Examination of witnesses (Questions 120-134)|
TUESDAY 30 JANUARY 2001
120. I think you mentioned, at the start, Mr
Davis, that this is, at this point, a sketchy form of Bill. What
provisions have you made and what changes do you expect as a consequence
of the Water Framework Directive?
(Mr Davis) The Water Framework Directive has to be
put into UK legislation within three years of its publication,
so there is about a month gone so far. Our expectation at the
moment is that we will be able to put it into force in England
through the existing powers in water legislation, and powers in
the European Communities Act, so we do not think we will need
primary legislation for it.
121. You do not need anything in this Bill to
(Mr Davis) We do not think so, though we are about
to go out to consultation on the Framework Directive and how we
should implement it.
122. Is there not a big advantage in having
it in primary legislation spelled out, rather than merely making
a regulation under the, what is it, 1970 legislation?
(Mr Davis) We were very careful, in negotiating the
Water Framework Directive, that it reflected the approach in England
that we would defend, that is of having river basin management
systems, and in terms of having an integrated Environment Agency
responsible for all aspects of water management. So, to a large
extent, what the Water Framework Directive requires, in terms
of a legal framework, is already in UK law.
123. The whole framework of charging people
on the basis of rateable value is now 30 years out of date, and
20 per cent of people on meters is clearly somewhat odd; why have
you ducked the opportunity of this Bill to do something about
(Mr Davis) I think the Government would say it has
not ducked the opportunity, it legislated on water charging in
the Water Industry Act 1999, and that legislation came into force
only last April. The Government decided that it was right to increase
customer choice in terms of charging, but it was right to allow
customers, who chose to, to remain on a rateable value basis for
unmeasured charging beyond 1 April 2000. The Government decided
to allow that because most customers are used to paying in that
way, and any change in the basis for unmeasured charging would
lead to significant turbulence. Under the new system, companies
have to draw up charging schemes which are subject to approval
annually by the Director-General, and he has to take account of
any guidance given by the Secretary of State. Companies could
bring forward proposals to use council taxes for unmeasured charging
in those charging schemes; some companies have expressed some
interest in doing that, and we have talked to them about their
ideas. We have also published studies of models of the distributional
impacts of switching to council taxes, and those studies show
that there are very significant distributional impacts. Rateable
values are differentiated far more than council tax bands, they
go up pound by pound rather than in bands, and those studies show
that there are significant losers through any switch from a rateable
value based system to a council tax based system, and a lot of
those users will be low-income people, living in very low rateable
value houses; there are some parts of the country where a lot
of the housing is in the Band A of the council tax. So we believe
that there are real problems, in terms of distributional impacts,
and those need to be tackled. The Director-General has a duty
to have regard to the interests of customers on low incomes, in
carrying out his duties, and therefore in considering charging
schemes. So far, companies have not come up with proposals that
answer these difficulties.
124. But, surely, the issue of low-income families,
if they are not able to afford water, that is a proper issue for
the redistribution of wealth in the tax and benefits system, is
it not, it should not be trying to be tackled in this rather non-transparent
way, through water charges? Surely, should we not be addressing
the whole issue on the basis of water, and actually what is best
for the consumer across the piece and the industry and the environment;
and that, surely, is not assisted by the rather peculiar way we
have arrived at charging consumers for their water?
(Mr Davis) We start where we are. Under the Water
Industry Act, any customer is given choice; if they are on an
unmeasured charge, they can remain on that unmeasured charge,
and, since they are paying that unmeasured charge, that is what
they are used to paying. They can opt to move onto a meter, if
they believe that will help them, and they have a year to decide
whether that was a sensible choice to have made, or to go back
onto the unmeasured charge, if they so choose; so there is a great
deal more choice available to all customers, including low-income
customers. And then there are special provisions where people
125. I recognise the detailed arguments; but
is not really this the fact that all politicians are actually
ducking a rather difficult decision here, and we are not really
taking a decision that is actually in the wider interests of the
water industry and the environment, by moving to, perhaps over
a prolonged period of time, a metered system?
(Mr Davis) The Labour party made clear, before the
election, it was opposed to compulsory metering, so there was
a commitment to allow unmeasured charging to continue. There was
then a decision to be made about whether one changes the basis
of that unmeasured charging; the Government's judgement was that
the turbulence that would create and the problems that would create,
for low-income people in particular, were too great to make the
change, so, they decided to stick with the existing system.
Mr Olner: Just on that, is the real villain
in this piece the fact then that the lowest band is set too high;
is that the real villain in it, in trying to get rid of some of
this turbulence and these great anomalies?
126. Bearing in mind you still have to negotiate
with the Treasury over most things, before you answer?
(Mr Davis) Clearly, if a lot more council tax bands
are created, and particularly at the bottom end, that will help
deal with the distributional problem.
127. So what you are saying is that you think
that council tax banding is unfair at the bottom end?
(Mr Davis) I do not think I did say that, no.
128. Let me tempt you. Highway drainage. Have
you got any comments on it?
(Mr Anderson) This was considered by the Government,
a couple of years ago, and the issue, as I understand it, is who
should payshould it be the customers of the water companies,
or should it be the highways authorities, most of whom are, of
course, local authorities? There are arguments both ways, actually.
When this was looked at, the Government concluded that, first
of all, change would be potentially quite expensive and complicated,
because it would mean water companies having to change their charging
regimes and their internal systems, it would mean local authorities
having to change, and it would add to what is already a fairly
complicated system of local government finance.
129. But, in equity, it would help, would it
not, because, on the whole, water charges are slightly more regressive
than council tax charges?
(Mr Anderson) It is very difficult, frankly, to answer
that question without further modelling. But, broadly, the people
who pay council tax will be householders, and it will be householders
who will be paying their water rates, so moving the cost from
one bill to another; but it goes through the same letter-box and
falls on the same doormat, and is simply presented in a different
way. In the Government's judgement, simply, it was just not worth
130. Drought plans: Government or the Environment
(Mr Vincent) The proposal is that, ultimately, the
Secretary of State will prescribe, amongst other things, the form
that drought plans should take, and should determine any disputes
which arise as to the content of those drought plans. But the
chain really starts with the water companies themselves, they
have to draw up drought plans, and all have done so, already,
it might be said, on a voluntary basis, and the Environment Agency
has pronounced, in June last year, its general satisfaction with
those plans. But, of course, those plans also need to consider
not only abstraction and environmental issues but also water quality
issues, and the effect upon consumers. So that is why the proposal
is that the Secretary of State should, if you like, hold the ring.
131. And do all those plans that have been drawn
up on a voluntary basis contain the information as to where people
on dialysis, and other things, are, so that water companies, if
they are considering suspension of supply, can take the appropriate
(Mr Vincent) Water company emergency plans already
contain that information.
132. They did not the last time round, did they,
when there was a shortage?
(Mr Vincent) I believe that water companies, in their
general emergency planning, have drawn up lists of customers at
risk; now, of course, those lists are utterly dependent upon information
coming through from the people concerned, but there is a clear
linkage between general emergency plans, which are plans about
what happens when something actually goes wrong, and a drought
plan, which is designed to make sure that it does not go wrong
in the first place.
133. Is there any examination in the Department
of even the question of creating a national grid?
(Mr Davis) The Select Committee on the Environment
did a study on water resource management before the election,
and it was addressed during that study. The problems with creating
a national grid are that water is very expensive to move around.
But there is quite a lot of water already moved around, for example,
from Wales into Birmingham, and from the Lake District down into
the North West, and there are possibilities of moving water around,
for example, from Kielder down into Yorkshire, following some
reinforcement that was done after the difficulties that arose
in Yorkshire. There are environmental problems with moving water
around using rivers, because of mixing water from different systems,
and that has impacts on the ecology of the rivers; so there are
environmental concerns about that. The alternative is to use pipes,
and it is very expensive to start pumping water around using pipes.
134. I understand all those problems, Mr Davis,
but if you are producing drought plans which are to be effective
drought plans, and if you are to accept that we are going to be
subjected to considerable changes because of climate change, then
I just ask, I am not hooked, I do not know whether it is the answer,
I just ask, is the Department seriously considering whether this
might or might not be an option?
(Mr Davis) Yes, the Department has considered the
issue. Each water company has been required to draw up a water
resource plan to cover the next 25 years, to try to take account
of climate change scenarios, and the companies are required to
keep those updated on a regular basis. And the Department has
now been working with the Environment Agency to produce a national
water resource plan covering all abstractions, not just water
companies, that will be published in March, to give you a firm
date, and that will again look forward 25 years and look at the
case. I do not believe it will make a case for a national grid,
it may make a case for reinforcement, and in some areas, for more
Mrs Dunwoody: I am not precluding what it says,
I just want to know that you are thinking about it.
Chairman: On that note, can I thank you very
much for your evidence. Thank you.