Government response
Introduction
1. The Government welcomes the Environment, Food
and Rural Affairs Select Committee's first report of this session
on future flood and water management legislation. We welcome
the broad thrust of the Committee's recommendations and conclusions
and are taking careful note of them as we prepare the Natural
Environment and Water White Papers.
2. Defra's Business Plan,[1]
published in November last year sets out our vision and priorities
for the future and includes several commitments on flood and water
management.
3. In relation to flood and coastal erosion risk
management, these include:
- Completing a programme of investment
to reduce the risk of flooding and coastal erosion for 145,000
households;
- Implementing the findings of Sir Michael Pitt's
Review to improve our flood defences and prevent unnecessary building
in areas of high flood risk;
- Testing and strengthening our capabilities to
respond to a major flood emergency through planning and execution
of a major national exercise (Exercise Watermark, March 2011);
and
- Implementation of the Flood and Water Management
Act 2010.
4. For water management these include reforming
the water industry to enhance competition and improve conservation
through:
- Examining the conclusions of
the Cave and Walker Reviews, and reviewing Ofwat;
- Publishing a White Paper on the reform of the
water industry to ensure a more efficient use of water and to
protect poorer households; and
- Introducing required legislation.
5. The following are the Government's specific
responses to the Committee's recommendations and conclusions following
their inquiry:
Local authority funding
1. We believe that councils should aim to give
flood protection work the same level of priority that the Government
has spelt out in the Coalition Agreement. We recommend that Defra
and the Department for Communities and Local Government review
local authorities' spend on flood management work in April 2012.
(Paragraph 14)
The Government agrees that local authorities have
an important role in flood protection work. This is embodied
in the Flood and Water Management Act 2010 through the creation
of Lead Local Flood Authorities and the requirement for them to
develop, maintain, apply and monitor Local Flood Risk Management
Strategies.
Funding for local authorities will be provided using
established grant arrangements.
Local authorities will continue to receive funding
support through formula grant for their ongoing flood management,
drainage and coast protection roles. In 2010/11, local authority
expenditure on these roles is expected to be around £100
million.
In addition, Lead Local Flood Authorities will be
provided with grants to fund their new roles and responsibilities
under the Flood and Water Management Act 2010. Grants will total
£21 million in 2011/12, rising to £36 million a year
from 2012/13 to 2014/15. Funds will be provided through area-based
grant direct to each Lead Local Flood Authority, so that each
authority can see how much they have received. Individual allocations
have been made in line with levels of local flood risk, with the
exact approach decided following a consultation exercise in autumn
2010. As a result, every Lead Local Flood Authority will receive
at least £110,000 a year, with the authorities tackling the
highest levels of local risk receiving up to £750,000 a year.
To monitor funding and capacity issues, Defra has
established a joint panel which brings together the Local Government
Association, Environment Agency and Department for Communities
and Local Government (CLG) under an independent chair, an ex-local
authority executive officer. The panel's terms of reference include
keeping the costs of implementing the Flood and Water Management
Act 2010 under review and looking at resource, capacity, skills
and training issues relating to the uptake and implementation
of the new powers and duties by local authorities set out in the
Act. The panel is tasked with gathering and assessing new evidence
as it arises on local authority processes and associated costs
to evaluate and track over time.
April 2012, the Committee's suggested date for review
of local authority expenditure, will be too soon to properly assess
the situation as financial outturn data for the 2011/12 financial
year will not be available until autumn 2012. As mentioned above,
local authority funding and capacity issues will be kept under
review and the panel will consider evidence presented by local
authority expenditure returns as soon as they are available.
Sustainable drainage systems
2. We support the development of sustainable drainage
systems (SuDs) for new properties and their retro-fitting where
feasible since they are a cost-effective, environmentally beneficial
method of providing drainage. In implementing the SuDs provisions
in the Flood and Water Management Act 2010, Defra must take into
account the diversity of views as to who should be responsible
for SuDs maintenance and the strong concerns many local authorities
have about securing long-term funding for this. We are concerned
that Defra's calculation of the level of resources it expects
to be available to councils as a result of the transfer of private
sewers is not based on robust data and that councils will therefore
not be adequately recompensed for their new duties on SuDS. We
recommend that Defra undertakes further work on its model for
the ownership and funding of SuDs, including the extent of the
potential for local authorities to recover costs from developers.
(Paragraph 22)
The Government welcomes the Committee's support for
increasing sustainable drainage systems (SuDS) in new properties
and also for retrofitting. The Flood and Water Management Act
2010 includes measures to increase the up-take of SuDS in new
developments and redevelopments.
The Government intends to consult later this year
on implementing those provisions of the Act. The Government is
also considering ways to encourage retrofitting of SuDS and proposals
are likely to be contained in the forthcoming Water White Paper.
The Act places SuDS approval and adoption responsibilities
with county and unitary local authorities. This fits well alongside
their existing responsibilities for highways and surface water
management planning as well as their other new Lead Local Flood
Authority responsibilities under the Act. The Government considers
this to be the most appropriate model and it will ensure that
adopted SuDS are maintained so that they continue to provide effective
drainage for the properties they serve.
However, the Act is flexible enough to enable other
arrangements to be put in place. For example, there is nothing
to prevent unitary and county authorities transferring these functions
to another body, such as a water company or planning authority,
by agreement, although the unitary/county authority will retain
responsibility and liability.
In the short term Defra will fund local authorities
for the costs of maintaining adopted SuDS and has set aside funding
as part of the Spending Review for SuDS maintenance. Funding
support will be provided through special grants. This will be
in addition to the existing formula grant arrangements to all
local authorities for flood and coastal erosion risk management
and the new area based grant to Lead Local Flood Authorities (announced
on 23 December 2010) for the cost of their new roles and responsibilities
under the Act.
Defra is confident that the available funding will
be sufficient to cover maintenance of SuDS. SuDS will be approved
and built gradually over the first few years of implementation,
and therefore initial costs are expected to be low.
The Government is also committed to finding a sustainable
mechanism for the long term funding of SuDS maintenance. There
are a number of potential options for doing this including, as
the Committee has identified, recovering costs from developers.
These options will be explored further during the intended consultation.
In calculating the impact of transferring responsibility
for private sewers, the amount of funding to local government
in formula grant has been adjusted to reflect the anticipated
reduction in costs. As agreed during the passage of the Bill,
Defra is keeping its assumptions on costs and benefits under review,
including through a joint panel with the Local Government Association.
Fire and Rescue Authorities' flood duties
3. We welcome the launch of Exercise Watermark
and the additional £2 million of funding from Defra towards
emergency services' flood rescue work but recognise that this
represents only a fraction of the potential costs to these authorities
of preparing for and responding to flood events. We are concerned
that the lack of a statutory duty for Fire and Rescue Authorities
could jeopardise their flood preparation and response work, given
pressures on them to direct their limited funding towards fulfilling
non-discretionary duties. We recommend that the Government places
a duty on Fire and Rescue Authorities to undertake specified flood
rescue preparation and response work, and that provision of adequate
resources for this work is included under the funding formulae
applied to emergency services. (Paragraph 26)
The Government welcomes the Committee's acknowledgement
of its increased investment in supporting the development of an
enhanced National Flood Rescue Capability as recommended in Sir
Michael Pitt's Review. As regards the Committee's recommendation
of a statutory duty for the Fire and Rescue Service, the Secretary
of State has previously announced the Government's intention to
return to this issue in the light of experience gained in Exercise
Watermark and the conclusions of the Flood Rescue National Capability
Enhancement Project.
Funding for flood defences
4. We are concerned about the future adequacy
of funding for flood defences given the need to increase investment
in order simply to maintain the current level of protection in
the face of flood threats which may be increasing as a result
of climate change. We note the priority Defra places on protecting
flood defence work and welcome its provision of more than £2
billion over the next four years for such work. We welcome the
focus on improving procurement to deliver 15% efficiency savings
in Environment Agency flood defence budgets which was designed
to help to deliver improved protection to 145,000 properties by
2015. However, it is an inescapable fact that the CSR funding
settlement represents a cut to flooding budgets. This is against
a background where funding for flood defences has been judged
to be inadequate. (Paragraph 35)
Flood and coastal erosion risk management is a priority
area for Defra, and was protected as far as possible within the
spending review against a backdrop of capital savings across Government.
In particular, the settlement managed to safeguard forecasting
and warning services, and incident response, and the risk-based
maintenance of existing defences. The department is also standing
by previous commitments to fully-fund local authorities in their
new roles under the Flood and Water Management Act 2010, and will
provide grants of up to £36 million a year direct to lead
local flood authorities. Overall Defra expects to spend at least
£2.16 billion on managing the risk of flooding and coastal
erosion over the next four years. This is approximately 8% less
than spend by Defra over the previous four years (an average £590m
a year).
Funding totals are less important than what can be
achieved in terms of outcomes, and savings and efficiencies are
being found while protecting front line services. The capital
settlement allows ongoing investment in safeguarding and enhancing
levels of protection to people and property from flooding and
coastal erosion. Even with a reduced capital budget we expect
to be able to provide better protection for 145,000 households
by March 2015.
Sir Michael Pitt recognised the increasing investment
need in flood and coastal defences, and this was reiterated in
the Environment Agency's long-term investment strategy published
in June 2009.[2] However,
Sir Michael Pitt's Review noted that "[long-term plans] should
not simply assume that the costs of flood risk management will
be met centrally. There are direct beneficiaries from flood defence
work, and aligning those who benefit with those who pay will bring
greater efficiency and greater responsiveness from those carrying
out the work." (Executive Summary ES.44). In line with
this, he recommended that "Government should develop a scheme
that allows and encourages local communities to invest in flood
risk management measures" (recommendation 24). Defra has
recently consulted on such a scheme, referred to as 'payment for
outcomes'.[3] By encouraging
cost savings to be found and contributions to come forward, more
outcomes can be achieved with the amount of Government funds available.
The reforms would also provide a stable long-term investment
framework within which more choices can be made locally about
which schemes go ahead each year.
5. Given the considerable sums of capital spending
being invested into flood defences in the UK, we believe it is
essential that Defra regularly reviews the evidence base on which
projections of increased flood risk are based. No model projecting
changes in sea level or changing weather patterns can ever be
perfect for all time and if future evidence were to emerge which
conflicted with the original projection or, for instance, suggested
that the pace at which sea levels were rising was starting to
slow, then the Department should take account of such evidence.
(Paragraph 36)
The Government agrees and will keep under review
the emerging evidence. There are plans to publish later this
year, new best practice guidance on the allowances recommended
for rising sea levels and other climate impacts when designing
flood and coastal defence schemes. This will be based on the
2009 UK Climate Projections together with other relevant analysis
and research.
6. Whilst Defra's recently published consultation
document on the future funding of flood and coastal erosion risk
management gives substance to the debate as to how to ensure that
beneficiaries provide a higher proportion of the funding for flood
defences, proposals are at an early stage of development. We
conclude that it is right that beneficiaries such as developers
should help fund new schemes, but it is by no means certain that
any shortfall in central Government funding will be made up at
this stage by contributions from other sectors, particularly the
local government sector which is already contributing to funding
many local flood defence projects. Clear principles and methods
must be agreed urgently amongst all interested parties to secure
funding from all sources to meet the Government's flood defence
objectives in the next few years since timely investment in flood
defences provides significant economic and social returns. We
note Defra's assurance that public funding will be focussed on
those communities at greatest risk who are least able to protect
themselves and recommend that Ministers spell out in their consultation
response how such communities will be identified and how their
protection will be achieved in practice. (Paragraph 37)
The Government agrees that, after due consideration
has been given to responses to the consultation, clarity will
need to be given to any party expected or able to make a contribution
to the costs of flood and coastal erosion risk management. Defra
would like to offer Committee Members a discussion with officials
to discuss the consultation proposals in detail if they would
wish.
Government is not assuming that any shortfall in
funding is met by local government. Local authorities, working
closely with other flood and coastal risk management partners,
can consider who stands to benefit overall as a result of the
Local Flood Risk Management Strategy being implemented. They
may wish to seek contributions from all parties that stand to
benefit from the schemes expected to go forward as a result of
the strategy, including schemes planned by the Environment Agency.
In doing so the local partnership can seek to ensure both the
costs and the benefits of the planned activity are shared between
areas and sectors in a way that is fair and reflects local circumstances
and ability to pay.
As funding from Government for the scheme would be
fixed on the basis of outcomes the new system proposed would provide
an incentive to find ways of achieving outcomes more cheaply,
so in many cases any funding shortfalls may be met through cost
savings alone.
We note the Committee's concern about how communities
at greatest risk who are least able to protect themselves will
be identified. The consultation document states that higher payment
rates will be applied where households are identified as being
at significant or greater risk (i.e. where the annual likelihood
of flooding is 1 in 75 or greater), using standard risk assessment
approaches already in use by risk management authorities. The
highest payment levels would be made where households are at significant
or greater risk, and reside within the 20% most deprived parts
of the country according to the Index of Multiple Deprivation.[4]
The previous set of outcome measures also promoted delivery in
the most deprived areas so use of the Index has become standard
practice amongst authorities.
7. We recommend that the Environment Agency provides
the Committee with an update in May 2011 on how the allocation
of Defra's CSR funding will impact on its flood programmes and
by the end of 2011 on how its efficiency programme has impacted
on its flood defence work. (Paragraph 38)
The Environment Agency, in conjunction with Defra,
will be happy to provide the Committee with an update in May and
again at the end of the year on the impact of the spending review
in relation to the flood programme and flood defence work.
Flood insurance
8. There is an urgent need for the Government
to reach agreement with the insurance industry on the provision
of flood insurance to millions of homes and businesses in flood
risk areas since the current 'Statement of Principles' is set
to expire in 2013. The renewed agreement should ensure that investment
in flood resilience measures by householders is reflected in the
insurance premiums they pay. Defra should provide the Committee
with an update on progress on this within six months. (Paragraph
41)
Defra hosted a Flood Summit on 16 September 2010
to discuss flood risk management and the challenges involved in
flood insurance. Three working groups are now continuing the
dialogue on flood insurance and risk reduction and putting in
place a roadmap to take us beyond 2013. The working groups will
report back on progress to Ministers in March, followed by reporting
to the summit group at a follow-up meeting in July. We suggest
that a report on progress be made to the Committee shortly after
this event.
Agriculture and flood defences
9. While the evidence suggests that the impact
of flooding on agriculture is not as costly as on other sectors,
greater recognition of the value of flood defence works undertaken
by agricultural landowners is needed. The Water White Paper and
Natural Environment White Paper must fully reflect the potential
role of agricultural practices in assisting the achievement of
flooding objectives. Where agricultural land is used for flood
defence and mitigation purposes, the owners and farmers should
be properly compensated. (Paragraph 45)
We agree that any potential role of agricultural
practices in reducing flood risk should be recognised. We also
agree that any co-benefits or relationships between land management
and flood risk reduction should be reflected in Defra's policy
development.
The funding reforms, upon which we recently consulted,
are intended to help facilitate and encourage farmers to invest
in their local defences and reduce the risks to agricultural land.
Because the new funding approach is a payment for outcome system
it should also support any opportunities for agriculture to contribute
to flood risk reduction if that can be achieved through land management
change.
Compensation is already paid to landowners where
damage occurs to property in the course of carrying out a flood
or erosion risk management scheme. This will continue under the
new arrangements. The compensation in this case is for any damage
caused by the flood management works, not damage caused by flooding
or erosion.
Payments will also continue to be made to landowners
to reflect any loss of value or income due to flood storage schemes
that involves deliberately flooding land in one place to reduce
the damages elsewhere. In principle, payments could also be made
to farmers or landowners for changes in land management undertaken
to reduce flood risk to the wider community where it is a technically
sound and cost effective means of reducing the risk. Defra is
promoting a series of demonstration projects to explore such relationships
and inspire more such locally led initiatives.
10. We note with concern that final arrangements
have yet to be made for administering payments under the Rural
Development Programme for England after the abolition of the Regional
Development Agencies. Defra should set out clearly in its response
to this report how it will manage the transitional arrangements
in order to ensure that this inter-regnum does not hinder work
to encourage landowners to implement measures to support water
management and flood defence work. (Paragraph 46)
Regional Development Agencies (RDAs) have undertaken
valuable projects under the current programme to support water
management and flood defence. Many of these projects have run
in conjunction with the Environment Agency and Natural England
who will continue to take this work forward and to add their experience
and expertise across the country. For example, both bodies have
been involved from the outset in the design and development of
the Soils for Profit strand of South West RDA's Agricultural Resource
Management programme.
Defra is working closely with the RDAs to ensure
the smooth transition of RDPE delivery and to minimise any disruption
to potential applicants and current Programme beneficiaries.
The new delivery arrangements will provide a nationally consistent
approach to delivery for the remainder of the Programme, based
on a stronger lead from Defra and a sub-national network of delivery
support which delivers efficiencies but provides locally accessible
support. In particular, Defra is working closely with the RDAs,
Environment Agency and Natural England to identify current RDA
programmes and projects which are achieving Water Framework Directive
(WFD) outcomes. Defra is also working with the Environment Agency
and Natural England to ensure that agri-environment schemes are
targeted to areas where multiple benefits can be realised, including
reducing flood risk. This is to ensure that the transitional
period will not adversely affect work that is contributing to
water quality outcomes and flood management across the country.
11. We recommend that the Water White Paper set
out a clear framework for planning for new developments in flood
risk areas, building on existing planning policy, including principles
for the apportionment between public agencies and private beneficiaries
of the costs of providing flood defences for new developments.
(Paragraph 49)
The Government has made commitments to deliver planning
reform and prevent unnecessary building in areas of high flood
risk. Defra and CLG are working together to deliver a planning
system which allows for greater local decision making whilst also
ensuring development is safe and sustainable from a flood risk
perspective. The Government is reviewing planning policy to produce
a single consolidated National Planning Policy Framework that
will complement and build on the planning reforms in the Localism
Bill, and which will set out the Government's economic, environmental
and social priorities for the planning system in England in a
single, concise document covering all major forms of development
proposals handled by local authorities.
We recognise the importance of finding the right
balance between public agencies and private beneficiaries in funding
of flood defences and will seek to reflect this in policy.
Internal Drainage Boards
12. Internal Drainage Boards are already seeking
to maximise the impact of their work including through implementing
improvements to their structure. However, the broader question
as to the necessity or otherwise of more substantial reform of
IDBs was left unresolved at the time of the last election. We
favour a localised, incremental approach to any reform as opposed
to a "one size fits all" model imposed centrally. We
recommend that the Water White Paper set out the broad principles
for the evolution of the relationship between IDBs and other agencies
with drainage functions over the next 5 years, allowing for local
implementation according to the specific needs of each area.
Defra should consider allowing IDBs to retain levy money currently
paid to the Environment Agency for maintenance of river courses
so that IDBs can use their skills and equipment to undertake these
functions directly where appropriate to local circumstances.
(Paragraph 53)
The Government recognises the important work that
Internal Drainage Boards (IDBs) currently undertake in respect
of water level management.
The government is clear that it does not wish to
impose one size fits all solutions on IDBs. Richard Benyon (Minister
for Natural Environment and Fisheries) wrote to all IDB Chairmen
in August 2010 explaining this. The Government recognises that
local people are generally best placed to decide what works in
their area.
Defra is currently in discussion with the Association
of Drainage Authorities (ADA), IDBs and local authorities on possible
changes that follow on from the 2009 consultation, to improve
and enhance IDBs. We intend to consult on these changes and at
that point to set out general objectives and principles. Those
proposed changes are:
- Seeking to streamline procedures
(including those that relate to approval of amalgamations, boundary
changes and changes in rules of procedure) by giving the Environment
Agency a decision-making role other than in contentious cases
rather than requiring these changes to be made by Order and approved
by Ministers, as well as simplifying the processes involved.
This is intended to make IDBs more flexible and able to respond
to change more rapidly as well as reduce administrative costs.
- Strengthen governance systems and incentives
for efficiency, by providing for the composition of Boards to
reflect sources of funding and for Boards to include members representing
the wider environmental interest.
- Give IDBs a sustainable development duty in relation
to their land drainage function to align this with their flood
risk management function, taking into account the impact of drainage
on the wider environment—including carbon stores.
- Making provision for IDBs to be given related
functions in order to take advantage of synergies and opportunities
for efficiency.
The Public Bodies Bill as drafted would allow for
these changes.
Defra is considering whether any further changes
are required in relation to supervision of IDBs, as these
powers are currently with the Environment Agency, but the Flood
and Water Management Act 2010 gives upper tier local authorities
a lead role at a local level on flood risk management.
Defra is also considering what changes should be
made to funding arrangements and will consider this recommendation
by the EFRA committee as this work progresses.
Customer engagement
13. Despite successes in securing a good deal
for customers, there is considerable scope for better integrating
customer views within the price setting process. We recommend
that the Water White Paper puts at its heart the strengthening
of customer representation, and should include proposals for a
regulatory mechanism which better links customer priorities with
regulatory outcomes. In determining the final structures of organisations
such as the Consumer Council for Water, the Government should
recognise the value of an independent body that is able to challenge
the regulator's approaches. (Paragraph 64)
The Government and Ofwat are looking at the options
for ensuring customers views are appropriately taken into account
during the price review process. We are reviewing existing arrangements,
including the role of the Consumer Council for Water, and consulting
a wide range of stakeholders. The Water White Paper will set
out the policy for ensuring that customer views are given appropriate
weight alongside the other factors the regulator needs to consider
in setting water prices.
Social tariffs
14. Social tariffs can help to ameliorate the
impact of rising bills on low income customers, however opinion
is divided as to whether such assistance should be funded through
a levy on water customers' bills or from central taxation as part
of the welfare and benefits system. We consider that if social
tariffs are to be funded from water bills, the desirability of
helping individuals must be balanced with the interests of other
customers who pay their full bills plus the additional costs of
providing such assistance. The Water White Paper must spell out
clearly the extent to which the Government envisages that national
social tariffs will be used to address problems low income customers
face in affording their water bills. (Paragraph 66)
The Government recognises that there is a balance
to be struck between providing assistance to households with water
affordability problems and the acceptability to other water customers
of providing this cross-subsidy. This holds true for both national
social tariffs and company social tariffs.
Ahead of the Water White Paper, the Government is
considering options around enhancing the current national WaterSure
tariff to provide greater support for those vulnerable and low
income households that face the highest bills and how this support
should be funded. We are also preparing guidance on company social
tariffs under Section 44 of the Flood and Water Management Act
2010. This includes consideration of acceptable levels of cross-subsidy
between customers. We are aiming to publish our draft guidance
for consultation in the summer.
Metering
15. Metering has a key role to play in helping
to reduce water demand. Such reduction is essential given increasing
pressure on water resources in some parts of the country. The
current approach of introducing metering in a piecemeal manner
means that the charging system is under stress, with those on
unmetered supplies bearing a progressively higher proportion of
costs. A comprehensive, robust and fair charging system for the
future is needed with higher levels of metering forming the central
pillar. (Paragraph 71)
16. More widespread introduction of metering will
mean there are winners and losers and some, including groups of
vulnerable customers, could see significant rises in their bills.
It is therefore important that the costs of metering be kept
to a minimum, and this can best be achieved through a planned,
area-based programme of introduction. Variable tariffs to incentivise
more efficient use of water could help to keep bills down for
many customers. We recommend that the Water White Paper set out
a clear strategy for implementation of metering and for variable
tariffs to help spur water efficiency. (Paragraph 72)
The scope for innovative tariffs, including tariffs
that encourage water efficiency, will depend on the extent of
metering in a company's operating area. The Government is considering
its policy around metering and water efficiency and will set it
out in the forthcoming Water White Paper.
Regional price variations
17. We would not wish to see a solution to water
prices in the South West region which merely redistributes the
costs among customers within the region, nevertheless Ministers
must ensure that any solutions help to protect low-income customers
across the country. Although the South West region presents the
most immediate problem, large-scale capital investment is likely
to be needed in a number of regions in coming years to meet environmental
requirements with consequent impacts on bills for many other customers.
We recommend that the Water White Paper set out a sustainable,
long-term set of principles for determining how the costs of nationally
significant environmental projects should be paid for in future.
To balance the needs of those in regions with disproportionately
high water bills with the need to be fair to other customers elsewhere
in the country, the solution could lie in a number of options
which include some form of hybrid option applied nationally which
has elements of social tariff to help those in greatest need but
which is weighted to recognise the substantial regional variance
in bills when compared to the national average. (Paragraph 82)
The cost of providing water and sewerage services
in an environmentally sustainable way varies across the country.
These costs are met by water customers at the company-specific
level. The Government has no plans to change this arrangement.
At the same time, we recognise that water affordability
is a problem for some households in the South West and elsewhere.
We also recognise that the profile of water bills and water affordability
between different companies are likely to change over time.
In the budget, the Government reiterated its commitment
to supporting households who face water affordability pressures
and households in areas with particularly high water bills, such
as the South West. The Government will consult shortly on proposals
to address water affordability. This will include reforms to
the existing WaterSure scheme, the introduction of company social
tariffs and options for additional government spending to provide
further support.
Bad debt
18. We recommend that the Water White Paper set
out proposals to fortify the ability of water companies to recover
debts from those able to pay. These could encompass measures
such as enabling water companies to secure tenant information
from landlords of all types of property (not just residencies),
enabling water companies to pursue debtors through Magistrates
courts and instituting a contractual basis for household water
supply which defines enforceable customer responsibilities. (Paragraph
86)
Tackling the problems of bad debt in the water industry
will be an important part of the Water White Paper. As part of
this process, the Government is considering the costs and benefits
of a regulatory approach compared to alternative options. The
Government is not minded to enable water debtors to be pursued
through Magistrates' courts as it wants to avoid placing new burdens
on Magistrates' courts and sees non-payment of water bills as
a civil matter rather than a criminal matter.
Under existing legislation in the Water Industry
Act 1991, the occupier of a property is legally liable for payment
of water bills. However, occupiers do not have to provide details
to companies in order to secure service. Companies are able to
find out details of property owners via the land registry, however
where the occupier is not the owner and has not provided their
supplier with their details this has prevented suppliers from
pursuing payments. Defra, in partnership with the Welsh Assembly
Government, is currently developing proposals for regulations
to implement Section 45 of the Flood and Water Management Act
2010 to require landlords to provide details of tenants occupying
their properties to water and sewerage companies. Holding this
information about customers will make enforcement of the existing
legislation around liability easier.
Competition and innovation: the Cave Review
19. Increasing competition in water supply will
not solve all the problems of rising water prices, but we note
the strength of support for the view that benefits are to be had
by a measured introduction of competition into the water industry
in England. Although the structure of the water industry in Scotland
is very different, we were impressed by the benefits delivered
to customers through competitive pressures on the industry. However,
the water industry has legitimate concerns that changes to the
regulatory and competitive regime could incur costs which outweigh
savings, particularly if uncertainty over changes were to increase
companies' cost of capital. It is therefore vital that competition
in the water industry is introduced at a measured pace. The Water
White Paper must set out clearly how greater competition will
be balanced with maintaining confidence by investors in the future
structure of, and regulatory controls over, the industry. (Paragraph
94)
The Government agrees with the Committee that introducing
a competition framework such as that in Scotland could bring similar
benefits for customers in England and Wales. The Government is
concerned that the existing competition regime for large non-household
customers in England and Wales is not working effectively. It
has therefore failed to deliver any significant benefits for those
customers that are eligible to switch suppliers and has not initiated
any change in water company behaviour towards customers such as
has been seen in Scotland and in other competitive utility sectors.
We will outline in the Water White Paper our response to Martin
Cave's review recommendations to reform the sector.
The Government recognises the Committee's concerns
around water company financing and has set up the Market Reform
and Finance Forum to consider such issues. The Forum, which is
chaired by Defra, brings together Government Departments, Ofwat,
Water UK and water companies to consider how market reform could
have an impact on future financing decisions. The discussions
within the Forum will add to the body of evidence that has been
developed in response to the Cave Review and help inform the market
reform policy outlined in the Water White Paper.
20. There is a short time during which changes
to the regulatory regime can be made if price-setting processes
are not to be disrupted with consequent costly uncertainty for
the water supply industry. We are concerned about the potential
for slippage in the timetable for any water legislation necessary
to implement the Water White Paper proposals, particularly in
respect of proposals to change the structure of the water supply
industry. We recommend that the Government sets out how its timetable
for introducing necessary statutory provisions will enable key
provisions to be in place in time to allow a smooth transition
to the next price control period starting in 2015. (Paragraph
96)
The Government is mindful of the timetable for the
next Price Review period and of the need to provide as much certainty
as possible for the water industry. To that end, the Government
has committed to publishing a Water White Paper setting out our
policy reforms and a clear timetable for their introduction, including
any legislative changes required. We will introduce new regulation
only where it will be the most effective way of achieving policy
outcomes.
Environmental and economical sustainability of
water supply
21. Defra and the Department for Communities and
Local Government should consider further the potential for the
planning system to ensure that new developments do not jeopardise
water supplies in areas of water stress, for example by placing
a statutory requirement on all those making applications for developments
consisting of more than 10 homes or on sites larger than 1 hectare
to consult water and sewerage companies. (Paragraph 98)
The Government has made commitments to deliver planning
reform and ensure new developments do not jeopardise water supplies
in areas of serious water stress. Defra and CLG are working together
to deliver a planning system which allows for greater local decision
making whilst also ensuring development is sustainable from a
water supply perspective. Defra and CLG will consider the case
for a statutory requirement for consultation with water and sewerage
companies on those making applications for specified developments.
Abstraction regime reform
22. Future challenges for water supply in some
parts of the UK include the impact of climate change, population
growth and new development on water availability. To ensure adequate,
clean and affordable water supplies in the long-term, the UK must
place sustainability at the heart of its water policies. The
previous Government's policy documents included laudable ambitions
in this respect but insufficient progress has been made in putting
in place specific mechanisms to achieve these aims in practice.
The forthcoming Water White Paper must set out specific measures
that will enable the wider value of water to be reflected in policies
and charges. It should include proposals for amending the regulatory
framework for determining prices so that demand-side measures
can be better incentivised. The White Paper must also set out
a clear programme for reform of the abstraction licensing regime,
with a long-term aim of introducing water trading. This must
explain how a fair transition to any new regime is managed, including
recognition of the rights of those with existing abstraction licences.
(Paragraph 104)
Securing water resources for the future is crucial.
We recognise that the pressures of climate change bring significant
risks of increasingly variable and reduced water availability.
Population growth, lifestyle changes and economic growth will
lead to increased demand for water in the future. We will be
outlining our direction of travel and programme for reform to
respond to these challenges in the Natural Environment White Paper
and in more detail in the forthcoming Water White Paper. In the
longer-term we also want to ensure that demand for water is more
responsive to the available supply. We are already working closely
with the Environment Agency and Ofwat to look at reducing the
barriers to water trading, so that water is available to those
who need it, but this should also be a key element of any future
system.
Water and energy efficiency
23. Water saving through greater efficiency of
use will become increasingly important, especially in parts of
the country where climate change and population growth will lead
to significant constraints in supply. We consider that the regulatory
framework under which water prices are set must be reformed to
include stronger water efficiency targets for water supply companies.
We recommend that regulatory bodies work more closely together
than they have to date to ensure that energy-saving and water-saving
initiatives are not developed in isolation. The regulators and
industries should grasp the opportunities to learn from each other's
experiences and develop joint approaches which might most effectively
engage customers. (Paragraph 108)
Ofwat has set an annual target for each company to
save at least one litre of water per property per day, on average,
by promoting water efficiency; these targets will be reviewed
in 2013. Where additional water efficiency measures represent
a cost-effective option for the supply-demand balance within the
Water Resources Management Planning framework, then the companies
will do more than the minimum level set in the target.
The Government agrees that there are benefits to
be gained by energy and water efficiency programmes working more
closely. Under the Energy Bill, the Government plans to introduce
the "Green Deal" to allow people to finance energy efficiency
improvements to homes, community spaces and businesses at no up-front
cost, with payments being recovered through a charge on the energy
bill. It is expected that a range of financial institutions and
High Street names will be involved in offering Green Deal finance.
Measures that provide hot water can be financed through this
scheme, provided that they meet the "golden rule" of
the Green Deal, which is that the expected financial savings must
be equal to or greater than the costs attached to the energy bill.
In addition, the advice which will be given to consumers in advance
of their taking on a Green Deal plan will include wider information
about the steps they can take to improve the sustainability of
their homes, such as information on water efficiency.
Water quality
24. The UK is in danger of missing the Water Framework
Directive's (WFD) challenging targets for water quality. Urgent
action is required not just from the water supply industry, but
from a range of individuals and organisations including rural
and urban landowners and industries. The WFD's methodology for
measuring water quality is problematic and could be imposing costs
which are out of proportion to the level of environmental benefit
delivered. We recommend that the UK Government initiates a review
within the EU of the scope to achieve the environmental improvement
aims of the Water Framework Directive and Urban Waste-Water Treatment
Directive in a more cost-effective manner. (Paragraph 113)
The Water Framework Directive (WFD) does include
a complex methodology of assessment, but this is in part due to
the challenge it sets to improve the aquatic ecosystem as a whole
rather than just the water supply. It is possible within the
terms of the WFD to set lower standard objectives, to ensure we
do not encounter excessive costs for limited benefit. The WFD
is therefore unique in comparison to some of the other water directives
as it allows us to take into account social, environmental and
economic considerations when setting objectives. The European
Commission has already embarked on a review of current EU water
legislation, to consider whether it is effective in delivering
its desired outcomes and the UK will be participating fully in
this review.
25. The Water White Paper should set out proposals,
with a costed timetable, as to how current EU water quality targets
could be met and who will bear the costs, including measures to
engage landowners and industries from all sectors in addressing
diffuse water pollution. (Paragraph 114)
Defra's Impact Assessment[5]
for implementation of the Water Framework Directive (WFD) set
out the expected distribution between sectors in order for England
to achieve our WFD objectives in regards to the estimated costs
and types of measures to be deployed. However the information
that supported this assessment was based on the Environment Agency's
original monitoring system and assessments, which pre-dated the
start of the new WFD monitoring system.
Uncertainty about the classification results and
the reasons for failure due to the newness of the monitoring programme
played a significant role in the development of the first set
of River Basin Management Plans (RBMPs). As a result of this
uncertainty the impact assessments that accompanied each RBMP
did not clearly set out the distribution of costs and measures
between all sectors. Significant further work is therefore being
undertaken during the first river basin planning cycle to ensure
that the second cycle plans address this.
Connections to the public sewerage system and
misconnected drains
26. Water and sewerage companies are responsible
for managing the public sewerage system in their areas so it is
vital that they have adequate powers to permit or disallow connections,
particularly where they will incur additional costs as a result
of connections from new developments. Defra should give water
and sewerage companies a statutory right to be consulted over
planning applications for new developments where these include
connection to the public sewerage system. Defra should also produce
guidance within three months of regulations being made under the
Flood and Water Management Act 2010 to enable water and sewerage
companies to make early use of agreements on the adoption of new
drainage systems. (Paragraph 116)
The Government agrees that the existing framework
for charging developers for new connections for water and sewerage
is complex and could be improved to the benefit of both parties.
We also agree that close cooperation between water and sewerage
undertakers and planning bodies assists long term planning and
an understanding of the issues. We do not believe that a statutory
role in planning applications is necessary as potential problems
with sewerage are already a material consideration in planning
cases. Additionally, the Flood and Water Management Act 2010,
once that section is commenced, will give sewerage companies a
statutory role in any application to a SuDs approval body if it
is proposed that a connection is made to a public sewer. The
Act will also ensure that new foul drainage may only be connected
to the public sewerage system after entering into an agreement
for its adoption by a water and sewerage company, including agreement
of the standard to which it is designed and constructed.
Guidance on the adoption by water and sewerage companies
of sewerage assets under the provisions of the Flood and Water
Management Act 2010 is under preparation and will be published
alongside commencement of the new provisions.
27. The current legislative framework does not
give water and sewerage companies adequate powers to put right
problems with drains and sewers that have been incorrectly connected.
Given the significant contribution of such misconnections to
water pollution, water and sewerage companies need strengthened
rights so that they can rectify connection problems without having
to involve third parties. We recommend that the measures included
in the consultation on the draft Flood and Water Management Bill
be brought forward for legislation at the earliest opportunity.
(Paragraph 118)
With the Environment Agency and some water companies
reporting close to 100% success rates with non-regulatory solutions
to misconnections, the Government will support these approaches
to tackle both current and future sewerage misconnections. The
vast majority of owners and occupiers in our society do not want
to pollute their environment and rectify misconnections upon learning
of them.
Given the legal framework already in place, the Government
is reviewing the case for giving water companies further powers
to put right misconnections. We must consider the appropriateness
of imposing powers of entry and criminal sanctions—which
may be needed to make such a regime work—and whether regulatory
intervention is justified.
Defra recognises that to tackle existing misconnections
and discourage new ones we need more than legal powers alone.
Better detection, education of owners and installers, and collaborative
working between water and sewerage companies, the Environment
Agency and local authorities all have their part to play. We
will continue to support the industry-led Connect Right
campaign.
Private sewers and lateral drains transfer
28. The transfer of private sewers is a technical
issue that might have passed below the radar of many water customers
even though it could cost them an additional £5-£14
a year. What concerns us more, however, is the lack of certainty
about the potential costs of the transfer since no detailed assessment
has been made as to the scale and condition of the infrastructure
affected. We would not wish to see the proposed transfer delayed.
However, Ofwat must explain when and how further clarity will
be provided on the costs companies will pass on to their customers
and the safeguards in place to protect customers from unreasonable
increases in charges. The regulator must also ensure that water
and sewerage companies explain clearly to their customers the
reasons for the charges and how these have been calculated. (Paragraph
122)
The actual expenditure associated with the ownership
and maintenance of private sewers will only be revealed over time
as companies respond to faults, and build up a picture of the
transferred assets. It is for the companies and not Ofwat to
work out the costs they face.
Ofwat has cited the adoption of private sewers as
a new obligation in respect of which companies will be able to
seek recognition of significant financial costs incurred before
2015 via the interim determination mechanism in 'Future water
and sewerage charges 2010-15: Final determinations' (at 4.9.6
and 5.3.1). Costs forecast to be incurred beyond 2015 will be
subject to the normal price control process and be discussed with
customers through the usual route of customer engagement and market
research. Ofwat scrutinises all applications for an interim determination
of prices by companies to ensure that customers' bills rise by
no more than they need to. The regulator consults on draft decisions
on prices and considers carefully the comments from customers'
representatives and the companies before reaching final decisions.
These are then explained via media briefing and letters to the
companies posted on Ofwat's website.
There are no formal requirements on companies to
communicate about price changes. However, in line with established
practice, both Ofwat and Defra expect prudent companies to explain
to their customers very clearly the reasons for any application
for an interim determination and the benefit that customers should
derive from adoption.
Conclusions
29. We welcome the focus that the Government is
giving to the vital policy area of water and flood management.
The recommendations in this report will assist Defra in developing
proposals for the Water White Paper and Natural Environment White
Paper to be published in the first half of 2011. (Paragraph 123)
The Government is grateful to the Committee for its
recommendations and for the work of the Committee and those who
provided evidence to it. The Department will use the report's
findings to help in the development of the Natural Environment
White Paper and the Water White Paper.
30. The Flood and Water Management Act 2010 is
the focus of a number of our recommendations on flood policy.
Commencement of the Act's provisions which have not yet been
brought into effect must be a priority. We have made a number
of recommendations about the implementation of specific measures
in the Act, such as those relating to sustainable drainage systems.
Defra must address more general concerns about how public bodies
under tight budgetary constraints can fulfil their leadership
and strategic roles on flooding. To cut back significantly on
flood defence infrastructure spending could be a classic example
of short-term savings leading to much greater long-term costs.
Future flood defence work must be sufficiently resourced in accordance
with a balanced approach to risk management. (Paragraph 124)
The implementation of the Flood and Water Management
Act 2010 is a high priority for Government, as shown in Defra's
business plan. However it is important that new responsibilities
are not imposed in advance of authorities' capability to deliver
them and that robust technical guidance and secondary legislation
are developed where appropriate.
The funding being provided to Lead Local Flood Authorities
through direct grants is expected to fully fund their new responsibilities
under the Act. The proposal to extend capital grants, through
the payment for outcomes proposal, to all sources of risk should
enable further funding to be provided to authorities to tackle
local flooding issues.
31. A number of our recommendations relate to
aspects of water management which the forthcoming Water White
Paper should address, and where legislative measures might be
needed. In particular the White Paper should develop proposals
to implement the findings of the Walker Review on charging for
household water and sewerage services and the Cave Review on competition
and innovation in water supply. It should also include specific,
practical proposals to ensure that the price of water captures
the full range of externalities, particularly those relating to
sustainability and environmental protection, in order to drive
the right investment decisions by the water industry and the most
beneficial behaviours by customers. This will entail a range
of measures in areas such as metering, charging for household
water supply and water trading. (Paragraph 125)
As stated above the Government is committed to responding
to the Walker and Cave reviews in the forthcoming Water White
Paper, which will look at how the right behaviour for customers
and industry can be incentivised.
32. The Ofwat review is central to the development
of many sustainable water management policies, and it is clear
from the evidence we received that the regulatory regime needs
to be sharpened to enable it to respond better to the challenges
of the future. The Water White Paper provides the opportunity
to reform regulation to provide a stable basis for the long-term
future of the water industry and we look forward to the Government
bringing forward comprehensive legislation during 2011, to reach
the statute books by 2012, well in advance of the next review
of water prices. We would wish to further consider issues raised
in this report in the light of proposals contained in any such
legislation. (Paragraph 126)
The Committee Chair will be aware of the interim
findings set out by David Gray. We look forward to the Committee's
further engagement upon the Ofwat Review's publication and upon
that of the White Paper and any subsequent legislation.
Department for Environment, Food and Rural Affairs
March 2011
1 http://www.defra.gov.uk/corporate/about/what/documents/defra-businessplan-101108.pdf
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2
http://publications.environment-agency.gov.uk/pdf/GEHO0609BQDF-E-E.pdf Back
3
http://www.defra.gov.uk/corporate/consult/flood-coastal-erosion/101124-flood-coastal-erosion-condoc.pdf
Back
4
www.imd.communities.gov.uk Back
5
http://www.defra.gov.uk/environment/quality/water/wfd/documents/RIA-river-basin-v2.pdf
(February 2008) Back
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