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

Memorandum by John E Thackray[6] (DWB 37)

  1.  At present the draft Bill covers two primary areas—Water Resources Abstraction & Impounding and New Regulatory Arrangements. The Inquiry has received a great deal of evidence from many and often very different points of view. Five key messages stand out amongst this welter of evidence. The first is that:

  A.  Updating of the present statutory framework for water resources' management and licensing is long overdue. There appears to be a broad consensus on this point even though views on the detail of what needs to be done vary with the interests of the witnesses and commentators. Government and the Environment Agency have consulted in depth on their proposals with clear and rational decisions on necessary action being published as much as two years ago in "Taking Water Responsibly" March 1999. It is a pity that other distracting issues of altering regulatory frameworks and increasing competition in the provision of water services have been allowed to delay necessary, urgent and generally well-considered proposals.

  2.  The Water Resources 1963 Act introduced new and radically improved ways of managing water resources. As one who took a significant role from the beginning in implementing the entirely new approaches that it made possible, the author of this memorandum can attest that it enabled rapid advances to be made which put water resources regulation and management in England and Wales decades ahead of most of the rest of the developed world. For the first time ever, investigation of all existing abstractions and the statutory issuing of the "Licenses of Right" necessary for their legitimate continuation took place, within a year. Then followed the conception and implementation of new hydrometric schemes, new engineering works to augment and redistribute water resources and the licensing of new and changed abstraction regimes. All this laid the groundwork for a system which has remained relatively little changed to this day. However all of the key external factors underlying effective water resources management in England and Wales have changed greatly over the last thirty-eight years including:

    (i)  The gathering and analysis, initiated by the 1963 Act, of immense amounts of previously unknown hydrological and environmental data.

    (ii)  Radical shifts of public opinion and legislation in favour of improvements in the aquatic environment.

    (iii)  Major reductions of household size with concomitant increases in the demand for water per person and also increasing use for garden watering especially in the relatively dry south east, together with a substantial decline and move southwards of much manufacturing industry leading to major reductions in abstraction in some areas.

    (iv)  The growth of certainty about the reality of long-term climatic change.

  3.  Meanwhile there have been only two significant changes in the administrative framework for Water Resources in England and Wales.

    (i)  The centralisation of powers over water resources particularly since the Water Act 1989, both by successively converting the original twenty-seven locally autonomous and catchment based River Authorities into one Environment Agency; and by requiring that its general duty, inherited from the 1963 Act, of "conserving, redistributing or otherwise augmenting" water resources and "of securing the(ir) proper use" should also be carried out "in accordance with the directions of the Secretary of State".

    (ii)  Adding substantial new pollution control functions which although necessary, are of a quite different "policing" character to the "doing and regulating" functions of the Agency in relation to water resources.

  4.  Government and the Environment Agency now consult much more fully and increasingly comprehensive plans and analyses are produced, but centralisation of power and a strong policing ethos have not led to major proposals for practical action since the centralisation of 1989. Whilst part of this slow down appears to be due to centralisation and also to a change in Government priorities and of management ethos from "doing and regulating" to "advising and regulating", and part of it may well have been justified, there is now an increasingly urgent need to change. As part of this change the problem caused by the rigidities created by the lack of fundamental updating of water resources legislation over the past thirty-eight years needs to be addressed swiftly. Careful account will need to be taken of the important detailed points raised with the Inquiry, particularly in their supplementary submissions, by Water UK and John Place/NFU.

  5.  To the extent that the provisions of the draft Bill enable water resources to be planned, managed and licensed much more flexibly and fully in the national interest they are long overdue. Clauses broadly along the lines of draft Clauses 10 & 11 (All new licences to be time limited), and 17 (Removal of the automatic right to compensation if a licence without time limit—usually a 1965 "Licence of Right" or an early years new Licence—is curtailed after 1 July 2012 on the grounds that it is occasioning significant environmental damage) appear to be both necessary and critically important.

  6.  These clauses, or ones similar to them, and the others in Section 1 of the Bill, should begin to remove the anachronism that a very high proportion of current abstraction takes place under an antique "first come first served" priority system rather than as a result of serious analysis and agreement of social and environmental priorities as part of a rounded agenda of sustainable development. Only one critically important element appears to be missing from the proposed formulation.

  7.  No provision is made in the Bill to reflect into water resources licensing any priorities other than environmental priorities and a generalised demand for water abstraction for all purposes. This is inadequate. Section 52 and 55 of The Water Industry Act 1991 repeat provisions dating back over many decades which say that a water undertaker shall:-

    (i)  Provide such a supply to any of its serviced premises as is sufficient for "domestic purposes"—drinking, washing, cooking, central heating and sanitation as set out in Section 218 of that Act.

    (ii)  Not make a new supply for "non domestic purposes" (these include garden watering with a hosepipe) or to take any steps if, among other things, they would put at risk its ability to meet the present and probable future needs of its customers for water for "domestic purposes".

  8.  It seems reasonably clear that Parliament should require that this priority of abstraction for use for "domestic purposes" should be included in the planned new legislation. To omit it would increasingly lead to the commodisation of water resources planning, licensing and management and the supply of a basic essential for healthy living and the unbalance its sustainability. An oversimplified regulatory tension between commercial and environmental interests would leave the critically important social interest of water supply for domestic purposes without a clear mandate and reference to make itself felt directly. It would also leave the water undertakers—currently water companies—with a damagingly unattainable supply duty once present licences without time limits come to be reviewed and time limited.

  9.  The second part of the draft Bill deal primarily with "New Regulatory Arrangements". It is interesting and has drawn much comment especially from customer representation specialists, but it will not change the fundamentals of the water industry in England and Wales. The second key message is that:

  B.  Regulatory arrangements for the provision of the four water services are likely to be subject to unending proposals for change as Ministers and civil servants, regulators, commercial service providers and consumer interests struggle for relative advantage.

  10.  The current imperative for change appears to have arisen largely from the almost unfettered personal powers over regulation and customer interests given to the first Director General of Water Services, for the eleven years from privatisation in 1989, and his skill in appearing to use them to fulfil a particular agenda of hand picking customer committees, encouraging cross subsidies for services to metered households, and imposing a very uneven pattern of revenue price caps on the water companies.

  11.  Present proposals appear to cut a broadly acceptable path through the competing demands of the various interested parties already noted, but they do not directly address all of the legacy of present arrangements. Some of this may be best addressed by the second Direct General rather than by changes in legislation.

  12.  Two apparently minor changes included in Part II of the draft Bill seem to be based on a common misconception and ill conceived. These are in clauses 27 and 40. The four inter-linked water services of water supply, sewage disposal, property rainwater disposal and highway drainage are much more complex and quite different in nature from gas, electricity and telephone services. (This may be disputed by some customer representation experts, theoretical economists and others.) Overall best value dictates that they relay to a very high degree on the simple engineering technology of high capacity pipes providing near universal service and using gravity as the primary source of motive power. It is the economy of this, compared with the primitive and expensive systems of earlier competitive market models still found in many badly served parts of the developing world, together with their being essential for public health and well being, which dictate their near monopoly situation. There is no foreseeable general alternative to this, even in science fiction, except where direct abstraction from and return to the environment by the consumer is possible, acceptable and cost effective. Direct abstraction and return are an existing and very long-standing source of real competition in the provision of water services but they are only possible in certain locations, mainly for major non-household services and remote rural households. Nevertheless they provide around half of the total water used for "non domestic purposes" and 100 per cent of use for "domestic purposes" by the very small fraction of households (1 to 4 per cent depending on the region concerned) not connected to public mains and sewers—usually because of their remoteness.

  13.  Two further key messages emerge:

  C.  It is misleading and counterproductive to imply that the four water services are intrinsically similar to gas, electricity and telecommunications. Proposals in clause 27 "to protect the interests of consumers of the regulated water and sewerage services, wherever appropriate, through promoting effective competition" and in clause 40 to "provide for the abolition of the Competition Commission's sector—specific utility panel for water" and replace it with the single cross-utility set up to deal with electricity and gas references, are premature to say the least and dangerously misleading in their tone and import. Both could be deleted with considerable advantage to the effective long run and immediate operation of the water service.

  D.  Major real competition from direct supply and disposal has existed for more than a century in the water sector. This could be facilitated using the proposed changes to water resources legislation (See Message A). Legislation on promoting the kind of competition implied in clauses 27 and 40 and in recent government consultation documents on competition is misconceived and is unlikely to increase costs to customers by creating artificial regulatory and other uncertainty. The opportunity cost of the distraction of management and pre-empting of Parliamentary, regulatory and customers' time is immense. Further substantial measures to accelerate competition should be delayed until the full practical impact of major changes to water resources licensing arrangements are seen, or new and currently unheard of basic alternative engineering technology becomes available. This delay should probably be until at least the 15 July 2012.

  14.  The fifth key message is that:

  E.  The draft Bill omits to deal with four serious gaps and problems in the present framework of water legislation. These are seriously inhibiting the effective and fully sustainable functioning of environmental protection and the provision of water services. Inclusion of suitable clauses in the draft Bill is a matter of urgency, they have been casualties of the opportunity cost of pursuing other theoretically interesting but non-urgent issues for too long. These omissions also need to be corrected before new competition is introduced, in order to create a firm and level playing field.

  15.  The first concerns the surcharging—with most of the costs of draining highways in developed areas—of households and all others whose sewage disposal and/or property rainwater disposal services are provided through a water and sewerage company sewer; but not surcharging those who dispose of their sewage and rainwater direct to the environment.

  This adds approximately 20 per cent to most "sewerage" bills and provides a substantial market distortion in favour of direct discharge to the environment. It also has adverse effects on sustainability, both by giving financial incentives to increase the amounts of partially treated and untreated discharges to the environment and by penalising low-income families and other households in less value properties. This penalisation occurs because there are no reliefs for this surcharge on their sewerage bills, whilst they normally benefit from reduced rates of income tax and other central taxation or be eligible for council tax benefits if the costs were met—more fairly and properly—by charges to highway authorities.

  16.  To date, changes to correct this historical maladministration have been resisted by DETR and Treasury because they would have to meet the necessary costs or see Council Tax bills rise whilst sewerage bills were reduced. Nevertheless change could be simply effected by a clause in this Bill making highway authorities liable for highway drainage costs, and the financial impact of taking this into account in calculation of local authority funding would be comparatively minor, especially if phased. A clause enabling water and sewerage companies to charge highway authorities for the costs of highway drainage is urgently needed in the interest of social equity, cost effectives and sustainability.

  17.  Section 9(b) of the Water Industry Act 1991 included a no doubt well intentioned, but very mistaken, provision which means that any household which volunteers to be metered gets its meter or meters installed free of any direct charge. On the face of things this appears to be innocuous and possibly desirable. In practice it is not. It is promoting an unsustainable and environmentally damaging growth of metered charging.

  18.  With a very few marginal exceptions, only households whose bills are significantly reduced without them making any substantial changes to their habitual use of water, especially for domestic purposes, are applying, and are likely to apply, for this no charge meter option. In most cases the environmental and cash cost of meter installation, together with extra billing, repair and maintenance cost is substantially more than the environmental and cash value of any reduction in water use which they make. Approximate figures based on Ofwat and Environment Agency data are a capital cost of around £200 per house which is broadly equivalent to an annual cost of £10-£20 per year per house, plus a further ongoing cost of around £15 per year. The total extra resource cost of £30 per year per household has to be set against the possible long-term value of reduced water use. This is only of the order of £10 per year for most households. The heavy net environmental and cash costs of around £20 per metered household per year will gradually rise to around £400 million per year, for England and Wales as a whole, unless changes in legislation are enacted very soon. The extra net environmental cost principally manifests itself in extra vehicle miles for meter installation, reading, repairs etc,—with concomitant extra fuel and energy consumption and the UK and overseas costs of manufacturing extra pipework, installation hardware and the meters themselves. It is reasonably clear that equivalent spending directly addressing water environment problems would produce better value both for the environment and UK as a whole.

  19.  This problem of unnecessary environmental and cash cost is compounded by the largely regressive social impacts of this policy. In practical terms, it results in families of two or more persons living in low value, usually small, houses being compelled to cross subsidise the bill reduction and extra environmental costs of "on request, no-charge metering" of generally smaller households which have chosen to live in properties which are usually large and/or expensive relative to their housing needs.

  20.  The problem is exacerbated by the tariff policies of the first Director General who chose to advise water (and sewage) companies in devising their tariffs, to largely ignore the obvious reality—to the man in the street as well as the expert—that it usually requires longer pipework to service large well spaced out properties with substantial gardens than is needed for terraced houses or flats. Only around one half or less of total water service cost—even in the long run—are broadly related to volume of supply whilst the other half is related to number and size of dwellings, and the scarcity of dwellings in rural areas. Current water service tariffs subsidise the creation of extra environmental cost and strong discrimination against many lower income families by omitting to include an element related to the network cost of providing 24 hour a day availability of water services and the way that varies with property size, regardless of what volume of supply is taken. There is an urgent need to repeal Section 9(b) of the Water Industry Act 1999 and for the Director General to require that network and meter installation costs as well as volume costs are properly represented in tariffs. This action needs to be undertaken before it would be reasonable to promote further competition in water services.

  21.  The water supply undertakers currently continue an ancient nineteenth century practice which makes them improperly different from the gas, electricity and telecom services and is also socially unacceptable, uneconomic overall and environmentally damaging. The practice of the supply company being responsible for only a part of the pipe connecting from the main supply in a street to the first point of practicable use by the customer needs to be changed, by legislation, to end current damage to environmental and social sustainability, and before further competition could be rationally introduced. It is a source of significant avoidable leakage.

  22.  Put simply, even a water supply specialist does not usually have the equipment and resources available in his home to efficiently fulfil his technical duty in law to maintain, repair and if necessary repair this part pipe, any more than he has corresponding equipment, expertise and resources in relation to gas, electricity and telecoms, where—thankfully—the service is normally brought into the house or other property to a point where it can be seen and maintained etc.

  23.  This issues was recognised by the May 1997 Water Summit and useful stop-gaps measures were introduced, but the problem now needs to be addressed properly. The latest available figures from Ofwat (September 2000) confirm that approximately 1/3 of total leakage with its consequent negative effect on water resources and the environment still takes place from these multi responsibility pipes. In addition the social impact of their occasional complete failure can be economically disastrous for low income households if they have to take out extra insurance cover and/or face punishing one off bills for replacement and repairs. The problem will not go away without legislation. The September 2000 Report from Ofwat by the second Director General shows that company compliance with policies of free supply pipe repairs, replacement etc is partial, limited and in several cases, reluctant. It is clear that some of the moneys currently being used to subsidise metering could be much better spent on transferring responsibility for supply to the first point of practicable use by the customer wholly to the water companies. This would also benefit the programme for and reduce the overall costs of reducing the amount of lead in water supplies. Legislation is urgent.

  24.  Last, but not necessarily least for those adversely affected, the draft Bill does not address the existing nineteenth and twentieth century legacy of accumulating problems from unadopted drains, sewers and associated facilities such as pumping stations. Nor does it put a stop to the further increase in numbers of unadopted sewers being created in some new housing and other developments, even now in the twenty first century. The problem arises because it is possible for a developer to save costs by not building sewers and drains to the standard required for their adoption by the sewerage undertaker. These usually work initially but high operating costs and expensive failures often arise early in their lives. Failures of unadopted sewers, pumping stations etc commonly result in significant pollution and environmental damage, of which the most recent widespread examples were during the floods this winter—2000-01. Unadopted sewers etc are also detrimental to social sustainability when households and others are faced with fortuitous, large and unmanageable bills for the repair etc of sewers and drains not adopted by their sewerage undertaker.

  25.  Legislation is urgently needed to:

    (i)  Ensure that forthwith all new or substantially altered properties are provided during construction with sewers and drains which meet the sewerage undertaker's standards for adoption, and that they are so adopted before certificates of completion are issued.

    (ii)  Provide that the sewerage undertakers adopt all existing unadopted sewers and normally adoptable drains, possibly on a priority basis, over a ten year period.

  This legislation also needs to be enacted before further competition can be rationally promoted.

John E Thackray

Specialist Adviser for the inquiry into the draft Water Bill

6   John E. Thackray was Specialist Adviser, to the Environment Sub-committee, for this Inquiry. Back

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