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

Examination of witnesses (Questions 360-379)



  360. Does your proposed alternative approach to the water service charges have sufficient regard to the very high capital costs of the water and sewage network?
  (Mr Palmer) Yes. I do not think they are affected by that.

Mrs Dunwoody

  361. And you do not think they are administratively too complicated? The argument always is that the council tax banding is too crude and difficult to apply and that the very point you are making—the inability of somebody to cope with it—are in a sense not dealt with by applying another equally crude target and saying "This will change the banding". Is it administratively complicated?
  (Mr Palmer) I think it does have administrative complications.[1] The question is whether there is sufficient motivation to overcome those.

  362. Motivation does not always simplify legislation, in my experience.
  (Mr Palmer) The big problem at the moment is that the metered tariff does not have any ability to pay scenario. Because of that, there are certain people who are against metering and, therefore, everyone is being kept on the old rateable value basis. Our argument is that, if you are to move towards usage-based tariffs, then you have to have a socially acceptable measured tariff. While if you are going to keep unmeasured tariffs as the dominant way of charging, then sooner or later you have to update them. We cannot have a 1973 basis operating in 2073, so the question is when.

  363. When do you think?
  (Mr Palmer) Our arguments are that now is as good a time as any. You have the whole issues of competition in the proposed Bill and we think that a prerequisite to competition is that you have the tariff issue sorted.

Mrs Dunwoody

  364. Do you think there would then be many more gradations, many more subheadings, in the system that you are suggesting?
  (Mr Palmer) No. Our proposal, for metered tariffs, is that you have the standing charge varying by council tax band, and you then, above a certain level of consumption, you have usage charging, as you have currently. That is not particularly complicated.

Christine Butler

  365. Mr Palmer, what safeguards do you think the Bill should have to ensure that the competition would not disadvantage many customers? We have been talking about differentials. In your opinion and from your memorandum you seem to be saying that this would accelerate under-competition rules.
  (Mr Palmer) Water is a funny subject for competition because it is a uniform product.

  366. Water companies seem keen on it.
  (Mr Palmer) And so are the public often, yes, so people have it in some sense to compete on price and that has obvious dangers of cherry-picking in one way or another. If you adopt a standard approach of uniform charges whereby people compete, then you are moving away from an ability-to-pay scenario and that is our worry, so our argument is that you have to have a standard shape of tariff in place against which the water companies compete in a particular area.

  366a. Could that also take account of cost, because we had this mentioned previously?
  (Mr Palmer) If one water company's costs are 10 per cent less than another, then our argument is they ought to be able to charge 10 per cent less to all their customers. But that they should not be able to choose which customers they charge less to.

  367. So we are not only into a post code lottery; we are also into a cherry-picking competition seeking out those consumers who might be able to take advantage of lower tariffs by one means or another, and exacerbating the worse effects of competition on those with the least ability to pay, is that what you are saying?
  (Mr Palmer) That is right.

Mr Benn

  368. Have you done any work to quantify the extent to which customers on low incomes are facing bigger increase in their charges because better-off people who see that they will be better-off under metering are opting for that and the water companies are having to raise the revenue from lower income customers?
  (Mr Palmer) We have written a report which looks at different charging scenarios and compares winners and losers in each council tax band or each income grouping, so I think the answer is yes.

Mr Blunt

  369. There are two trends happening, one of which is the suggestion that people are moving to metering because it is more in their interest; there are also people compulsorily put on metres because of the amount of water they use who will then act as a subsidy to people who are non-metered, but you have not done any studies of what is happening now—you have simply done studies of what might happen under different scenarios.
  (Mr Lewis) That would include the scenario of what is happening now. The question was relevant in that there is a fear that is built into some of the scenarios we have modelled that shows that, as people move towards metering on a voluntary basis, it will impose a greater burden on the less well-off because their reason for choosing a metering option is that they expect to pay lower bills as a result. If we are saying that the level of income for the water companies remains the same, then the burden of that additional cost can only fall on the people who at the moment are already bearing the greater burden, which are the lower income families.

Mr Benn

  370. What I was trying to tease out was the extent to which you have evidence that that is happening already as opposed to being concerned that that is going to be a trend that is going to develop in the future.
  (Mr Harrop) We would be happy to review our information which we have not brought with us today and supply an answer to you after this session.

  Mrs Dunwoody: That would be helpful.

Mr Benn

  371. Do you have any information in the work you have done on the potential alternative way of charging as to precisely how many winners and losers there might be? What is the balance?
  (Mr Palmer) I cannot tell you off the top of my head but yes, we have done extensive analysis of that.

  372. Could you include those figures in your supplementary as well?
  (Mr Palmer) Certainly.

Christine Butler

  373. Do you have any answers to any of this?
  (Mr Palmer) Our argument is that the measured tariff should have an element of ability to pay. The only obvious way of ability to pay is council tax and we are proposing that the standing charge varies by council tax for measured tariffs and then to do roughly the same with the unmeasured tariffs so we can bring everything on to a consistent footing.

Mr Benn

  374. How many council tax bands do you think you would need to make it sufficiently graduated compared with the number we have currently?
  (Mr Palmer) There are two issues: there is the number of bands and there is the ratio of the payments between the bands. Our preferred option would be to go to ten bands and to have the ratio moved from a 3:1 to a 6:1 ratio between the payments of the top band and the payments of the bottom band.

Christine Butler

  375. Are not the water companies saying that the more water you use the lesser amount we might have for a standing charge, like telephone companies?
  (Mr Palmer) We do not think that the government ought to be dictating absolutely precise tariffs to water companies. What it ought to be doing is setting out the criteria against which water companies' proposals should be judged. I would be open, therefore, to them being able to propose those ideas but they would have to demonstrate that it fitted with the stated criteria.

Mrs Ellman

  376. Is it really feasible to look at protecting the less well-off solely in terms of tariffs? Is it also necessary to look at who meets the increased costs and the distribution of that between shareholders and consumers?
  (Mr Palmer) Clearly it is much easier to alter a tariff structure at the time when prices are falling so that you minimise the number of losers. The key point with water is there is already an ability to pay scenario. A couple of years ago the government brought in the rule that you could not be disconnected for non-payment of water. One of the interesting side effects is that the water companies are now much more conducive, many of them, to retaining an ability to pay structure because there is no point trying to charge low income consumers more than they can afford to pay.

  377. But is it reasonable to look at this issue solely in terms of tariffs? Does there not have to be a bigger question asked at the same time, and that is who pays for additional costs? Is it the shareholders, the water companies or the consumer?
  (Mr Palmer) I am not sure I quite understand. We are talking about the distribution of the charges between different parts of the population. We are not trying to change the revenue to the water company.

  378. But I am looking at a bigger question about costs incurred by the water companies, and what I am saying is what you are saying is very important. Can the issue of equity be addressed solely in terms of tariffs? Does a bigger question not have to be asked at the same time?
  (Mr Palmer) There were lots of questions about total water usage and new reservoirs and so on.

  Mrs Dunwoody: I do not want to get too general. I think Mrs Ellman was simply highlighting the fact that we are dealing with one end of the market and not the other.

Mr Cummings

  379. Do you believe sufficient time has lapsed since the regulations were introduced in April of last year to give a true appraisal of where we stand at the present time?
  (Mr Harrop) Are you referring to The regulations protecting very vulnerable customers?

1   Note by witness: These administrative complications are associated only with the process of transition from the 1973 system. Once in operation a Council Tax system, based on bands rather than individual property valuations, would be simple to administrate. Back

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