Draft Water Bill - Environment, Food and Rural Affairs Committee Contents

4  Omissions from the Draft Bill

46.  The Water White Paper covered the breadth of challenges facing the Government, the industry and regulators in a future where climate change and population growth are expected to place increasing strain on the management of our water resources. By contrast, the Draft Bill has a narrower focus, leading some of our witnesses to describe it as a missed opportunity to tackle the wider issues which were highlighted in Water for Life. The Minister denied this, telling us that the ambitions set out in the Water White Paper "remain absolutely on track" and that he wanted to "address head on... the institutionalised view that the only way to change things is through primary legislation".[87]

Abstraction reform

47.  Water for Life set out the Government's intention to overhaul the abstraction regime, which governs the extraction of water from rivers and aquifers for the public water supply and for use by others such as farmers and industry. The current abstraction regime, established in the 1960s, is widely recognised as outdated and ineffective in managing our increasingly pressured water resources. The Government announced in the White Paper that it will consult on reform proposals in 2013 and the new regime will be fully implemented by the mid-to-late 2020s.[88] Although legislation will be required to reform the current regime, the Draft Bill does not contain the necessary framework, and the Government has instead said that it will introduce legislation in the next Parliament.

48.  Environmental groups argued that the legislative framework for abstraction reform should be included in the Water Bill. According to WWF-UK, this would bring a range of benefits, including sending a clear signal of commitment to reform, and clarifying the timetable by which reforms will be implemented. They argued that "There is nothing that would be needed in [a later] Bill which cannot be provided for in this current Bill."[89] In oral evidence, representatives of the Blueprint for Water coalition described the absence of action on abstraction reform as "the most glaring gap" in the Draft Bill,[90] commenting that "Water Bills do not come around very often... we should grasp this opportunity while we can. It is indicative of the overall problem we have, that memories are very short. We were facing a really significant drought in the early part of this spring".[91]

49.  Water companies were more circumspect. Wessex Water warned against introducing legislation at this stage, arguing that "It is fine to talk about it in principle, but you need to do a lot of work to ascertain how it will work in practice. I would caution against rushing too fast into this".[92] Ofwat also appeared to have reservations, noting that "without some of the detail... it appears quite difficult to write it into this piece of legislation".[93] The Minister also resisted suggestions that the Bill could include a framework for abstraction reform and sought to stress that much could be done at this stage without requiring legislation.[94]

50.  In our report on the Water White Paper, we were critical of its lengthy timescales for abstraction reform and we recommended that the end date for the reforms should be brought forward to 2022. While it may be tempting to argue that the Draft Bill be used to provide the legislative foundations for future reform, we do not believe it would be appropriate for the details of these important reforms to be brought forward through secondary legislation several years after the passage of the primary legislation.

51.  We remain concerned that Defra appears to lack the necessary sense of urgency to press on with these reforms. The detail of a new abstraction regime will need to be developed following consultation. Following that consultation Defra will have to produce legislative proposals and secure space in the legislative programme before a new regime can be introduced. We urge the Department to redouble its efforts and to set out in response to this report how it will meet our target date for a new abstraction regime of 2022.

Ofwat's duty to promote sustainable development

52.  Ofwat's duties as economic regulator of the water industry are laid down in section 2 of the Water Industry Act 1991. Its main, or primary, duties are to:

  • protect the interests of consumers, wherever appropriate by promoting effective competition;
  • secure that the functions of each undertaker (ie water company) are properly carried out and that they are able to finance their functions, in particular by securing reasonable returns on their capital; and to
  • secure that companies with water supply licences (ie those selling water to large business customers, known as licensees) properly carry out their functions.[95]

53.  Ofwat also has several secondary duties, including a duty to contribute to the achievement of sustainable development. In the Water White Paper the Government said that it would "carefully consider" the case for elevating this to a primary duty which would require primary legislation. The Welsh Government has already stated that this should be done: in the Draft Bill, the Government says that a final decision will be taken before the Bill is introduced.[96]

54.  The evidence we took on this issue was divided. Environmental groups were keen for the sustainability duty to be elevated, with Blueprint for Water pointing out the limitations of the current arrangements:

Ofwat has a duty to "contribute to the achievement of sustainable development". However, this is a secondary duty, which means that it is ignored if the contributions interfere with Ofwat's primary duty (i.e. if there are significant financial implications for companies). The practical effect of this, as seen in the 2009 price review, is that Ofwat is forced to strike out investments that would deliver demand management in 'over abstracted' areas, or areas in which it would address supply deficits that exist beyond the five-year planning horizon.[97]

55.  They also drew attention to the approach taken to sustainable development by the energy regulator, Ofgem, which lists "the need to contribute to the achievement of sustainable development" as one of three factors which it must take account of in carrying out its principal objective. Blueprint for Water described the Energy Act 2008's promotion of this duty as "critical in driving cultural change both within the regulator and across the energy industry",[98] and told us that it had resulted in a "much more open dialogue about the sustainability challenges that are facing Ofgem".[99]

56.  In supplementary evidence Ofwat argued that it would be undesirable to elevate its duty to contribute to the achievement of sustainable development to a primary duty. The Regulator argues that under the current arrangement it is able to balance customer, environmental and economic needs and elevating sustainable development to a primary duty could unbalance the sector, and risks increasing bills and investment. Ofwat also argue that it currently integrates sustainability into its functions and it considers it "difficult to identify a single area where it is obviously the case that Ofwat would do things differently were the sustainable development duty elevated to a primary duty.[100] The regulator expressed concern that such a change would broaden the scope of the regulator substantially and create a situation where it might take decisions about much broader policy issues that may be considered more properly the role of Government.[101] In oral evidence, the Minister was clearly leaning towards preserving the status quo, suggesting that Defra's recently published social and environmental guidance to Ofwat was sufficient to ensure that the regulator took the right approach to sustainability.[102]

57.  We have carefully considered the arguments for and against elevating Ofwat's duty to contribute to the achievement of sustainable development to primary status. We are persuaded that the increasing pressures on our water resources, highlighted in the Water White Paper, justify such a change. We therefore recommend that the Draft Bill be amended to include a clause giving effect to this change.

87   Q 262 Back

88   Water for Life p23-24 Back

89   Ev w67 Back

90   Q 235 Back

91   Q 239 Back

92   Q 7 Back

93   Q 138 Back

94   Q 371 Back

95   www.ofwat.gov.uk/aboutofwat Back

96   Draft Water Bill, p 14 Back

97   Ev 69 Back

98   The Energy Act 2008 promoted Ofgem's pre-existing duty to contribute to the achievement of sustainable development to a primary duty, placing it on an equal footing with the regulator's duty to meet reasonable demand and finance authorised activities. (www.ofgem.gov.uk/sustainability) Back

99   Q 245 Back

100   Ev 102 Back

101   IbidBack

102   Q 346 Back

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Prepared 1 February 2013