Environment, Food and Rural Affairs CommitteeWritten evidence submitted by Consumer Council for Water

1. Introduction

1.1 The Consumer Council for Water (CCWater) is the independent, non-departmental public body representing the interests of water and sewerage consumers across England and Wales. We have four local committees in England and a committee for Wales.

1.2 We have worked with the water industry and its regulators since 2005 to get the best results for consumers. In that time we have:

been central to achieving the customer focused outcome from the 2009 price review, which was over £1 billion better for water customers than the 2004 price review when CCWater did not exist;

convinced water companies to return over £135 million to customers through either additional investment or bill reductions;

dealt with over 90,000 complaints;

helped customers get over £13 million in compensation from water companies; and

cost 21p per annum for each water bill payer.

1.3 We welcome the opportunity to submit evidence to the Environment, Food and Rural Affairs (EFRA) Committee inquiry into the Water White Paper—”Water for Life”.

1.4 Our evidence is provided from the perspective of water consumers, both domestic and business, and is based on our wide ranging consumer research undertaken over the past six years, as well as our experience in helping customers with their complaints and enquiries.

2. Section One—Overall Response

Are the White Paper’s aims supported and what is the likelihood of these objectives being effectively fulfilled by the approaches it proposes?

2.1 Are the White Paper’s aims supported?

2.1.1 CCWater broadly welcomes the White Paper’s aims as it addresses issues that CCWater has been working for on behalf of water customers, such as:

a considered, paced approach to compulsory metering that is tied to what local customers find acceptable;

extended competition for business customers in England;

Government funding to mitigate high bills for household customers of South West Water;

protecting more properties from sewer flooding by removing the automatic right to connect surface water drains to existing sewers;

improved customer awareness on the need to use water wisely and water resource issues; and

a commitment to retain CCWater’s expertise and to improve outcomes for customers in the event of any changes to consumer representation. However we would be concerned if disruption to CCWater affected customers negatively, particularly during the lead up to the Price Review in 2014.

2.2 What is the likelihood of these objectives being effectively fulfilled by the approaches it proposes?

2.2.1 Generally the approaches will fulfil the objectives effectively, but there are some issues where we have concerns. These concerns are addressed in the responses to other questions.

Affordability

2.2.2 The Government’s objective for everybody to have access to an affordable water supply will not be fulfilled by customer-funded social tariffs alone.

2.2.3 The scale of the affordability problem is significant. Over half of lower income households spend more than 3% of their income on water charges, and one in seven households feel their bills are unaffordable. Estimates of the annual cost to effectively address the problem range from £162 million to £447 million.1 The Walker Review estimated £340 million.

2.2.4 While customer-funded social tariffs would help they would not be sufficient to deliver a widespread and meaningful solution to the problem facing low-income households. Water customers are not willing to pay much more through bills to fund social tariffs. Our research2 suggests this could be limited to about £2 which, across England and Wales, would only realise about £36 million a year. This is significantly short of what is needed to address affordability.

2.2.5 Discretionary local customer-funded social tariffs could also lead to large disparities in the help available to customers depending on where they live. In some areas help may not be offered at all.

2.2.6 The evidence suggests the Government should play a greater role in supporting social tariffs:

the Walker Review highlighted Government’s responsibility to address poverty;

customers agree that there is a strong case for Government to fund a single industry-wide social tariff as the costs can be shared widely and in line with ability to pay; and3

customers would be more willing to help fund social tariffs if Government also contributed.

2.2.6 In the absence of a universal Government funded social tariff, local social tariffs would be much more likely to succeed where they are funded by Government as well as customers.

2.2.7 In order to ensure it fulfils its objectives Government should consider whether its strategy to give everybody access to an affordable water supply will work.

Reforming the Market for Business Customers

2.2.8 We generally welcome the package of reforms and believe it will meet the Government’s objective to build on the strengths of the existing regime, introduce evolutionary reforms and improve the deal for customers.

2.2.9 We believe Government must be cautious that the cost of implementation does not outweigh the benefits to business customers and that safeguards are in place to protect customers who cannot switch supplier.

Assistance to Household Customers of South West Water

2.2.10 We welcome the Government’s move to reduce high household bills, but feel help should also be extended to non-household customers of South West Water. The exceptional circumstances acknowledged by Government also apply to non-householders.

2.2.11 Customers across England and Wales feel it is fair to address this issue.4 Providing a tax-payer funded subsidy to non-household as well as household customers would enable Government to achieve its objective and fully and fairly address the historical legacy of high bills.

3. Section Two—Responses to the Questions

3.1 Does the White Paper set out the right principles for customers and the water and sewerage industry for taking forward reform of the market for water supply?

3.1.1 The Government has highlighted the key issues on which business customers want reform. We welcome this as business customers are frustrated by the lack of progress on water competition.

3.1.2 We generally welcome:

reducing the competition threshold to zero. However, the systems and framework must be able to cope with this level of activity and suitable protection must be in place for ineligible customers;

removing the cost principles and creating a transparent wholesale access pricing regime, as long as this minimises any unwinding of cross-subsidies and protects ineligible customers;

extending the Water Supply Licensing regime to include sewerage services to offer greater choice and possible savings; and

the development and introduction of statutory market codes and a mandatory “cooling off” period, to provide protection for business customers.

3.1.3 We would like further clarity on plans to establish a new England/Scotland retail market. However, the idea is welcome as it would enable customers to use one licensee to provide retail services across England and Scotland. This would help multi-site customers with sites in England and Scotland, though not Wales and Northern Ireland.

3.1.4 We are concerned that introducing water sources through “upstream competition” could affect water quality. Customers will need to be assured that appropriate safeguards will be put in place. As customers value the safety and quality of their drinking water,5 we support increasing the role of the relevant regulators.

3.2 Are the proposals to protect and enhance water resources, for example on abstraction regime reform, likely to be fully effective?

3.2.1 We believe the proposal could be effective in protecting and enhancing water resources, however in areas where water is scarce, increasing charges for water could significantly impact on customers’ bills.

3.2.2 To get customers’ acceptance and buy-in to the process, they should be involved in local debates on water resources. This could help manage tensions that may arise in seeking to balance the needs of consumers and the environment.

3.2.3 We support the steady pacing of schemes to help water resources management. This will ensure a sustainable approach to protecting and enhancing water resources where, costs and benefits can be identified and decisions based on what is acceptable to customers.

3.3 How best can the White Paper’s aims to promote water efficiency and the use of sustainable drainage be implemented?

Water Efficiency

3.3.1 Consumers want practical advice and support to help them be more water efficient at home and in their businesses. This needs:

to build on the successful work of CCWater, jointly with others, to inform and educate customers on using water wisely, such as in the South East, where a sustained information campaign has helped to reduced demand; and

long-term government commitment to raise awareness and encourage consumers to understand their local water resource situation and to use water wisely, not only during droughts.

3.3.2 With the help of Government and regulators and CCWater (which has credibility with customers due to its independence), water companies can help consumers be water efficient by:

providing targeted advice and practical assistance to different customer groups6 and by working with other interested parties and partners.

combining advice and practical support when introducing tariffs to encourage water efficiency or switching to meters. This is more likely to change habits than relying on price signals alone.7

having easily understood tariffs so customers can make the right choices, and ensuring those less equipped to compare tariff options are helped to make the right choices.8

addressing customers’ negative perceptions surrounding leakage by working with customers so they understand how decisions to fix leaks are made by balancing the cost of the repair against the local water resource situation.

Sustainable Drainage

3.3.3 White Paper aims on sustainable drainage could be aided by giving water companies incentives to opt for more sustainable and cost-effective drainage solutions. We are working with Ofwat to explore this further.

3.4 Do you support the White Paper’s proposals on affordability of water bills for householders?

3.4.1 Please see our response at 2.2.2 to 2.2.6.

3.5 Does the White Paper omit any key issues where further policy action is required to ensure sustainable, reliable and cost-effective water supplies?

Low—income customers who are in receipt of government benefits

3.5.1 Some low-income customers who are struggling to pay but not in debt to the company would welcome paying their bills direct from their benefit.9 We would welcome Government’s direction to its agencies to allow this to occur where it currently does not.

January 2012