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 http://www.uutf.org.uk 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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