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".
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in the 1960s, is widely recognised as outdated and ineffective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. 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."
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,
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".
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".
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".
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.
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
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
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.
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.
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.
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",
and told us that it had resulted in a "much more open dialogue
about the sustainability challenges that are facing Ofgem".
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.
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.
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.
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
Water for Life p23-24 Back
Ev w67 Back
Q 235 Back
Q 239 Back
Q 7 Back
Q 138 Back
Q 371 Back
Draft Water Bill, p 14 Back
Ev 69 Back
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
Q 245 Back
Ev 102 Back
Q 346 Back