Select Committee on Environment, Transport and Regional Affairs Ninth Report


The Environment, Transport and Regional Affairs Committee has agreed to the following Report:—


Our inquiry

1. In November 2000, the Government published Water Bill - Consultation on draft legislation. The draft Bill included all the clauses relating to regulation that had been removed from the Utilities Bill along with arrangements to reform the abstraction licensing system and a collection of other minor reforms.

2. We decided to undertake a brief inquiry on the Bill, in order to contribute to the pre-legislative process. We invited submissions on the content of the draft Bill as it stood, but also on any matters which had not been included in the Bill. We received in reply over 30 written memoranda, and held 3 sessions of oral evidence. In doing so, we heard from individuals and organisations involved with the water industry and also those with a direct interest in the workings of water regulation and licensing. Our advisers, Caspar Henderson, John Thackray and Neil Summerton CB, ensured that we were well informed and advised about all aspects of the draft Bill.

3. We welcome publication of the draft Bill, and the opportunity which it affords for consultation on the Government's proposals for changes to the regulatory system, and for further consultation on detailed proposals for reform of the abstraction licensing system. There is an urgent need both to reform the system of abstraction licences and to improve some aspects of regulation, and publication of the Bill was already long overdue. But our consideration of the Bill was hampered by the fact that it is incomplete: in particular, it lacks the clauses on competition and the use of economic instruments in abstraction licensing.[1] There is an obvious and important interaction between the proposals for abstraction licensing and any proposals to encourage competition in the water industry. It is, therefore, difficult to judge fully the adequacy and effectiveness of the clauses on abstraction without sight of the clauses on competition.

4. As a result of the partial nature of the Bill before us, and of the limited time available, we have decided not to produce a full Report on the provisions in the draft Bill as published. However, the written and oral evidence submitted to our inquiry was of a very high quality and raised a number of important issues. We therefore recommend that the Government examine carefully all of the evidence we received, both in writing and orally, as part of the consultation procedure on the draft Bill.

5. Despite the brevity of our inquiry, there were two specific aspects of the Bill on which we do wish to report.

Abstraction Licensing

Human Rights Act 1998

6. We strongly support the proposed reforms of the abstraction licensing system, especially in order to ensure that water abstraction does not take place at the expense of the environment. The basis of abstraction licensing has been little changed since the Water Resources Act 1963, although the understanding of how abstraction can harm the environment has advanced much since that Act was passed. The balance between the need to abstract water and the need to protect the environment now needs to be re-addressed and the reform of the existing system is both long awaited and much required.

7. Although we support the overall thrust of the reforms, we do have reservations about two particular implications of the changes proposed. Firstly, we are concerned that one aspect of the licence reforms could fall foul of the Human Rights Act 1998. Clause 17 of the draft Bill specifies that existing non-time limited licences ('licences of right') may, after 2012, be revoked without any compensation, if this is deemed necessary to prevent 'serious environmental damage'. The Government hopes that the prospect of revocation without compensation will achieve the objective of encouraging holders of such licences to convert them to time-limited status. However, the National Farmers Union suggest that this particular clause could amount to the confiscation of property without compensation and may, therefore, be in contravention of the Human Rights Act 1998.[2]

8. When we questioned officials from the DETR on this matter, they told us of the "balance to be struck between the public interest, which might be construed in terms of environmental protection, and the rights of, in this case, the licence holder."[3] They went on to argue that the long period of notice which the Government has given abstractors about this provision (15 years from when the proposal was first made, in 1997) meant that it would not come into conflict with the Human Rights Act 1998. However, we remain concerned that the provision to revoke abstraction licences without compensation could face challenge under the Human Rights Act 1998.

Trickle Irrigation

9. Our second concern about the proposals for abstraction licensing relates to the effect on those undertaking trickle irrigation of the draft Bill's proposal to require them, for the first time, to seek a licence for abstraction for this purpose. Trickle irrigation is widely recognised as being more efficient (and therefore less environmentally damaging)[4] than spray irrigation and does not currently require a licence. Whilst there was no dissension from the principle that abstraction for this purpose should now, given the reforms envisaged, be brought into the licensing system, some witnesses were concerned at the way in which this will be done and, in particular, about the way in which the Environment Agency, as a matter of policy, proposes to use the powers in the draft Bill.

10. We heard of the concerns of the National Farmers Union, who told us that "current proposals will result in inequitable treatment for trickle irrigators",[5] and also those of John Place, a fruit farmer from Norfolk, who told us that he faced the possible loss of his business as a result of implementation of the Bill.[6] Essentially, as the proposals stand, there is a risk that the historic situation whereby trickle irrigation did not require a licence could result in existing trickle irrigators being refused licences under the new system. Where resources are not under pressure it is likely that licences will be granted, but it seems that where resources are stretched they may simply be refused, on the grounds that others are already taking the water available before environmental damage occurs. As a result of not previously requiring a licence, the needs of trickle irrigators could now be given the lowest priority in the licensing system.

11. Indeed, it seems that the Environment Agency are already telling trickle irrigators in some areas that they will not receive a licence once the new system is introduced because resources are under pressure.[7] The Agency told us that "bringing these activities into the licensing regime will control the potential for environmental damage and place such activities on an equal footing with other forms of irrigation."[8] We agree that action must be taken where necessary to protect the environment, but the 'equal footing' referred to must also confer equal rights and equal opportunities. Any system of licensing must aim to treat all abstractors fairly. Where resources are scarce, this could involve reviewing all licences to free up some capacity for trickle irrigators[9] or, as one witness suggested, organising a local market for abstraction licensing.[10]

12. Despite the Environment Agency's developing policy in this area, both DETR officials and Mr Meacher assured us that trickle irrigators would not be disadvantaged by the licensing proposals. Mr Meacher told us that:

    "I would be stunned ... if a trickle irrigator were not to receive a licence for abstraction in the absence of wholly exceptional circumstances and, even in those cases, I would expect probably other forms of abstraction would be where the cuts were made, not in respect of a trickle irrigator."[11]

13. If trickle irrigators are ultimately unable to obtain licences, many farmers and fruit growers who have pursued this form of irrigation as their businesses have grown will suffer and could be forced out of business. We therefore question whether a situation in which spray irrigators hold licences at the expense of those wishing to trickle irrigate could be considered either equitable, or sensible in environmental terms. The Government appears to be keeping options open for the transitional arrangements for trickle irrigators: suggestions have included the automatic granting of time-limited licences.[12] Although this could help alleviate the immediate problem for trickle irrigators, it does not aid the Environment Agency in moving quickly to protect the environment where resources are already over-stretched. A more sophisticated approach is needed to ensure both that the environment is protected and that trickle irrigators are not unfairly penalised.

14. Trickle irrigation is an efficient form of irrigation. We urge the Government to consider how trickle irrigation can be guaranteed fair treatment in the new system of abstraction licensing. Where resources are scarce, the needs of existing trickle irrigators whose use has been notified to the Environment Agency must be considered equal to those of existing licensed abstractors. The Environment Agency will be responsible for implementing the licensing system and they must be provided with a very clear framework by Government which defines how trickle irrigators are to be introduced to the scheme whilst ensuring that environmental protection is not compromised.

Sustainable Development

15. The other matter which we have considered in some depth was that of the duty of the economic regulator to give consideration to environmental matters generally and sustainable development in particular. This is an issue which our colleagues on the Environmental Audit Committee examined in their inquiry into Water Prices and the Environment at the end of last year. In their Report, they concluded that:

"the Director General of Ofwat should be directly accountable for ensuring that Ofwat makes a positive contribution to the Government's sustainability agenda. The Committee recommends that, in line with the Government's own commitment, the Director General should have a specific duty to have regard to sustainable development."[13]

16. Some witnesses to our inquiry argued that such a duty was required and were disappointed that it was not incorporated into the draft Bill.[14] The placing on the Director-General of Water Services of a duty to have regard to sustainable development would be in line with the Government's Sustainable Development policy, which states that the creation of all new public bodies should "include consideration of a specific remit on sustainable development".[15] Although this commitment post-dates the formation of Ofwat, the draft Water Bill provides an ideal opportunity to place such a duty on the water regulator. We were encouraged that, after consideration, the new Director-General, Philip Fletcher, had concluded that the introduction of a duty may be acceptable.[16] This marks a change of attitude from his predecessor, Sir Ian Byatt, who had declared himself opposed to a sustainable development duty. The Minister for the Environment, Mr Meacher, also told us of his personal view that a duty would be desirable.[17]

17. However, there is also a good deal of opposition to the duty being introduced. Some witnesses argued that there was nothing but confusion to be gained. Water UK stated that any duty on Ofwat would "blur accountabilities"[18] of Ofwat and the Environment Agency with a risk that the two organisations would develop their own, separate ideas of what constituted sustainable development. Water UK stressed that efforts should be focussed on improving the relationship between Ofwat and the Environment Agency to ensure that Ofwat give full regard to the Agency's representations on environmental matters.[19] Indeed, several witnesses raised the issue of co-operation between the various regulatory bodies in the water sector.[20] For example, the Consumers Association wrote of the problems of regulation in the water industry and stated that "lines of responsibility and accountability need to be far more clearly defined and formalised."[21]

18. The question of relationships and accountabilities of the different regulatory arms is in our view, however, an entirely separate one from whether or not Ofwat should be given a duty to have regard to sustainable development. Sustainable development is about bringing economic, social and environmental goals into accord, thereby delivering better quality of life now and for future generations. With issues such as climate change likely to gain in importance, a new duty would send a signal about commitment to forward thinking about the country's water and sewerage systems. It would help to ensure the necessary balance between economic, social and environmental objectives and enhance the robustness and value of what should be a long-term industry, to the benefit of all stakeholders. The new duty would accord with the Government's position that sustainable development should be at the heart of everything we do as a society without compromising in any way Ofwat's ability to fulfil its other primary duties.

19. Indeed, to give Ofwat such a duty would not be to imply that the economic regulator should take on any of the responsibility for protection of the environment or of human health which currently lie with the Environment Agency and the Drinking Water Inspectorate, nor that either of these bodies should not continue to be accountable for the way in which they exercise those responsibilities. Rather, it would aim to ensure that Ofwat took full account of the need for sustainable development in taking decisions on those matters which are the responsibility of the economic regulator.

20. The draft Bill includes provision for the Secretary of State to offer advice to the Director-General on social and environmental matters (which, along with economic matters, are the main pillars of sustainable development).[22] However, we do not believe that this will be sufficient to ensure that all aspects of sustainable development are at the forefront of thinking on regulation of the water industry. We are concerned that the pursuit of sustainable development is not sufficiently prominent within the role of the Director-General. We therefore recommend that Ofwat should be given a duty 'to facilitate sustainable development'. So framed, the duty will help to provide an appropriately broad and balanced context in which co-operative working between the economic regulator, the Environment Agency and other actors in the regulatory process can flourish.

1   See Ev p21, p75 Back

2   Ev p91 Back

3   Q84 Back

4   Q90, Q511 Back

5   Ev p90 Back

6   See QQ305-314 Back

7   Q249. Water resources are under pressure across much of the south-east of England (Q256) Back

8   Ev p86 Back

9   Q305 Back

10   Ev p27 Back

11   Q515 Back

12   Ev p91 Back

13   Environmental Audit Committee, Water Prices and the Environment, Seventh Report, Session 1999-2000, 597-I, Paragraph 220 Back

14   See, for example, Ev p88 Back

15   Box beneath Paragraph 5.27, Cm 4345 A better quality of life. A strategy for sustainable development for the United Kingdom, Department of the Environment, Transport and the Regions, May 1999 Back

16   Q54 Back

17   Q489 Back

18   Ev p46 Back

19   Ev p44 Back

20   Ofwat, the Environment Agency, the Drinking Water Inspectorate and the DETR itself Back

21   Ev p94, section 4 Back

22   Clause 28 Back

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