The Water White Paper - Environment, Food and Rural Affairs Committee Contents

4  Affordability

48.  With household budgets coming under increasing strain, the affordability of water bills matters ever more. Figures from Ofwat show that the impact of water bills on household finances is rising, with 23% of households spending more than 3%, and 11% spending more than 5% of their income on their water bill.[75]

49.  Those households which are not metered are charged a flat rate for their water and sewerage charges based on the rateable value (RV) of their property. This provides an inherent element of cross-subsidy between customers, with those in homes with a high RV paying higher bills than those in homes with a lower RV. To the extent that it can be assumed that households with a higher RV are likely to be wealthier than those with a low RV, the current non-metered system of billing therefore provides a level of adjustment of bills to reflect relative wealth. In practice, however, RV is a crude measure of household income and the inherent cross-subsidy is poorly targeted. Anna Walker found that only 30% of the cross-subsidy provided to houses in the lowest RV band went to the poorest households,[76] and she concluded that the RV system is "unwinding" as more and more households switch to meters, with less and less money remaining in the pot to cross-subsidise lower income households.[77]

50.  Some schemes do already exist to help customers struggling with affordability issues. A national scheme, WaterSure, caps the bills of metered households where the occupants are in receipt of certain means-tested benefits or tax credits and include either someone with a medical condition necessitating a high use of water or three or more children under nineteen years old. Some water companies also operate charitable trusts which can provide support to other lower income households.[78]

51.   Defra consulted on options to tackle affordability issues in 2011 following the Walker review,[79] and in the White Paper they set out their approach to supporting those customers who struggle to pay their water bills. The White Paper does not propose any additional government funding but instead relies on cross-subsidy between customers at a individual company level through the introduction of company social tariffs.[80] Defra has recently consulted on the guidance to water companies which will provide the framework for these tariffs.[81] The Consumer Council for Water expressed grave doubts that company social tariffs would raise enough money to achieve Government's aim that everybody have access to an affordable water supply, noting that there was a gap between the amount that customers were prepared to pay to fund social tariffs, and the amount that would be needed to fully address affordability issues in the sector. They acknowledged that some customers might "fall through the safety nets".[82]

52.  Given the potential limitations of company social tariffs it is essential that those who can afford to pay their bills are made to do so. This is not currently the case: bad debt adds approximately £15 to each customer's bill.[83] While in some cases this can be attributed to customers who are genuinely struggling to pay their bill (the 'can't pays'), a significant proportion of bad debt is down to those who simply 'won't pay'. Bad debt from those who 'won't pay' is particularly rife in the rental sector—according to Ofwat, up to 80% of people in water debt live in rented properties[84]—as there is no obligation on landlords to provide water companies with details of their tenants, meaning that the water company may be left unable to pursue debts. Thames Water described those who 'won't pay' as "in effect, stealing from honest customers".[85]

53.  The Government has already introduced legislation to address this problem. The Flood and Water Management Act 2010 contained provisions which would allow companies to bill landlords in the event that they were not provided with details of tenants within a reasonable time.[86] However, these provisions have not yet been implemented and Defra has recently consulted on an alternative approach which would seek to make it easier for landlords to provide this information voluntarily.[87] The Minister told us that he had concerns about the "burdensome nature" of imposing a statutory obligation on landlords, but acknowledged that money clawed back from debtors would be "money in the pocket of people who do pay their bills, some on very low incomes".[88]

54.  Water companies were heavily critical of Defra's failure to implement the provisions of the Flood and Water Management Act. Water UK noted that the provisions had received cross-party support when the Act was passed, and called on Defra to stop delaying and "frankly, to get on with this".[89] The Consumer Council for Water was also in favour of a statutory approach, expressing doubts about whether a voluntary approach would be effective.[90]

55.  It is simply unacceptable that, at a time when so many are struggling to afford their water bills, customers face the additional burden of subsidising those who refuse to pay what they owe. Legislation already exists that would make it easier for water companies to recover bad debt and the Minister acknowledged that money recovered from debtors would be "money in the pocket" for those who do pay their bills. We urge the Department to implement the relevant provisions of the Flood and Water Management Act without further delay.

Access to information

56.  Water companies have called for access to information on their customers to allow them to better target their social tariffs (for example, details of those customers receiving means-tested benefits). In the White Paper Defra acknowledge these calls and say that they will seek to make such information available "wherever this is legal and feasible", but note that the sharing of personal data is subject to tight legislative constraints.[91] The Consumer Council for Water acknowledged that if personal data were provided to water companies it would need to be used sensitively, but they supported the call for this information to be made available:

We think that anything that would help the water companies target their help—social tariffs or any other form of help—to the customers who most need it would be beneficial.

They noted that take-up of existing support schemes such as WaterSure was relatively low compared with the number of eligible customers despite the fact that they and water companies actively promote such schemes.[92]

57.  A possible model for data sharing is the Department for Energy and Climate Change's Warm Home Discount scheme under which Government shares information with energy providers about people in receipt of a subset of Pension Credit Guarantee. Defra argued that it would not be straightforward or desirable to operate a similar system for the sharing of information with water companies due to the more diverse profile of people who were likely to have water affordability issues:

In their scheme, DECC were able to identify a clear group at risk of fuel poverty—older, poorer pensioners, who were well represented amongst the recipients of a subset of Pension Credit Guarantee. However, the profile of people at risk of water affordability problems is less clear... [and] does not present a clear group of benefits recipients who could be automatically eligible for a discount via a data sharing scheme.[93]

58.  According to Defra it would, however, be open to the Department for Work and Pensions to ask all recipients of benefits whether they consent to their details being shared with their water company.[94]

59.  Take-up levels of WaterSure suggest that many of those who currently qualify for help with their bills do not receive it, and we are concerned that company social tariffs will face similar barriers to take-up. We recommend that the Government take a more proactive approach to publicising the help that is available to poorer customers. Defra should work with the Department for Work and Pensions to ensure that all means-tested benefit claimants are given the option to consent to the sharing of their data with their water company for the purposes of help with affordability issues, and should also use the opportunity to inform claimants of existing support, such as the WaterSure tariff.

60.  Research from Ofwat shows that the majority of customers facing affordability issues are not in receipt of benefits.[95] It is important that in designing company social tariffs, water companies ensure that they do not place over-reliance on benefits data as a means of identifying those customers in need of assistance and targeting the promotion of social tariffs. We recommend that the Government make clear that the design and promotion of company social tariffs should not focus exclusively on customers in receipt of benefits to the detriment of others who may struggle to afford their bills.

75   Affordable for all-how can we help those who struggle to pay their water bills? Ofwat, May 2011 Back

76   Walker, p61 Back

77   Walker, p127 Back

78   For example, the United Utilities Trust Fund, established in 2005, had paid out £22.2 million in grants to individuals and families struggling to pay their bills at the end of the last financial year-see Back

79   Affordable water: a consultation on the Government's proposals following the Walker Review of Charging, Defra, 2011 Back

80   Water for Life p63 Back

81   Company Social Tariffs: Consultation on guidance to water and sewerage undertakers and the Water Services regulation Authority under Section 44 of the Flood and Water Management Act 2010, Defra, October 2011 Back

82   Q 135 Back

83   Water for Life, p66 Back

84   Ofwat response to Defra's consultation on tackling bad debt in the water industry Back

85   Ev w47 Back

86   Flood and Water Management Act 2010, Section 45 Back

87   Tackling bad debt in the water industry, Defra, January 2012 Back

88   Q 284 Back

89   Q 207 Back

90   Q 141 Back

91   Water for Life, p63 Back

92   Q 138 Back

93   Ev 99 Back

94   Ev 98 Back

95   Affordable for all-how can we help those who struggle to pay their water bills? Ofwat, May 2011 Back

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Prepared 5 July 2012