Environment, Food and Rural Affairs Committee - Minutes of EvidenceHC 374

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Tuesday 27 March 2012

Members present:

Miss Anne McIntosh (Chair)

George Eustice

Barry Gardiner

Neil Parish

Ms Margaret Ritchie

Amber Rudd


Examination of Witnesses

Witnesses: Richard Benyon, Parliamentary Under-Secretary for the Natural Environment and Fisheries, and John Bourne and Gabrielle Edwards, Deputy Directors, Water Availability and Quality Programme, Department for Environment, Food and Rural Affairs, gave evidence.

Q250 Chair: Good afternoon and welcome, Minister. Thank you very much indeed for being with us and giving evidence on the Water White Paper. Please introduce your team for the record.

Richard Benyon: On my right I am flanked by Gabrielle Edwards and on my left by John Bourne, both of whom are Deputy Directors in the Water Availability and Quality Programme in Defra.

Q251 Chair: Minister, I would have expected the White Paper to contain more about water efficiency, given the present backdrop of the drought, which must have been in people’s minds.

Richard Benyon: The drought is a very serious problem, and we are tackling it in a whole range of ways. We can use it to put out some very serious messages on water efficiency. We think that there is a lot of potential to develop innovation and resilience in various elements of industry. The theme that underpins the White Paper is resilience. I think there is enough in it to address the fact that water is a declining resource, that we are facing extremes of climate change and that we need to be resilient to weather patterns such as the present one. I think there is a lot in the Water White Paper that addresses that.

Q252 Chair: We will come to metering in a moment. One looks at the Anna Walker report and the Pitt report to a certain extent. Anna Walker made quite a large number of recommendations on water efficiency that might have worked their way into the White Paper. Was the decision taken not to do that, and might we expect them in the draft Bill?

Richard Benyon: Specifically on metering?

Q253 Chair: Not metering, but water efficiency measures such as those set out by Anna Walker.

Richard Benyon: Which ones in particular?

Q254 Chair: Water butts, and educating householders and businesses to take more water efficiency measures.

Richard Benyon: Tomorrow I am launching a scheme that we are very keen on, which is connecting people with water. That theme is also evident in the Natural Environment White Paper. When we flick a light switch, we do not relate that-I am guilty of it myself-right through to the effect it has on the environment. With water, when people see their rivers running dry and the impacts of over-abstraction, there can be that connection right through to the water coming out of their taps. Water is a fantastic medium for teaching, and there is a whole range of ways in which we can connect people more closely to the need to conserve water. The Water White Paper deals with the sorts of things on which the Committee and, I hope, Defra are great experts.

Chair: It is a very nice answer but it does not address the question.

Richard Benyon: But it also deals with things at the other end of the pipe, which are the incentives for households to use less water. We think this is equally important. There are many different buttons we can press that address that, and the plan that I am launching tomorrow will be fundamental to this.

Q255 Chair: Was there a particular reason it was not in the White Paper, given the fact that it is meant to wrap up a lot of the issues in the Anna Walker report?

Richard Benyon: Water conservation was in the White Paper. It said that everyone had a role to play in encouraging efficient water use. We are working through organisations such as WRAP to promote water efficiency. We are leading by example. Defra is using 21% less water. These are important things. Of course, the hot water scheme is part of the Green Deal and is fundamental to that. The central theme of the Water White Paper was one of resilience to the kind of weather we are facing right now, so it is at the heart of what the Paper is seeking to do.

Q256 Chair: What is the proposed legislative timetable for the draft Water Bill?

Richard Benyon: The Water Bill is being drafted as we speak. As was said to you by the Prime Minister in reply to your question, it will be available to your Committee for full prelegislative scrutiny. What is or is not in the Queen’s Speech is above my pay grade, but I very much hope you feel it is a Bill that sets out clearly what we are trying to achieve in terms of retail competition, complementary changes to Ofwat’s regulatory regime and all the other environmental permitting regulations and suchlike. I think it will deal with a lot of the stuff that was not in the Flood and Water Management Act. Then there are the abstraction reforms, which we will come on to.

Q257 Chair: We are coming to that. Given the fact that you are not in charge of the legislative programme, what is the legislative timetable? What do you see as the end date for when it might be implemented?

Richard Benyon: Gabrielle has been working closely with the parliamentary draftsman.

Gabrielle Edwards: We will publish the draft Water Bill in the coming months. Clearly, we will need to talk to the Committee about the timetable for prelegislative scrutiny after that, but I am assuming that will take a number of months. We would then need to take account of your report, so that will take us into next year.

Q258 Neil Parish: On abstraction, Anglian Water are very keen to say that the end date for reforms of licensing is 2027. Environmental groups are concerned about this lengthy timescale for abstraction reform. What progress to date has been made to ensure that the momentum to reform is there? Is that timescale realistic in drought situations?

Richard Benyon: That is the date by which we want to have concluded the reforms of the abstraction regime. That is not to say that is the date when a button will be pressed and everything will be changed. There is a long process of addressing some 30,000 abstractions on which many businesses have grown to depend. They have borrowed money to invest in those businesses on the basis of having that amount of water. These are very complex matters to resolve. We will need legislative changes, which we think will be introduced in the early part of the next Parliament, but there is a lot of work that we are doing now, and that can be done in parallel, to address that. We are taking short-term measures right now, for which we do not need legislation, to resolve some of the issues about over-abstraction. We will be working closely with the abstractors to make sure we manage the change to a system which goes back to the 1960s and is simply not fit for purpose today.

Q259 Neil Parish: Naturally, environmental groups are quite right to be worried about the rivers but, if you move into a situation where water is in short supply and you need that water for human consumption, how will you deal with those competing forces?

Richard Benyon: There are a number of tools one can use. You are absolutely right. We have to make sure that we can address the problems of over-abstraction and damage to the environment, with important rivers that are the lifeblood of communities just disappearing, but the taps still have to flow. That is why we need to work through it in a balanced way. The Government have a very powerful tool to operate this year. I refer to the provisions of the Water Act 2003 that allow us to remove without compensation an abstraction licence that is causing serious damage to the environment. These are measures one could use in that sense from July. There are other shortterm measures we can be using, but the longer-term reform requires close working with the Environment Agency and abstractors. Over that period we may well find abstractions that are either being underused or could be used better, or are being used in a very damaging way that need to be addressed more urgently.

Q260 Neil Parish: Many of these licences naturally do have value, as you say. Will you commit to incorporating restoring sustainable abstraction programmes within the resource management plans in time for them to be funded by the 2014 price review? Basically, we will have to try to buy out some of these licences and it could be quite expensive.

Richard Benyon: It could be very expensive, and that is another reason we need to get this right. It is important to have a robust evidence base; that is something we are absolutely determined to have in developing any new regime. Over the next 18 months we will be working on this to enable us to develop policy options. I will not be specific about any particular abstractors we can think of in our constituencies who, rightly, will be worried about the possibility of losing something they value very highly for their business, but it has been clearly set out in the White Paper that we can find solutions and we will take this forward in a timely manner.

Gabrielle Edwards: On the question about whether or not the RSA schemes for the water companies should move into the 2014 price review, the White Paper said that is where all the parties wanted it to end up. We have made good progress with Ofwat and the Environment Agency and have talked to the water companies about how practically that could be delivered. While we have not sorted out all the details, I am very hopeful that will be in Ofwat’s draft methodology for the price review later this year.

Q261 Neil Parish: In the long term are you looking at ways in which more recycled water could be used for crop production, which is a pet subject of mine?

Richard Benyon: Some of the upstream reforms we have announced in the White Paper allow new entrants to come in and offer recycling solutions. I have been impressed by some of the water recycling I have seen in the growing industry, and I think there is much that can be done to share water between neighbouring abstractors, in particular in the case of the farming community. A startling statistic that is always in my mind is that agriculture in the basic form of water abstraction is only a little over 1% of the total compared with energy and household use. Nevertheless, it has a big impact in certain areas, and food security is at the centre of our thinking in Defra. We need to get this balance right.

People have easy and quick solutions to these matters; they ask why we do not do this or that. They come up with binding binary solutions; you stop doing it this way and do it that way. That has an impact. We want to make sure we can continue producing good quality food in this country, that water continues to flow out of taps but that we can repair the environment. That is a very difficult thing to get right, but we think we have the means.

John Bourne: As to recycling water, the upstream reforms will help people come up with solutions. It seems to me more likely you will find that reuse of water will be used in factories and so on because they are close to sewers. The cost to agriculture of piping reused water from treatment for a long distance will be prohibitive. That does not mean it does not benefit agriculture, because the less water is being used by factories, etc, the less water is taken out of the environment and the more there will be in the environment near to farming to use. Reuse can be useful to farming, but it is less likely to be direct and more likely to be indirect. Horticulture might be slightly different.

Q262 George Eustice: I want to return to the point about the concern of environmental groups about lengthy timescales. We all know that in politics time is a powerful enemy. They made the very striking point that, when the 2003 Act was introduced, the changes to the then abstraction regime would take place in 10 years’ time, for precisely the reason that it would give companies time to reorganise themselves, prepare investors for change and all of those things. Now they have not prepared at all; they have squandered those 10 years and done nothing. When you press them on it, the message is, "Don’t rush it; we need more time." Is there a case for having key objectives along the 10-year route that you want to see delivered and achieved in order to get to the end point? Otherwise, there is a danger that all of it will just get lost.

Richard Benyon: I am sure this Committee will be a very good body to hold Government to its timeline on this. Let me set out what we propose to do. We are consulting in 2013 and will introduce legislation to reform the regime early in the next Parliament. By the mid to late 2020s, the new regime will be implemented, so it will not be like the Water Act 2003, which had provisions that kicked in 10 years afterwards. That is the timeline by which we want to see the new abstraction regime implemented and up and running. Would we like a system where we could wave a wand and change it tomorrow? Yes, but you cannot do that without damaging the interests of some key groups that we want to carry with us. I think that most green groups with whom I have been working would agree with that, frustrated though they may be with the time it takes to bring about these changes.

Q263 Chair: To return to abstraction before we move on, is there an assurance that livestock farmers will have access to water should the drought persist and worsen?

Richard Benyon: The new abstraction scheme will have to be equitable and fair. We are working closely with farming groups to make sure that there is adequate water. Can I make the statement now that in 2027 every livestock farmer will have the same amount of water? Livestock areas are predominantly, but not exclusively, those where there is plenty of water.

Q264 Chair: Is it the same amount as now, or the same amount as each other?

Gabrielle Edwards: We have put into the White Paper some principles for transition from one scheme to the other. We have said we would expect licences under the new system to be based in some way on licences under the old system, so we are not talking about taking licences away and going through a complete reallocation process. The licence may be different; it may have different sorts of controls over it, but the historic licenced volume will be reflected in some way in the new regime.

Q265 George Eustice: I was also interested in the idea of transfers of water between regions. You might recall that earlier this year there was some speculation started by United Utilities about a northsouth national grid for water that could be put alongside high-speed rail. I note that the Paper emphasises local connectivity and moving water resources around locally, but do you think there is scope for more national schemes along the lines they proposed?

Richard Benyon: United Utilities are a good case in point. They have just opened a very large connector with north Wales. It seems extraordinary that the year before last the north-west was in drought, but it is not this year. There can and should be greater connectivity. I am frequently written to, as no doubt you are, by constituents who say that a blindingly obvious solution to the problem is to run a vast pipe from Cumbria to East Anglia. It is not that simple. Looking at the case very carefully and the economics of moving water great distances-it is very heavy and energy and carbon intensive-the secret to it is greater connectivity between water company areas. Nature does this pretty well for us. The water we drink in London comes in part from the Cotswolds. We must not forget the value of nature in providing that ecosystem service. That is another impetus to find solutions to times of low rainfall like this. But the bulk trading incentives we want to see in the next price review and the incentives to greater connectivity will make it likely that we will see more movement of water from areas where there is plenty to areas where there is not. I am told that at the moment it is physically possible to move water from Kielder to East Anglia in a convoluted system of different drainage ditches and pipes. There is already that degree of connectivity.

The really good news is that a lot of water companies, building on experiences in the past-Yorkshire Water is one in particular-have developed a good way of balancing the system within their areas. We have to encourage them to connect with one another. I am impressed by what Water UK are telling me about how advanced their thinking is, and we want to work closely to make sure more of that happens.

Q266 Chair: Are you aware of the cost to Yorkshire of setting up their grid? It was millions of pounds.

Richard Benyon: Yes, it was; I remember that it was a huge amount of money. I also remember the problem. At the time I think it was the largest peacetime convoy ever seen. Water tankers took water to fill an empty reservoir. That resolution is part of the £90 billion invested by water companies in infrastructure, and it is a huge success story. Is there more that can and should be done to minimise the risks of low rainfall periods or just increase resilience in our system? Yes. The investment incentive is one of the real drivers of the vision in the White Paper.

Q267 Barry Gardiner: What is the most significant measure we can take with householders to promote water efficiency?

Richard Benyon: Do you mean behavioural change?

Q268 Barry Gardiner: Let me come clean. I am quoting Wessex Water, who said that the most significant measure to take would be metering. What is singularly lacking in the White Paper is any real aspiration on metering. It has been heavily criticised by environmental organisations and even by some of the companies themselves. The ones who have not criticised it are those who are achieving 80% metering in the next three years anyway and are therefore quite happy to see their competitors not do as well. Walker said it should be 80% by 2020. You have not done that. Why?

Richard Benyon: We do not think that metering is the total solution some people seem to suggest. It is an important part of making people more aware of the water they use, and there are undoubtedly some benefits when households move. But there are also some very significant costs for certain households, many of which are at the lower income end. We want to see a continued drive towards greater levels of metering and a clear understanding of the impacts of universal metering projects, such as the one Southern are introducing. We note that the highest level of metering thus far has been in South West Water; it is 83%. We all know the reason for that.

Q269 Barry Gardiner: I think it is 72% for South West Water.

Richard Benyon: Or it may be moving to 83% over the price review period. With apologies to Members from the south-west, the fact is that on average water costs £1 a day. That is, if you like, the greatest disincentive for people to change their behaviour. I want it firmly on the record that I am not suggesting we should increase the cost of water, because there are quite enough people who are defined as being in water poverty at the moment. We also touch on that in the White Paper, but the key point about metering is that it can have a dramatic effect initially. It drops back to about half that benefit fairly quickly. There are many other tools in the box, and one should not look just at metering as the solution, as some people suggest.

Q270 Barry Gardiner: I accept it is not a magic bullet but, given that it can have the effects with which you have just agreed, surely we can all say that we do not rely on it too much. It is not the only tool in the box, but it should be one of the key tools we use, and that is why the lack of aspiration in the White Paper on this is so striking and why people had expected you to go with Walker and say you wanted to set targets, even for 2020. It is the lack of direction here that is so surprising. It is not that you have to justify that there is not another set of tools; there are other ways of doing this, but this is a tool that you seem singularly reluctant to use, and people just want to know why.

Richard Benyon: Water companies can move towards universal metering, and in water stressed areas it is very much open to them to do that. I have seen the roll-out of the scheme in Southern Water; I have seen the high level of management it requires and the impact it can have both to the benefit but also in some cases to the cost of households.

Q271 Barry Gardiner: You have mentioned twice that for some households it will mean additional cost, and we all understand that.

Richard Benyon: That can be mitigated.

Q272 Barry Gardiner: Does that mean that the decision not to pursue metering with alacrity is a political one? Is it a fear of the political backlash that will come from perhaps larger families and larger users of water, and that makes it just too difficult to go down that road?

Richard Benyon: Not entirely. There are certain parts of this country where water companies have told me they would like metering as a way of better managing their water. They would be able to tell when there are leaks and look at peculiar levels of demand by certain communities at different times and manage and balance their water better. In other parts that are more stressed it is a direct tool available to them to be able to reduce water consumption. In discussion with Ofwat through the price review process, they will develop increased metering, or universal metering in some cases, with our support and clear determination that water companies should do more actively to promote metering for those who would benefit.

We decided not to promote a universal metering scheme. You say I have said it twice, so I will not repeat it, but the impact it has on certain households, initially anyway, can be damaging. I think the impact of metering on those on lowest incomes can be minimised by good working with organisations like Citizens Advice Bureaux and others and having what are called water doctors going into the homes of people on benefits and saying, "With these fittings, which the water company will provide free, and advice about how to do various household activities, not only can you use less water and pay lower bills but you will also be able to monitor it." I suspect that in 15 or 20 years’ time we will be wondering slightly why we are having this conversation, because we will be networked into our energy and utility usage in a much more electronic way. We will be able to tell remotely from our home exactly how much water and electricity we are using and manage our lives accordingly. I think knowledge is power. I would like to see more metering, but it needs to be done sensitively in areas where it is effective.

Q273 Amber Rudd: I understand that the sustainable economic level of leakage is the level at which it is no longer economic to correct those that exist, and Defra is now conducting a review of that. Are you concerned that leaving some leakages, however economic it may be to do that, will impact on the public’s willingness to engage in water efficiency measures?

Richard Benyon: The Environment Agency are carrying out this bit of work just to see whether the modelling of what is currently a sustainable economic level of leakage is right. The good news is that we have a nearly 40% improvement in the level of leakage, but if we have more problems such as we are facing at the moment, the economics can change. You can start to say there is a much more economically efficient basis for requiring more work to be done on the levels of leakage. It would be possible for Ofwat to say they want water companies to concentrate on this to the exclusion of all other priorities, but there are 335,000 kilometres of pipes and about 23 million properties. As we know from our constituencies, some of them are Edwardian or even older. I think we owe it to the payers of water bills to get this calculation absolutely right, and that is why we are asking the Environment Agency to review how we get to it.

Q274 Amber Rudd: What about the fact that if we leave leaks the public might say that clearly there is no need to save water after all? How do we get the message across?

Richard Benyon: It is a difficulty and it clouds the message at a time like this. For instance, we see posters all round London and the south of England about the drought. It is an easy hit for newspapers to say, "Well, it is all down to the water companies," and they will produce a figure to show how many Olympic swimming pools could be filled with the water lost every day. We have to say that we are on top of the problem in that water companies have improved their leakage rates by 40%. We recognise that occasionally there will be certain spikes, as there were last year due to the cold winter, but we want to make sure that pressure is being put on water companies so they do everything they can to reduce this figure because, as you rightly say, it makes it more difficult to get over our messages about water resilience.

John Bourne: In terms of this particular period of drought, which is when people start to take the approach you are talking about, asking why they should save water when they see it running down the road, water companies as part of their drought plans spend more time, effort and money on mending leaks and reducing leakage. They are also very much aware that, while the most important leaks are usually those that cannot be seen-they are underground-it is really important that the public see a quick response to visible leaks, even if they are not the ones that make the big difference.

Amber Rudd: That is very interesting.

Q275 Chair: I know you will be disappointed if I do not question you on sustainable drainage systems. Where are we with SuDS at the moment?

Richard Benyon: We will be announcing the end of the automatic right to connect, which was a recommendation of the Pitt review. Once commenced, the provisions in the Flood and Water Management Act relating to SuDS will amend this right. It has taken a long time, but we want to make sure we get the policy right. We think it is important that it is done in conjunction with the new national planning policy framework announced an hour or so ago in Parliament.

We completed consultation on 13 March. We are analysing the results, and we will be taking those forward in consultation. We want to make sure that the SuDS approvals body has the capacity. Many of the local authorities that will be taking on this role have told us that they are up for it and ready for it; some not so. There are questions about who will take responsibility for existing sustainable drainage systems. It is easier to plan for newer ones, but as far as concerns an exact date, I look to John to see whether we can be more specific.

John Bourne: My team has just done nine workshops with about 1,000 people attending from local authorities and elsewhere, so there is quite a lot to collect on the basis of that consultation. One consistent theme that came out of that-plainly, there is more than one view on this-is that it is really important we get enough time and certainty on dates to upskill and make sure we have the capacity we need; and that is on behalf of both the developers designing the SuDS and putting the proposal forward and the approval bodies who need to take that from the developers and have the right commercial skills to understand what has been said. It is more likely that we are looking at April 2013 than October 2012, but no decision has been made on that yet.

Q276 Chair: I am delighted that we are ending the automatic right to connect. It has taken us five or six years to achieve it. To go further, might you consider that water companies should be responsible for maintaining SuDS and have the statutory right to be consulted on the same basis that the Environment Agency is on new connections?

Richard Benyon: To deal with the last point first, some water companies are very keen to be statutory consultees; others see a huge burden in this. The problem is that these matters are dealt with at the wrong end of the process. We want a planningled system, so connections, sustainable drainage systems and the whole profile of dealing with such matters in a development are dealt with at a much earlier stage. That is what the NPPF seeks to do across a whole range of things, and that is why we want to hardwire policies around such things as sustainable drainage systems to that end. What was your first point?

Q277 Chair: It fits in entirely with what you are saying. The question is whether water companies could be statutory consultees and whether eventually not all of them but those who wished to and were in a position to could be responsible for maintaining SuDS.

Richard Benyon: I will ask John to provide more detail. One thing we are very conscious of is that SAB, the sustainable drainage approval body, is the planning authority and therefore is in the best position to act in a regulatory capacity to make sure that the thing is built right and it is maintained correctly way into the future. There may be some exceptions. The local authority may also own the bit of land on which the SuD is located; it may be in a park or bit of green open space. There may be some where the water company can treat it in a rather similar way to the way it treats its assets in other ways. I do not know whether John wants to go into details about how we will manage that.

John Bourne: There are two parts to that question, one of which is that there is a facility in the Flood and Water Management Act, as I am sure you are aware, that an order can be made so that the SAB is no longer the default tier 1 local authority and can be any other body. We have no intention of making use of that order at the moment, but plainly if at any point there was a really good case to be made, we would look at it. But we think that generically it makes more sense for the tier 1 body to be the approving body, and that is why it is in the Act.

The other way it could happen is that there is nothing to stop an approving body from delegating some or all of its activities in a contractual way to a water company where that water company is willing and they can come to such an agreement. The local authority under that would retain the overall legal responsibility, but plainly it could subcontract activities-you can think of a number, including maintenance-that it wishes to, so there are various ways it could be done if there is a need.

Q278 Chair: I do not want to belabour the point. I just leave you with the thought that going forward some water companies may be in a better position to maintain existing SuDS than local authorities, and the Minister’s point that water companies are best placed to see whether there is the capacity in the waste water system to connect. I will leave you with that thought. On retrofitting where appropriate, has there been any further development?

Richard Benyon: We are working closely with industry, for example the paving industry on technology changes and the development of sustainable hard surfaces. There is adequate provision in local authority planning policies to ensure that people do not concrete over their front drives in a way that will lead to greater run-off. That is not to say the problem will go away; we need constant engagement with the industry, but retrofitting larger sustainable drainage schemes is more complicated, though not impossible. We had this debate around the whole issue of the Thames Tideway. We know that the cost of retrofitting and separating out rain water and grey water is complicated and very expensive, but that is not to say we should not be looking at it, encouraging and incentivising it. Therefore, retrofitting is a key part of our policy moving forward.

John Bourne: But the two are linked, in that if we are looking particularly at larger-scale retrofitting again it raises the question of who will maintain those SuDS going forward. If you have a large community or block of flats with a lot of shared ownership, you do not want to repeat the experiences we have had with private sewers and so on where there has been very poor maintenance because no one can decide who is responsible. Therefore, when we solve the maintenance issue through new build, we have that process in place and there is a clear mechanism whereby people pay for and have their SuDS maintained, it will make it much easier to encourage retrofitting because there will be a process by which you can bolt it on.

Q279 Chair: In the 2007 floods 55,000 properties were damaged because water did not connect and pipes overflowed, so the water companies have a definite role to play in connections.

Richard Benyon: That is absolutely true. When my constituency had a lot of flooding in 2007 a lot of people blamed the local authority and those responsible for drainage for not having cleaned out the drains. With the quantity of water that was coming down, it would not have made any difference if they had been cleaned out 20 minutes before, but you are absolutely right that we have to think of our surface water management plans, and understanding of the impacts of different weather patterns on communities and streetscapes is now hugely improved. Technology that can put in a multitude of different weather patterns and the impact that can have down to household level is now available, so that can start informing the retrofitting of sustainable drainage systems, or where there is a bottleneck that causes back flooding of culverts and how you can improve that. These are dramatically improving, and I think we will see a lot more houses protected by such means in the future.

Q280 George Eustice: It will not surprise you that I want to turn to water affordability. Can you explain why the White Paper backs away from the idea of a national social tariff? It was mooted in the original Walker review and has been discussed, but in the end you concluded not to go down that route. Is there a reason for that?

Richard Benyon: Dealing with affordability, we thought that water companies were best placed to know at local level how they can best tackle those issues, and having a national scheme would be a blunt tool in many areas. We want to incentivise water companies to use a variety of different methods. People look at a social tariff as if it is the only show in town; it is one of many at the disposal of water companies, with legislative back-up in certain circumstances by Government. I do not think a national scheme like that would have been the right approach, and it certainly would not have addressed some of the anomalies we have seen through this process.

Q281 George Eustice: There is a corresponding problem with company social tariffs. Those areas with lots of poverty and problems of affordability and relatively high bills are quite limited in what they can deliver in terms of a company social tariff. Demand for it is very high but the ability to win broad support from the rest of the customers is more difficult.

Richard Benyon: We have one water company that serves about 2,000 properties, and at the other end of the spectrum there are companies that serve millions. It is harder in some areas to get that level of cross subsidisation that you want to achieve, but the proof will be in terms of how we can address the needs of those in water poverty. We will shortly be announcing the company social tariff guidance. Where are we on that?

Gabrielle Edwards: We have consulted on draft guidance.

Richard Benyon: It will be clear to companies what measures they can take, in addition to the range of other options they can provide to address the specifics of affordability issues. We think that is the right approach.

Q282 George Eustice: Was the national social tariff not deliverable in your view? Was it too complicated to administer, or did you think it would not be fair?

Gabrielle Edwards: It was a combination of facts. As the Minister said, is it the right tool? It could be a very blunt instrument. From water company area to water company area there is a big variation of circumstances and income mix, and how much cross-subsidy there is within the system and how it is unwinding. There is a huge amount of cross-subsidy in the water charging system at the moment. The extent to which it is becoming more regressive over time as the cross-subsidy unwinds depends a bit on the pace of metering. You have very different situations in different areas.

The other issue we had to bear in mind was the question that a nationally mandated social tariff would be counted by the Treasury as a tax, and Defra’s spending settlement would be debited accordingly. We are talking of quite substantial sums of money.

Richard Benyon: It is the ONS that make this burdensome calculation which the Treasury then impart across Government.

Q283 George Eustice: Therefore, they would take it off your budget.

Richard Benyon: Under the tax and spend definition, yes.

Q284 George Eustice: I understand. On the related pointed of bad debt, which is a real problem for some companies because it is difficult for them to cut off water supply and things like that, is there a reason you have not implemented the Flood and Water Management Act provisions which would basically make landlords liable for the bill so it would be easier for water companies to get landlords to pass on the details of tenants?

Richard Benyon: We are consulting on this at the moment. There are two schools of thought. Some large registered social landlords are perfectly capable of putting into their systems methods of imparting this knowledge to water companies. For smaller landlords and people who have gone abroad and let their houses to somebody through an agency it is more complicated and burdensome, and we are a Government that seeks not to burden legitimate businesses. It is a question of getting this right, so we are consulting at the moment. One of the options is to implement that provision in full and create a regulatory framework whereby all landlords will have to inform the water company of a change of tenancy. I think of my children at university who share accommodation with other students. Some go, some appear and some go off on a sandwich course elsewhere for a year. The burdensome nature of a system that one could impose on certain landlords makes me wonder whether a dirigiste route is the right way to go, but I am very conscious of the £15 being imposed on bill payers up and down this country to pay for bad debt. If we could claw back half of that it would be a major achievement; it would be money in the pocket of people who do pay their bills, some on very low incomes. I think we can do much better than half if we get this right. Perhaps we can be reminded of where we are on the consultation.

Gabrielle Edwards: The consultation went out in January, so we are fairly close to completing it.

Q285 Amber Rudd: Regarding social tariffs and the need for water companies to have information from Government about which customers might be in need and are not, there is some discussion going on about when that will be triggered and become relevant. In what circumstances do you believe it would be legal and feasible to provide water companies with Government-held data on which customers are in need?

Richard Benyon: Data protection laws mean that simply passing on the details of those who are on benefits to water companies without appropriate consent is illegal, and for good reason. Ofwat’s evidence shows us that 60% of households at risk of water affordability problems do not receive means–tested benefits, so we are talking about considerably over half. We know that many customers on benefits are at high risk of not being able to afford their bills. We will continue to work with the water industry in the development of social tariffs, including by making available or verifying information, where it is legal or feasible. However, across Government we take the security of sensitive data like benefits data extremely seriously, and the circumstances in which any individual’s personal data can be shared are totally controlled by law. Therefore, if we were to go down that route it would require a legislative change and not one by my Department.

Q286 Neil Parish: I refer to Scottish Water and the AngloScottish retail market. As you know, Minister, I am quite interested in how competition is going to work, especially on the AngloScottish border. Basically, you have two different beasts: you have Scotland with one wholesale water market that is a stateowned company, and you have retail companies competing with each other. How do you envisage the Anglo-Scottish market working, because on the English side you have private companies which up until now have not really had to face much competition?

Richard Benyon: We were keen to work with Scotland to develop a proper AngloScottish model. There are benefits to be had for customers and market players on both sides of the border. We need to start working now with the Scottish Government and regulators to make clear to customers what the market might look like and how we are going to work together to create it. There are different regimes, but I do not think any of this will be a disincentive to making these changes. We work closely with WICS and Ofwat. I believe that some of the reforms that have been introduced north of the border are precisely what we are seeking to achieve here for nondomestic users. It is not just businesses who are benefiting; it is also the public sector. An LEA can buy its water for all its schools in a much more competitive way and we want to see that, but there are some anomalies between the two regimes either side of the border that need to be ironed out before this is truly up and running and effective.

Q287 Neil Parish: Therefore, will a consumer in Carlisle be able to get the benefits of greater competition-these are small retail businesses, and what have you-than, say, the same business in Devon in the future?

Richard Benyon: The idea is that all businesses will be able to look at alternative means for the retailing of their water, and that is not just buying it, but also whether it will come with a package of assistance for how they can improve the service they get, using less water and water efficiency measures. Gabrielle and others have spent a lot of time with Business Stream in Edinburgh making sure that we understand how things work up there, and how change could impact on businesses in England. There is nothing to stop businesses in Devon buying water services through a company that may be based quite a long way away.

Q288 Neil Parish: What I am trying to tease out of you is whether or not you are keen on getting competition between companies in the water industry.

Richard Benyon: Absolutely; retail competition is a key element of our market reforms.

Gabrielle Edwards: We want to get to a situation where, as you say, a company in Cumbria or Devon can decide from whom it would like to take its water services. There is a lot of work to be done in trying to work out how we deal with that in a cross-border market, but that is certainly the endpoint we are looking for.

Q289 Neil Parish: On the Anglo-Scottish market, one worry the companies have is that they do not want to have complications with the licensing authority. They foresee that on the English side of the border it will be Defra who issue the licences and it will be the Scots doing it on the other side, and each will mutually recognise the other’s licences rather than try to do a combination of both. Is that how you envisage it working?

Richard Benyon: If a company in Carlisle was buying its water through, say, Business Stream in Scotland and had a complaint about the way Business Stream was operating, that would be a matter for the Scottish regulator. If there was a problem with supply and somehow that could be levelled at the local provider it would be a matter for Ofwat, and vice versa.

Gabrielle Edwards: The White Paper sets out where we want to go in policy terms, but there is a huge amount of detail that needs to be worked out. Some of the things, such as dispute procedures, would have to be set out in market codes. Having an agreed market code between England and Scotland is almost certainly where we will want to be, but that level of detail is very much what the work will be over the next few years.

Q290 Neil Parish: Scottish Water said that it took them about four years to achieve this. Do you foresee taking that length of time, or can you learn from the Scottish experience?

Richard Benyon: I think you have asked this question of both WICS and Ofwat. I was interested by their replies. Ofwat said that it would be 2015; WICS doubted it could be done before 2017. We would like to be near the former, but we must accept the experience that it may take a year or two longer. We are seriously engaged in making sure we understand this and are now doing a lot of work to ensure that we can move forward on whatever legislative timetable we work to, that preparatory work is done in parallel to legislation and that we can get the codes Gabrielle mentioned developed with the industry. It is not just a techie matter for regulators; it is really important that the customer understands the benefits. That is what we are trying to achieve, and I think that will be of benefit.

Gabrielle Edwards: We very deliberately did not set a start date in the White Paper, because we wanted to go through the process of thinking through with the regulators, customers and water companies what would be practical as well as move forward with as challenging a timetable as we could.

Q291 George Eustice: On a related point, the industry also expressed concern about trying to do upstream competition simultaneously with the introduction of competition in the retail market. It suggested that it would be difficult enough to introduce competition in the retail market without having upstream competition alongside it. Have you given any thought to staggering the two so you prioritise retail competition and leave upstream competition to later, or do you think their concerns are ill founded?

Richard Benyon: It is a classic position in which Government finds itself. Some people are purist about this and want us to do a big bang full legal separation. For a variety of reasons, which we thought were the right ones, we decided not to go down that route, but we thought that more competition could be provided at both a retail level and upstream. I do not think it is impossible to work on both in parallel. Industry is in entirely the right place. The water companies, to whom I speak regularly, recognise this and get the direction in which we are going. For the record, the nicest letter I have received in my time in the Department was one from Professor Cave who thought that what was in the White Paper was precisely the direction in which Government should be going and congratulated us on it. If he thinks we can do it, we must do it and alongside each other.

Gabrielle Edwards: As to the timetable, we would want to work on them together, but the question is whether they are implemented and introduced on the same time scale. That is one of the practical issues we will want to talk to people about. We have a good model in terms of retail competition. Although with upstream we are evolving from what is already there, it is a much bigger change, and it may well take longer to do the work. The start dates may not be exactly the same.

Q292 George Eustice: I am very conscious that whenever we have had evidence from the water companies they keep coming back to the fact that basically they are in debt up to their eyeballs and a big element of their cost is the servicing of debt. Therefore, maintaining investor confidence is crucial to them. Is there a danger that doing it alongside the Ofwat price review as well could spook the markets? What seems to underlie all their concerns is that they will not be able to borrow money as cheaply and it will destroy their business model.

Richard Benyon: For them to be licensed they have to achieve a certain credit rating, which they will do, but you are right that there are differing levels of debt. What the investor has been looking for is a clear direction from Government about how we view this industry. You will have heard from Moody’s; if not in person, you will have seen their recent report. That sets out concerns from the investor community, but we have framed these reforms particularly with a view to despooking the investor, if such a word exists, and to give an assurance that we recognise we have a really successful model with the water industry. We think it can be improved for the day in which we live; there can be new incentives to address issues that are more prevalent today and were not around 22 years ago, but that framework, moving forward, is something we value and want to secure. I hope that over the next few months you will see reports such as Moody’s starting to say that this is the right direction. We have already seen a sovereign wealth fund buying 9% of Thames Water, and I welcome that kind of confidence in this sector and want to see more of it.

Q293 George Eustice: Another area of concern is the removal of the cost principle in terms of pricing water and having to set up instead a new wholesale charging scheme. As I understand it, the retail impact assessment that accompanied the White Paper did not include any potential impact for removing the cost principle. Was there a reason for that?

Richard Benyon: I might require notice of that question to give you the fullest answer that you deserve. I may have to drop you a line, Chairman, to address the details. The fact is that the cost principle is a real barrier to effective competition, so we plan to remove it from primary legislation and replace it with a mechanism that allows Ofwat to set fair access prices that encourage competition and protect consumers, whether they wish to switch supply or remain with their incumbent supplier. We simply cannot get the reforms we want with the cost principle, because it would not allow new entrants to operate on the same level playing field. I understand why that causes concerns to certain incumbents, but I do not see it as being a measure that should worry them to any great degree.

Gabrielle Edwards: My understanding is that the removal of the cost principle is absolutely integral to the package of reforms, and I certainly would have expected it to be reflected in the impact assessments.

Q294 George Eustice: That is interesting, because several water companies did not think it was.

Gabrielle Edwards: If it is not we will clarify it, but I think it is.

Q295 Chair: How would you respond to the Consumer Council for Water who accept what you are doing but are worried that whatever replaces the cost principle might disadvantage household customers?

Richard Benyon: I do not think it will have any impact on household customers because Ofwat have told me so, and I believe them. They will make sure that these measures will not be discriminatory in a way that would increase the cost for households. I think they gave evidence to you that, although there might be complications for them to overcome, that was something they could very much deliver.

Q296 Neil Parish: The retail arm of Scottish Water was forced to separate into a new subsidiary company, Business Stream, with the introduction of retail competition. I also think it was in Professor Cave’s recommendation. Yet you have decided not to require companies legally to separate, despite knowledge that that is the only way to guarantee non-discrimination. How will you deal with this?

Richard Benyon: We think that what we are proposing is the right balance. It addresses the concerns of investors and offers the lowest risks, lowest costs and shortest payback period. Legal separation is not essential for making markets work effectively. It is absolutely clear that it would reduce discrimination but it would not eliminate it, and we think we can provide a better way forward without requiring legal separation.

Q297 Neil Parish: What about new entrants?

Richard Benyon: We think we can offer a framework where new entrants can get a fair look into the market and which acts as a direct incentive to innovate, find new sources of water and provide a better way of dealing with some of the issues we are dealing with in terms of climate. I think this kind of balance is the right way forward.

Gabrielle Edwards: In the end, the only secure way to prevent any discrimination is divestment, not just separation. We have spent a lot of time talking to Ofwat and others about this. Ofwat are confident that they can police discrimination. They may have to try a little harder; there will be other things they have to do on the non-price front, but it is perfectly possible to do it in a non-separated market.

Q298 Neil Parish: Do you think Ofwat has enough teeth for that and they will use them?

Richard Benyon: I think David Gray’s report set out very clearly the future direction of Ofwat. Later this year we are producing the strategic policy statement for Ofwat.

Chair: We are just coming to Ofwat.

Q299 Amber Rudd: What is your view of Ofwat’s proposal that incumbent companies should be given the opportunity to have separate licences for retail and wholesale which they say would allow less efficient companies to exit the retail market?

Richard Benyon: I have no problem with Ofwat distinguishing between these two key areas. With an independent economic regulator you have to allow it to do this in an open way with companies. No doubt there is a free flow of information to and fro, but it is their position to do that kind of thing. Just as it would concern me if a regulator tried to drive policy, it would be quite wrong for Government to try to interfere in too onerous a way in how a regulator operates.

Gabrielle Edwards: Ofwat take the view that if there were separate licences and companies were able to exit that would be one way to go. Considering the approach of the White Paper, Ministers took a judgment that they would like to go down a different route. If we were to allow exits we think there are some risks, and it potentially removes from Ministers the right to make a decision about separation or not within the market. If there was a decision to allow an exit route, it would seem proper for that to come back to Ministers and for Parliament to decide.

Richard Benyon: If you were to allow exits you could see competition authorities at some point being able to push, for example, towards a more legally separated route, and that is one we have firmly rejected for a variety of reasons, the principal one being that we want to secure continued investment. That is something Ministers should do for which they should be accountable to Parliament. Therefore, that is one of the reasons we have not permitted exits as part of this.

Q300 Chair: Minister, perhaps I may take you back to your answer about access to customer information. You very neatly referred to what was in the White Paper about whether it was legal and feasible. To be clear, have you taken a philosophical decision against allowing it? I realise it will be a matter for a different Department, but in what circumstances would access to that information be legal and feasible?

Richard Benyon: What people are asking is whether water companies can have access to data that are currently held by the Benefits Agency and the Department for Work and Pensions about those who are on benefits. As things stand, that is illegal. We would have to discuss it across Government with a view to changing data protection legislation, and there is not an appetite for that. I am happy to look at any recommendations you might make through this process as to whether we can. I am desperately keen to reduce the £15 that we are imposing on people. If we can do that within the current legislative framework, you will find no one keener than me to do that. Sometimes I get exasperated by data protection; all of us as MPs have it thrown at us when we are trying to do case work, but I do not see an easy way round this.

Gabrielle Edwards: As I understand it, under the legislation you have to be able to guarantee that the person will receive a benefit from their data being shared. Because of the support being provided and the variety of people’s bills and circumstances-whether or not they are on a meter and what their usage is-it is extremely hard to be able to guarantee that in every single case someone will receive a benefit. If you look at WaterSure, for example, because of where average bills are, some people’s bills will go up if they are put on to that tariff. That is the real complication, which is why it is quite different from the situation with energy where pensioners’ details are shared because in every single case you can guarantee that there will be a benefit.

Richard Benyon: We also want to see water companies doing more winwin schemes, for example, with long-term debtors. They can say, "You will owe less money if you can pay back this amount", or provide payment terms that are of benefit to the customer but also the water company and other customers in the area because they are reducing their bad debt. There are some really innovative ideas in these win-win schemes, and we want to see more of them. That is one of the tools they have at hand to deal with bad debt.

Q301 Chair: Perhaps you have given us a challenge to which we might rise. I turn to the suggestion that the White Paper is in two halves and they do not necessarily join together. You have the collaborative approach which the Department are asking for particularly in catchment management schemes and water companies collaborating for the greater good, but then you have competition and possibly the dreaded word "profit" being raised. How do you respond to that charge?

Richard Benyon: If you will forgive me, I make no apologies for trying to make it a balanced document and one that addresses the need for greater competition and is focused on customer and on affordability, but also wants to see continued investment. As to the breadth of the document, we have not talked about water quality issues, although we touched on rivers. There is a lot in the White Paper that looks at that side as well. It is broad. It was hard to keep it to a short document, which is what we try to do in Government, but in terms of the question we are trying to make sure we get that balance right. We are addressing very clear recommendations that came out of three important pieces of work, some under the previous Government and some under this. We are addressing the needs of customers but also want to see continued largescale investment in this sector, because we need it now more than ever.

Q302 Chair: Not to disappoint, on water quality does the Department have an estimate of the cost of implementing the Water Framework Directive?

Richard Benyon: I am sure we do. I know that we have thrown a lot of resources at this. We found £92 million which we are rolling out through our catchment approach and are focusing on really good partnership work. We are now seeing this around the country. The Environment Agency are taking the lead in some catchments; in others it is being led by third-sector organisations like rivers trusts, wildlife trusts and angling groups. In other cases we are providing support for local people who are starting to feel their way.

Government can still throw money, but there are huge resources out there of incredibly dedicated, expert people with whom we have to work. I do not have my finger on the figure, but the Water Framework Directive is something with which we must comply. If we do not, we are fined, but, actually, we want to do what the Water Framework Directive asks us to do. We want our rivers to be in a favourable condition. Many of the measures we talk about in the White Paper are things we can do now to protect water quality and flows in rivers such as the Kennet in my constituency. The frustration is that this year we will not be able to start to see the benefits of these. In many cases the matter is complex, but there are things we can do now without legislation and any more parliamentary activity, but it would be a great help if we had some rain.

Chair: Minister, on that note we thank you and your team very much for being with us and being so patient. We wish you a very peaceful Easter.

Prepared 4th July 2012