Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Memorandum submitted by WaterVoice (J5)


  1.  Our evidence addresses the Committee's terms and reference from the perspective of customers of water and sewerage companies in England and Wales. It covers customers' interests in:

    —  the costs and benefits of implementation of the Directive;

    —  the impact on customers' bills arising from the costs that will fall on water companies;

    —  the implications for water pricing policy including water poverty;

    —  the part that public consultation and information will play in the process of implementation of the Directive;

    —  the role of the European consumer body BEUC and the absence of a voice for water customers in the European Commission's Common Implementation Strategy for the Directive.


  2.  Improvements in water quality are costly. Our aim is to ensure that water customers' interests as water bill payers and water users are taken into account during the development of and in the decision making process for setting new water quality standards, as well as in the implementation of those standards. As part of this it is also important to raise the general level of public awareness that customers are paying for these improvements.

  3.  EU water policy has been a major force in driving improvements in drinking water quality—in waste water treatment, in bathing water quality and in the water environment more generally. In the 15 years from 1990 to 2005 water companies in England and Wales will have invested £50 billion to improve water quality and to protect the water environment. Much of this investment has been required to comply with EU Directives including the Urban Waste Water Treatment Directive the Bathing Water Directive and the Drinking Water Directive. All of the investment the water companies are required to make to comply with these legal obligations is financed by customers.

  4.  The impact on customers in relation to the level of water bills and affordability must be key elements in determining the scale and pace of the quality programme. It would be counterproductive if the consequence of introducing much stricter water environment policies was to turn customers against those policies by imposing too high a cost burden upon them. The precautionary principle is a case in point where expensive preventative measures have sometimes been taken while little is known about any actual health benefits.

  5.  Proposals must be based on sound science. Cost and benefits must be assessed properly and cost effective solutions developed and if necessary kept under review so that they deliver best value for money. (At the last Ofwat Periodic Review of water companies' price limits in 1999 we and Ofwat challenged the value for money of a £105 million scheme to resolve low flows in rivers in Hampshire. It would have resulted in an increase of £11 a year in water bills. Following reassessment another way forward costing £1million with minimal impact on water bills has been found). In implementing EU and UK water policy the development of cost effective solutions should take precedence over undue haste to meet Ofwat's Periodic Review timetable. There should be flexibility in the price setting process where this can help to keep down costs and customers' bills.


  6.  WaterVoice (under its former name of the Ofwat National Customer Council) followed closely the Commission's proposal for the Directive through the EU legislative process, had discussions with Commission officials and briefed MEPs over the three years leading up to adoption of the Directive in 2000.

  7.  We supported:

    —  establishment of a framework at European level within which coherent policies could be developed for the sustainable use of water addressing issues of both quality and quantity;

    —  overall environmental quality objectives of preventing deterioration in water quality and achieving good status in all surface and ground water.

    —  putting the "polluter pays" principle into practice and avoiding pollution of water resources (for example by farmers and motorists) so that harmful substances do not have to be removed at customers' expense before water was fit for human consumption;

    —  a full cost recovery based approach to water pricing

  8.  We had reservations about:

    —  lack of information from the Commission on estimated costs or even ranges of costs—without which it was impossible to judge the balance between costs and benefits;

    —  the proposals on public consultation at implementation stage of the Directive which while welcome needed to be strengthened;

    —  Whether the timetable of achieving the main environmental objectives was realistic both financially and practically.


  9.  The Directive is we understand the most substantial piece ever of EU water legislation. It has to be transposed into UK law within three years of coming into force, by December 2003; substantial environmental and economic analysis has to be carried out before draft river basin management plans can be published for consultation after eight years; proper water pricing policies have to be in place after ten years; and the main environmental objectives met after 15 years.

  10.  It is however important to recognise that the Water Framework Directive is not all embracing in the field of water policy. It will for example complement the Urban Waste Water Treatment Directive adopted in 1991. There will continue to be a separate Drinking Water Directive (revised in 1998) and a separate Bathing Water Directive (a proposal for revision is expected later this year).

  11.  The Government has so far published, in March 2001 the first of three consultation papers on implementation of the Directive. The second consultation paper is expected in the autumn. In the meantime the Environment Agency, which will have a major role to play in implementation of the Directive published in June 2002 a consultation document on technical requirements. At this early stage in the process of implementing the Directive there are inevitably many significant areas of uncertainty as to the impact that the Directive will—or may—have on customers of the water companies.

  12.  We very much welcome therefore the Environment, Food and Rural Affairs Committee's inquiry. The Committee in its report will have a significant opportunity to influence implementation of the Directive in a way which balances the interests of water customers with those of other stakeholders.


Costs and Benefits of the Directive

  13.  There are uncertainties about the estimated costs of implementing the Directive. The partial Regulatory Impact Assessment in the Government's first consultation paper put the total estimated costs of complying with the Directive in England and Wales in the range £2 billion to £9.2 billion. This is a wide range and we wish to see further work done in producing a full and updated Regulatory Impact Assessment to refine the estimated costs and to narrow the range.

  14.  There are further uncertainties about where and on whom the costs that would fall. For example the costs to sewerage undertakers—and in turn customers—of improvements to point source discharges were put at £0.9 billion to £4.2 billion while the cost of reducing pollution from diffuse sources, particularly agricultural sources, were put at £0.6 billion to £2.9 billion. Again we wish to see more work done to refine the estimates to help inform the decisions that have to be taken in implementing the Directive.

  15.  In accordance with application of the polluter pay principle we would expect relevant costs to be met at source by those responsible for the pollution and not by water customers. We welcome on behalf of customers the prospect that water companies will be relieved of the need for capital investment in "end of pipe" solutions to deal with the symptoms of agricultural diffuse pollution. It would be welcome too if the Government were to apply the polluter pays principle to highway drainage the costs of which are met by water customers and not by road users.


  16.  In the Government's first consultation paper the partial Regulatory Impact Assessment put the estimated costs of the benefits capable of quantification at between £1.6 billion and £6.2 billion. This is somewhat lower than the estimated costs of implementation. We appreciate that many of the benefits are extremely difficult to value. More work is required to quantify and value the benefits more precisely where possible.

  17.  The Government claimed that it was not possible to estimate the size of any increase in water bills which might result from the Directive as this would be considered as part of the normal process of the Periodic Review of water companies' price limits in England and Wales, probably from the 2005-10 quinquennium onwards. The Government explained that the costs to water companies would be offset by previous and future efficiency gains (which we expect to be smaller than in the past) and other factors that are taken into account by Ofwat in the Periodic Review process.

  18.  While these statements are factually correct we are disappointed that the Government, with Ofwat's assistance, has still to provide any indication at all of the impact on the level of water bills of implementing the Directive. Full and effective consultation now and in the future and well informed decisions on cost effective implementation of the Directive cannot in our view be taken without knowledge of the possible impact on water bills both at national and regional levels to highlight differences across the country. Any such estimates now would we recognise be in the form of a wide range. Further work to refine the numbers would be required as better cost information becomes available. We recognise that the final impact on water bills would not be known until the outcome of each future Periodic Review is announced by Ofwat.


  19.  The Government has said that it wants to achieve implementation of the Directive in the most cost effective manner possible without as rule going beyond the Directive's requirements unless it was justified against any costs or benefits that arise. We welcome the Government's commitment on cost effective implementation but we are concerned about the possibility that the Government might go beyond the Directive's requirements.

  20.  We wish to see a realistic, water customer friendly approach to implementation. This means that no additional work should be done beyond that which is strictly required to meet the Directive's requirements. Any other requirements that the Government wishes to implement should not be done on the back of the Directive but should be the subject of separate cost benefit analysis and consultation with water companies, customers and other interested parties.

  21.  The Government has stated that it wants to ensure that the deadlines for phasing in obligations to implement the Directive are met but has no plans to phase them in earlier than is required by the Directive. We welcome this commitment which will be helpful in spreading the expenditure required and the impact on water bills over the longest possible period and will help ease any problems of affordability. This is especially important as there will inevitably be upward pressures on water bills in England and Wales from other directions during the period of implementation of the Directive eg to comply with the revised Drinking Water and Bathing Water Directives and with other Directives, to remedy sewer flooding, to address capital maintenance requirements and so on.


  22.  We have taken a close interest in Article 9 of the Directive which sets out a requirement to "take account of the principle of recovery of the costs of water services" and to "ensure by 2010 that water pricing policies provide adequate incentives for users to use water efficiently". Water pricing policies have an important part to play in promoting sustainable use of water. The recovery of costs from customers—household industry and agricultural—helps to raise awareness of the true value of water, creates incentives on users to use water responsibly and avoid wasteful use. Moreover by managing demand in this way it may be possible to defer or avoid the development of new water resources which may be damaging to the environment as well as costly to customers.

  23.  The Government stated in its first consultation paper that Article 9 of the Directive should have little effect on water charging policy in England and Wales as charges are already based on the principle of the recovery of costs, or are moving in that direction, without subsidies for water and sewerage services.

  24.  The recovery of costs raises a number of potential issues for customers. We would not wish to see any significant changes made in the following areas as a result of implementation of the Directive:

    —  Water poverty—customers on low incomes who have difficulty in paying their bills should continue to be eligible to receive assistance (although unlike the Government our view is that this should come primarily through the Social Security system and not through cross-subsidy within the charging system).

    —  Metering—this has an important part to play in water pricing policies and customers should continue, as now, subject to certain restrictions to have the right to choose whether or not to be metered.

    —  Averaging of charges—costs and pricing should continue, as now, to be averaged across the whole of each water company's area. Deaveraging would result in higher bills for customers in some areas at the expense of lower bills for others. We think the problems this would create would outweigh the benefits of stricter application of cost recovery.


  25.  Article 14 of the Directive contains important requirements relating to public consultation and information on the draft River Basin Management Plans which are a cornerstone in implementing the Directive. We wish to see the Government, having signed up to the Water Framework Directive, take the lead in educating and informing water customers and the public generally about the aims, objectives and benefits of the Directive and in due course to promote effective consultation on the draft River Basin Management Plans. In England and Wales we are well placed compared to other Member States in having for example in WaterVoice's regional committees well established customer representative bodies ready to play a full and active part in responding to public consultation on the draft Plans.


  26.  We are aware that the UK are working with other Member States and the European Commission in a number of Common Implementation Strategy Working Groups to provide guidance on good practice and implementing different aspects of the Directive. Many of these groups cover technical and specialist areas. The Groups report to a Co-ordination Group chaired by the Commission, which in turn reports to meetings of Water Directors in Member States.

  27.  We believe it is important that water customers (who will fund much of the cost of implementation) as well as environmental organisations and industry should be represented on the Co-ordination Group. We know that the Commission last year invited the European consumer body BEUC to participate but that they have not yet taken up the invitation. This means that water customers have no voice on the Co-ordination Group. We have pursued the matter for many months with BEUC who tell us that they have many competing priorities and that based on consultations with member organisations (in the UK the National Consumer Council and Consumers' Association) water is not a priority. We have sought to explore with BEUC ways in which the expertise of WaterVoice as a non-European body could be used. As BEUC have been unable to provide a representative they have very recently proposed to the Commission that WaterVoice should be invited to participate. But the matter remains unresolved and the seat on the Co-ordination Group remains empty. We regard this as very regrettable.


  28.  WaterVoice provides a strong and independent voice for all customers of water and sewerage companies in England and Wales. We operate through nine regional committees in England and a committee for Wales (the statutory Customer Service Committees established and maintained by Ofwat under the Water Industry Act 1991). The ten committee Chairmen form the WaterVoice Council which represents the interest of customers at national level.

  29.  The Government intends to legislate in a future Water Bill to replace the current arrangements for customer representation by a new independent Consumer Council for Water. WaterVoice may remain in use as the public name of the new body.


18 September 2002

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