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

Memorandum by Neil Summerton[9] (DWB 39)

  1.  This memorandum draws attention to a number of points in the draft bill and/or the underlying policies which I believe would benefit from further consideration in the light of written and oral evidence given to the Sub-Committee.


  2.  Water legislation sets the statutory framework within which the institutional system for providing water and waste services, and protecting human health and the water environment, operates. The draft Bill refers to a number of aspects of the legislation, but omits other aspects which are either under consideration or in respect of which there is pressure for amendment. The legislation is only part of the story however: at least as important are (1) policies on the way the system is to be used, (2) institutional change which can be achieved within the legislation (eg, the licence and the institutional form of statutory undertakers), and (3) strategic goals (eg, on prices and standards of service, on water resources, and on environmental quality) and the way the variety of available tools are used to attempt to achieve those goals. On the question of strategy, the Environmental Audit Committee has already proposed that the next periodic review of water prices should be informed by a statement of overall strategic policy providing a longer-term framework for the periodic review, which inevitably focuses on a five-year horizon. Quite apart from the question of strategy, however, there are important questions and uncertainties about the institutional development of the system, which have been raised in particular by the thrust to extend competition in the water industry and by proposals for restructuring the water companies. In my view, in the light of this situation, and to assist in understanding the significance of legislative proposals when they are brought forward for enactment, it would be helpful for the Government to publish a policy overview of the directions in which it believes the institutional system should develop over the next few years. Like the strategic framework for the periodic review, this should be prepared following discussion with the range of interested parties, including NGO's.

Abstraction licensing

  3.  I suggest two points relating to the abstraction provisions be given further consideration:

    (a)  An important underlying purpose of the draft provisions is to increase the ability of the Environment Agency (and the Secretary of State on appeal) to take action to protect the environment from over-abstraction. This is necessary in the light of the increasing public importance of the water environment, and of increasing pressures to abstract and from climate change in some areas of the country—pressures which call into question the possibility of continuing on the first-come, first-served (in perpetuity) basis which has often prevailed even under the system of control established by the legislation of 1963. But this needs to be done in a way which does not unnecessarily prejudice the Agency's obligations in respect of the provision of water to potential users or the reasonable interests of water users (including domestic consumers). The difficulties seem to me to lie not so much in the legislative proposals themselves as in the underlying policy for the use of the extended powers. Specifically, the notion that licences should in the normal case be limited to 12 years, with renewal to be subject to "stringent tests" as suggested in Taking Water Responsibly, seems to ignore the practicalities in cases in which large, long-term investments are made on the basis of the right to abstract. There are many important abstractions (or impoundings) which have been taking place for 50 or 100 years, and it is scarcely plausible that they can or should be made subject to 12-year licences. In some cases, it may indeed be necessary to modify the abstractions in the interests of the environment, and perhaps also to achieve a better pattern of allocation of the available water between users and potential users. But in practice for many longstanding large abstractions, it is likely to be necessary to agree to compensating withdrawals and it is not obvious that risks should be increased by requiring those withdrawals to be subject to a 12-year licence. It seems to me that the use of the new powers should be seen in the light of the enhanced planning arrangements which are being introduced—the revised national water resources strategy, the revised regional strategies, the Catchment Abstraction Management Strategies (which themselves should form part of the catchment-wide plans dealing with both quantity and quality, as the theory of basin management has long suggested), the water companies' water resource plans (which have a long time-horizon), the companies' drought plans, and so on. There seems no reason why this system should not give the data on which the Agency can decide appropriate time-limits in the circumstances of each case (in the appropriate wider context), whether for longer than 12 years or even for less. Quite apart from anything else, a blanket policy of 12-year licences seems likely to lead to a major increase in the number of appeals, which the Department will find hard to cope with.

    (b)  The proposed provisions on drought plans are difficult to interpret, and neither the covering memorandum to the draft Bill nor Taking Water Responsibly explain them satisfactorily. The underlying intention seems to be that drought plans should be agreed with the Environment Agency. The provisions suggest, however, an extension of the Secretary of State's powers to approve plans. While it is true that for historical reasons the powers to make drought orders rest with the Secretary of State, it seems to me to be questionable whether the responsibility for formal approval of drought plans should rest with him, given the general structure of the system now that there is an Environment Agency. In the mid-Nineties, steps were taken to devolve some powers in respect of drought limitations to the Agency. There must be a question whether an opportunity is being missed to recast the drought powers as a whole in a way that recognises the existence of the Agency as the national and regional water resources regulator. This would suggest, for example, that the powers to hold a hearing on a drought plan should in the first instance be with the Agency; or that the Agency should have the formal power to approve a drought plan, with an appeal to the Secretary of State (with provision for a hearing at that stage) if the water supplier is not content. Again, the proposals seem to attract more administrative burden to the Department than is desirable, given the changes to the structure that have taken place in the last 15 years.


  4.  I suggest that further thought should be given to the proposals for a Water Advisory Panel (WAP). The provisions in the draft Bill would create new freestanding statutory advisory body, of which, it appears, the Director General of Water Services would not be a member. Its advice would be published, though the Department has suggested in a supplementary memorandum that, at the discretion of the Director General, this might not be until after he had made any related decisions. Pressure is already developing for representation of a wide range of interests among the members of the WAP, possibly wider than the Department has intended in making the proposals. It seems to me to be inevitable that there will be pressure for this body to act as a statutory critic of the Director General, in addition to all the other sources of public pressure which threaten to erode the regulator's independent judgement in the interests of customers.

  5.  As the Sub-committee's inquiries, and the report of the Environmental Audit Committee, demonstrate, the water regulatory system is already complex. Quite apart from a wide range of what are now known as "stakeholders" (including statutory bodies like English Nature), it entails three regulators and the Department, which has an important policy and co-ordinating role (the significance of which has been further emphasised by the Environmental Audit Committe). A further high-profile body is to be established in the shape of the Consumer Council, though this is paralleled in the existing system by the Customer Service Committees which equally often give public advice to the Director General.

  6.  It is questionable whether it is desirable to introduce into this heavily-populated structure a further independent body in the shape of the WAP. An alternative, which would achieve the same purpose without so many disadvantages, would be for the Secretary of State to take powers to appoint adviser to the Director General. These advisers would be within OFWAT and paid by OFWAT. Their advice would normally be published—before, at the same time as, or after the related decisions by the Director General, as the Department has said that it intends. It would be for the Director General to decide whether to publish details of the issues which he has asked the advisers to deal with. If needed, the Secretary of State could be given a power to direct the Director General to refer matters to the advisers. Arrangements on these lines would achieve the underlying purpose without the disadvantages. They would also be likely to be cheaper, since they would avoid the inevitable overhead costs of a freestanding body.


  7.  The proposals for a national Consumer Council, with some sort of regional structure, have been included largely unamended from those formerly contained in what became the Utilities Act 2000. The regulatory and other arrangements for water differ from those of the other regulated utilities in a number of important respects, because of the differing cirucumstances. It does not seem to me that it is necessary for the arrangements for customer protection to be the same as for the other utilities. The existing arrangements for statutory regional Customer Service Committees work well and have the merit of ensuring that there is a statutory committee relating to each of the water companies and their areas. The current arrangements have two main defects: the Committees are appointed by the Director General and can therefore be construed as being not sufficiently independent of OFWAT; and the national body which brings together the chairpersons of the regional committees has no statutory identity. It seems to me that the new structure proposed in the draft bill entails unnecessary change, without the prospect of any great advantage. A more limited, evolutionary change would be preferable: for the power to appoint the Customer Service Committees to be transferred from the Director General to the Secretary of State (and the National Assembly for Wales); for the national committee of chairpersons to be given a statutory basis (the Secretary of State or the National Assembly as the case might be would appoint the chairperson as well as the members); and for that national committee to take responsibility for the staff resources of itself and the regional committees. Again as an additional point,this looks likely to be a less expensive solution than the proposals in the draft Bill.


  8.  The Sub-committee has received extensive written and oral evidence on the basis of charging. It is not my purpose to consider this in detail. There is, however, one feature which would, I believe, merit particular consideration. A cause of public unease about the equity of the existing bases of charging for domestic purposes (metering and unmeasured charges based on the rateable values of 1973) is the principle that any revenue losses resulting from the shift of unmeasured customers to metered supplies shall be spread across all recipients of supplies for domestic purposes in the area concerned. (Any revenue losses result from the fact that those shifting to a meter from a bill based on a relatively high RV are very likely to pay less for their supply. Under a system of effectively voluntary metering, those shifting to metered supplies are likely to fall into that category. The significance of this was recognised in the recent periodic review by allowing companies to seek an interim redetermination of price limits if the rate of switching to metering substantially exceeded the Director General's estimates.)

  9.  The principle that the effects of revenue losses should be spread across all customers rather than metered customers derives ultimately from the duty in section 2 of the Water Industry Act 1991 to avoid undue preference or discrimination between customers or potential customers in the fixing of charges. There is however more than one way of looking at this question. It could be argued that to spread the effects of revenue losses resulting from the shift to metering across all customers is, at least when the proportion of metered customers rises, preferential to metered customers and discriminatory against unmetered customers. There is a case for the Director General to re-examine the principle in the light of current policy on metering and of the high degrees of meter penetration now achieved in some areas. It is true that, if revenue losses could be spread only across metered customers. there would be some effect on the financial attractiveness of the switch to metered supply for some customers. But a change in policy on this particular point would remove an important factor in current anxiety about the basis of water charging.

Neil Summerton

Specialist Adviser for the inquiry into the draft Water Bill

March 2001

9   Neil Summerton was Specialist Adviser, to the Environment Sub-committee, for this Inquiry. Back

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