Examination of witnesses (Questions 360-379)|
TUESDAY 13 FEBRUARY 2001
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
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 makingthe inability of somebody to cope with itare
in a sense not dealt with by applying another equally crude target
and saying "This will change the banding". Is it administratively
(Mr Palmer) I think it does have administrative complications.
The question is whether there is sufficient motivation to overcome
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
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.
364. Do you think there would then be many more
gradations, many more subheadings, in the system that you are
(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.
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
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.
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.
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 nowyou 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
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.
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.
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.
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.
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
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.
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