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Baroness Miller of Hendon: Before the Minister replies to the noble Baroness's points, I wish to make a brief remark on Amendment No. 10. Can the Minister comment on the practicality of having a meter in every flat, for example, in a terraced house? I am not sure how that would work. I shall be pleased to hear his comments.
Lord Whitty: As the noble Baroness, Lady Hamwee, said, we are now in the area of consumer choice. The intentions, although in some cases not the effects, of the noble Baroness's amendment is to extend that further. However, before I address the amendment I remind the Committee that the Bill already represents a substantial increase in consumer choice. At present consumers have few rights over the basis on which they are charged. As the law stands, there is no statutory choice. The basis of charging is up to the undertaker. The Bill presents a major step forward in consumer choice, albeit not unlimited. Increased consumer choice is one of the objectives of the Bill. It means that we give customers the option of a measured as well as an unmeasured charge where we can.
However, some of the implications of the noble Baroness's amendments would restrict consumer choice and the benefits of making metering more generally available. For example, dropping the free provision of a water meter would restrict many customers' choice. My department receives a significant amount of correspondence from many people who would like themselves to have a meter fitted. They believe that they would benefit from having a meter fitted. The environmental and water usage would benefit. But they
It is true that meters are not the only way to reduce consumption, but they are important. One of the arguments used against the provision of free meters by the noble Baroness is the passing on of costs to other consumers. It is important to recognise that we do not regard these costs as unmanageable if spread across the range of consumers. Under the present regulations, around half of all water companies already offer a free meter option. There are the additional costs of ensuring that all customers, rather than just those who live in an area served by a water company which already provides a free meter option, have a real choice to pay on the basis of volume. The total numbers are not expected to be excessive. Therefore, spread across other water company users the cost is not enormous.
The director-general estimated in Prospects for Prices that the cost of all metering over the next five years would be £300 million. That is small in comparison with the total turnover of the water industry and its commitment on environmental and other fronts.
Water companies will not be expected to fit meters where it would be unreasonably expensive or impractical to do so. The example of a terraced house, broken up into several flats, could in certain circumstances mean that it would be unreasonable, too expensive, or too technically awkward to do so. In such cases, in order to meet some degree of consumer choice, companies will be able to offer customers an alternative basis of charging such as an assessed measured charge.
Amendment No. 12 again cuts across the desire of the noble Baroness to give greater customer choice. If one combines the effects, Amendments Nos. 10 and 12 make it more difficult and more expensive to choose metering. It is simplistic to say that a programme of metering should not be allowed unless the cost of switching to measured charging falls only on those customers who make the switch. It is a complex area. It is the responsibility of the regulator. I shall make a brief attempt to explain how the cost effects work so far as I understand them.
There are typically two adjustments in a balance between measured or metered charges and the unmetered charges so as to ensure that there is a fair distribution of charges between those groups. First, customers who choose to be metered tend to use less water than unmetered customers. The costs of metering are charged to those metered customers alone so that a customer with an average consumption will pay slightly more to be metered than to pay on an unmeasured basis. Companies make an adjustment to the unmeasured tariff to prevent that differential becoming so great that metered customers are in effect subsidising unmetered customers. Ofwat specified that it believes that the difference should be no more than £29 per customer with average consumption. That may mean an increase
The second and smaller adjustment is to take account of a change in the average rateable value of those properties remaining on an unmeasured charge. Where consumers in higher rateable value properties switch to a meter there will be a fall in the average rateable value for unmeasured properties. That requires some increase in tariff to ensure that the company receives the same average income. Therefore, an adjustment in the opposite direction is made in the circumstances where there is a preponderance of occupiers of smaller value properties.
Those adjustments are made on the basis of equity. These amendments are not an alternative to those adjustments. Quite apart from the new consumer rights under the Bill, switching to meters is already running at the rate of about 3 to 4 per cent annually. That is causing these rebalancing effects on the bill under the procedures outlined by the regulator. The precise distributional effects of the new customers' rights under the Bill, as well as the switch that is already taking place, will depend on how a director-general chooses to set the totality of a tariff basket. I am sure the director-general will want to work with the water companies to ensure that these new rights are introduced in a fair way.
It must be understood that every individual choice that allows a customer to minimise his or her charges, whether to go for measured charges or in the opposite direction and whether they benefit from a special tariff or a special charge for vulnerable groups, results in some loss of revenue to the water companies--revenue that must in some sense be recovered from the rest of its customers. It is no good saying that a customer saving should not fall on any other customer unless one denies everyone the chance to make any choice. That is why the Government have supported a balanced approach and why they believe that some of these adjustments have to be made.
I believe that in recognising that, this Bill delivers an important package of new consumer protection as well as greater consumer choice. I do not believe that Amendments Nos. 10 and 12 would improve that situation; indeed, there is a danger that they would do precisely the opposite in terms of consumer choice.
Amendment No. 14 proposes to go further than the choices offered in this Bill. It would allow customers to move in and out of measured charges at any time. I assume that that fits with the logic that they would have had to pay for that because there would be no free metering. We have made it clear that we want to increase customer choice. We have spoken about the importance of ensuring that the charging system provides enough water to everyone for their essential needs at a fair and affordable price.
However, it is not just a question of customer needs. We also have to recognise the needs of the industry. In order to function efficiently, the industry has to have some revenue stability. That is important for the forward planning of the industry and for the environmental and capital investment which we are expecting to see from it.
It is not only the water company that needs that stability. It is also important that consumers know broadly what they will be expected to pay for their water. If large numbers of customers were allowed to revert to unmeasured charges at any time, a significant amount of stability would be removed. Presumably such customers would only do so if they were convinced that their bills would thereby fall, and that could mean charges rising very sharply for those customers who had not changed either the pattern of their use of water or their charging system. It does not seem sensible to allow a system of constant shifting of forms of charging which would cause that degree of instability to other customers.
Amendment No. 21 offers the prospect of continuing to opt in and out of measured and unmeasured charging from the same premises (theoretically, at least) over and over again for the indefinite future. I have already indicated the problems that could arise from a very high incidence of switching between measured and unmeasured charging. The noble Baroness and noble Lords will recognise that there has to be some restriction on the customer's right to choose where that would have a knock-on effect on the total pricing and charging system. Amendment No. 21 apparently invites us to open up even greater opportunities for customers to choose an unmeasured basis--in other words, to move in that direction. We believe that a responsible policy must strike a balance between consumer choice, stability of income for the water companies and stability which enables customers to understand the pricing.
I hope that the noble Baroness will see from what I have said that the amendments may well not achieve the intention that lies behind them, but in any case other considerations besides the simple maximisation of consumer choice must be taken into account. I underline the fact that this Bill greatly increases consumer choice, but there is a limit.
Lord Williams of Elvel: My noble friend did not seem to respond wholly adequately, if I may say so, to the point made by the noble Baroness, Lady Miller, from the Opposition Front Bench on the question of putting meters into premises in multiple occupation. I understand what he said in so far as he said that if it were unreasonable not to do so, it would not be done. Could he explain exactly who would decide what was reasonable or not reasonable and whether those in such premises would be consulted on any decision?
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