low income, they
are not able to pay this amount. The CAB is assisting the client
to complete an application for the WaterSure Scheme to reduce
their ongoing bills. As they are on a minimal income, the most
they can afford in addition to this to pay towards their arrears
is £10 per month.
5. BAD DEBT
IN THE
WATER INDUSTRY
5.1 In our opinion, debt in the water industry is inextricably
linked to the affordability issues outlined above. It is imperative
that action is taken to ease affordability difficulties in order
that levels of water debt can be tackled.
5.2 Below we provide information about the clients who came
to bureau in England and Wales in 2007-08 about water debts. The
following data is all based on 37,973 clients who came to bureaux
in England and Wales about water debts in 2007-08 (the number
of clients does not correlate exactly to the number of problems,
as clients may have more than one problem).
5.3 The data collected shows clearly that it is those
on low incomes who come to bureaux with water debt problems.
Graph 2
Base: 18,588 clients who came to a CAB in England or Wales about
a water debt in 2007-08 and provided information about their income
profile.
5.4 In addition, those with water debts are predominantly
from "middle-aged" households, with very few pensioners
visiting bureaux about water debts.
Graph 3
Base: 35,564 clients who came to a CAB in England or Wales about
a water debt in 2007-08 and provided information about their age.
5.5 In terms of household composition, the majority of
clients with water debt problems are single. In total, as Graph
4 shows, single households (with or without dependent children)
account for approximately 70% of clients with water debt problems.
This would seem to suggest that efforts to ease affordability
problems should seek to include this group of people in any solution.
Graph 4
Base: 27,133 clients who came to a CAB in England or Wales about
a water debt in 2007-08 and provided information about their household
type.
5.6 In Graph 5 below we provide information about the
regional basis of clients and compare this with fuel debts since
this forms a potentially useful comparator. Areas with high water
bills, such as the South West, have significantly higher number
of water debt clients than fuel debt clients.
Graph 5
Base: 37,973 clients who came to a CAB in England or Wales about
a water debt in 2007-08, and 39,539 clients who came to a CAB
in England or Wales about a fuel debt in 2007-08
5.7 It is also important to put the matter of water debt
into the context of wider indebtedness in order to gain a fuller
insight into the circumstances of many of those who find themselves
in debt to their water companies. As outlined in our new report
A life in debt, published on 26 February 2009, in July
2008, Citizens Advice collected in-depth data from 52 bureaux
(comprising a representative sample of bureaux) about CAB debt
clients. As part of this exercise, detailed information about
1,407 debt clients was received. Analysis of the data reveals
the following in relation to water debts:
— 283 clients had water debts (20% of the total
number of clients);
— 237 (84%) of the clients with water debts also
had priority debts, including:
— 113 with fuel arrears (39.9%)
— 140 with council tax arrears (49.5%)
— 97 with rent arrears (34.3%).
— On average, water debt clients had:
— 2.4 priority debts[31]
with an average value of £4,948
— 4.8 non-priority debts with an average
value of £8,574
5.8 Any efforts to tackle water debt need to take into
account the fact that in many cases water debt may be just one
of the debts owed, and an approach confined to dealing with only
water debt may fail to take into account the complex realities
of the situation and the competing demands for payment that an
individual may face.
6. HELPING PEOPLE
MEET THE
COST OF
THEIR WATER
BILL
6.1 We would disagree strongly with the statement in
the Cross Government Review of Water Affordability report that
"There is already a range of measures in place to assist
lower income households with their water and sewerage charges"[32]
Rather, we would side with academics who have described the current
system as resembling something from the past, specifically:
"The only systems for assisting those with difficulties
in paying water bills resemble 19th century approaches. There
is a set of highly restrictive rules for special assistance, which
are administered by the private companies (vulnerable groups scheme
or WaterSure), and the companies themselves may also provide charitable
handouts at their own discretion"[33]
6.2 In essence, there are two ways to tackle affordability:
(i) to reduce bills; or (ii) to boost people's incomes. It is
imperative that both approaches are explored.
6.3 We understand that a significant proportion of domestic
water and sewerage bills is attributable to environmental measures
that water companies are expected to undertake. And, to a large
extent, the cost of such measures helps to explain the large regional
variations in domestic bills. The Government should consider whether
this is appropriate, or whether it would be fairer for such measures
to be financed out of general taxation, thereby easing water affordability
problems.
6.4 As well as looking at ways to reduce bills, there
is also a need to consider measures to boost incomes, particularly
in the context of benefit income levels. In our view, the fairest
and most efficient way to help people pay for their water bills
is by providing people with a reasonable income through the tax
and benefits system. However, should reform of the benefit system
not be forthcoming, consideration should also be given to other
methods of enabling those on lower incomes to be protected from
rising bills. The reluctance by the water regulator to countenance
cross-subsidies to ease affordability issues for certain groups
strikes us as odd since the water industry is already underpinned
by cross-subsidies in the shape of both social and geographical
subsidies (although the move to metering means that the subsidy
based on the rateable value system is rapidly unravelling). In
addition, all customers pay £11 on their bills to subsidise
debt collection activities.
6.5 It is also important to note that as well as considering
reform to the tax and benefit system, a complementary approach
is needed to make sure that people claim the benefits that they
are currently entitled to. Recent figures from Government estimate
that almost £10 billion of means-tested benefits went unclaimed
in 2006-07.[34] Some
water companies already provide funding to Citizens Advice Bureaux
and other organisations to maximise customers' income and, in
so doing, to ease affordability difficulties. This important activity
should not be overlooked, and the Review should consider how to
spread good practice in this regard.
Citizens Advice
February 2009
28
Income Related Benefits Estimates of Take-Up in 2006-07, DWP,
10 June 2008. Back
29
Financial Overcommitment, research study conducted for
Citizens Advice by MORI, July 2003. Back
30
A recent study published by the Joseph Rowntree Foundation-A minimum
income standard for Britain (July 2008)-devised a minimum income
standard for Britain. It found that in order to maintain a minimum,
socially acceptable quality of life in 2008 a single working-age
adult needs a budget of £158 per week. See http://www.jrf.org.uk/bookshop/eBooks/2226-income-poverty-standards.pdf Back
31
Priority debts are those where non-payment can result in the loss
of liberty, home, essential services or essential goods. Common
priority debts include housing debt (rent and mortgage arrears),
council tax arrears and fuel debts. Back
32
Cross-Government Review of Water Affordability Report, defra,
2004. Back
33
From a private past to a public future? the problems of
water in England and Wales, Hall and Lobina, PSIRU, Business School,
University of Greenwich, November 2007, p 12. Back
34
Income Related Benefits Estimates of Take-Up in 2006-07, DWP,
10 June 2008. Back
|
