Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


Examination of witnesses (Questions 120-134)

TUESDAY 30 JANUARY 2001

ALAN DAVIS, RODNEY ANDERSON AND RICHARD VINCENT

  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 do that?
  (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.

Chairman

  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.

Mr Blunt

  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 The whole framework of charging people on the basis of rateable value is now 30 years out of date, and 20 per cent of people on meters is clearly somewhat odd; why have you ducked the opportunity of this Bill to do something about it?
  (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?

Mrs Dunwoody

  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.

Mr Olner

  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.

Chairman

  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 pay—should 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 the candle.

  130. Drought plans: Government or the Environment Agency?
  (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 action?
  (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.

Mrs Dunwoody

  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 grids.

  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.


 
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