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

Examination of Witnesses (Questions 79 - 99)




  79. Good morning. Just for the record, Mr Terry you are the Chairman of the Council and Ms Reiter you are the Council Member and Chairman of the WaterVoice European Group. Have we got that one right?

  (Ms Reiter) That is correct, yes.

  80. Very good. Why do we need a Water Framework Directive?
  (Mr Terry) I think it is necessary to put a unified approach to water quality, water resource management across Europe, and I think the objective is a very good piece of legislation. It is something that is required and it should give us a consistent base to take forward to the next 20, 30, 40 years.

  81. But the mind does boggle a little bit, does it not, when you think of some of the river basins we are talking about. Who is going to do what and when? Can you just answer that for me because I find I am looking through the water muddily at the moment. Who does what when?
  (Mr Terry) Who does what to what?

  82. To bring it to life, to give it substance. Who has to do what to make it alive and kicking?
  (Mr Terry) Essentially what it is necessary to do is to look at each of the river basins which have been designated in the UK and do a holistic study of all the aspects that are affecting water quality in that particular river basin, and out of that come forward with a programme for improvement or maintenance or no deterioration as the case may be. Really, I think, the people whom we believe will be leading that will be organisations like the Environment Agency.

  83. Do you think the Environment Agency—which has a hell of a lot on its plate already and already seems a rather large and complex organisation—is going to take this on as well?
  (Mr Terry) It has to be them because I would imagine—although I am not an expert—it is their statutory duty. It is a requirement on them. They, after all, are the guardians of the quality of the water environment and the total environment in the UK. I would have expected them to be the lead agency in terms of working through prospects, and put into perspective what might have to be done.

  84. How do we know if we are making progress or not?
  (Mr Terry) How do we know?

  85. How do we know how it is all going?
  (Mr Terry) There is an end point which is 2015 and one has to work systematically towards that.

  86. That is inevitable, I would have thought. You cannot do much about it; it is coming running towards you.
  (Mr Terry) It is a programme that has to be undertaken. There is a fair amount, if I may put it, of background thinking going on by a large number of the technical organisations and the technocrats who surround that. They are the people, I think, who are going to have to put a series of mile stones that have to be achieved throughout the process. It is a process which is going to take us from 2003-04, when I guess the main work will start and presumably the legislation that is required in the UK will be enacted, right through to 2015. It is a long programme and I think it needs to be tackled holistically. I guess the driver for that process is going to have to be the Environment Agency.

Paddy Tipping

  87. I guess it is a costly process and some of my colleagues will talk about costs, but I was just interested in the principles. Who should pay the costs? Presumably you are saying "not the customers".
  (Mr Terry) The customers clearly have to pay their fair share of any improvements and we accept that entirely. I think it would be entirely wrong if the total burden of the total improvements that were required as a result of the implementation of the Water Framework Directive fell on the customers of the water and sewerage industry. We would find that inequitable.

  88. How would you define that fair share? Other people are going to have different views about this, are they not?
  (Mr Terry) Exactly. Can I perhaps answer round that question. I think one of the problems is if you look at the issues there are point sources of pollution, there is diffuse pollution, there is pollution from agriculture, there is pollution from urban highways and drainage. What happens is, if you were to take a holistic approach to that and say "Let's try by good practice to have better drainage systems at the urban drainage level; by good practice let us have better farming practices" you would actually solve the problem at source. I am sure that is the idea of the Framework Directive. Nevertheless there will be some absolute qualities which will have to be improved perhaps in terms of sewerage works discharge and I think—fairly—a proportion of those costs should be born by customers. Not to the extent that they are paying to clear up nitrates or lead that has been put in as part of the diffuse pollution.

  89. It is the diffuse pollution that I find difficult. Let us talk about agriculture. I guess if there are better farming practices there are going to be costs to the farmers. Presumably they are going to be recouped somewhere. Is it going to be recouped by higher food prices? Do you feel that this is an area where the customer might eventually have to pick up.
  (Mr Terry) Let us be clear. In terms of statute we speak for the customers of the water and sewerage industry so I do not think I want to take on the role of speaking on behalf of the customers of the farming industry other than as a consumer in general. I would have thought those issues have got to be faced up to. I think this is one of the reasons that we, as an organisation, so much welcome this Committee looking at these issues. I think it is the first time at this sort of level someone has said, "Hey, what is this going to mean across the board? What is it going to mean for all those stakeholders who have an interest?" So I am going to duck your question, if I may, and say "What is it going to mean to prices of food?" Clearly many improvements in many things can actually be self-funding. If you adopt a better process in farming you have fewer costs yourself, and so on and so forth. I think there is an element of that. We would like to ensure that in the implementation phase the costs that are born by the water and sewerage customers are a fair share of that and not, if you like, the dustbin that picks up all those pieces right at the end.
  (Ms Reiter) I think that is one of the important things that we actually welcome in the Framework Directive itself. By the very nature of the work that has to be done, is actually going to take everything back from the sea, as it were, back up the rivers and say, "What is actually happening? What is going in? Do we actually have to put it in?" Because then we are paying to take it out at the other end, so we are actually bearing two costs from two different sources. We think the close examination of costs as well as outputs in terms of environmental improvements is going to be very beneficial to customers in the end.

  90. But at the end of the day you accept that water bills are going to increase.
  (Mr Terry) I would start from the premiss of no, it is not necessary." I would always start, speaking on behalf of customers, and say that it is not necessary for water bills to rise. Let us not start from that premiss. Let us start from the premiss of what is the total going to cost? What are the most cost effective solutions to these problems? Look at it holistically and make sure there is a fair share of that burden. I do not accept that the burden has to be passed absolutely to water customers. I think what is going to happen is that it is going to put a lot of pressure on the water and sewerage companies, which is going to work through into higher investment, which is going to work through into higher charges. But at this point we do not know what the total cost—to come back to the Chairman's point—and over what period that amount of money is spent. Two things will determine what is going to happen to the bills: how fast you make the investment and how much the investment is.

Mr Jack

  91. Can I just pick you up on this question of costs. One of the things that has quite surprised me in reading some of the submissions we have had, are the enormous margins between the bottom and the top end of the estimates of how much this is all going to cost. Have you done any modelling yourself or are you just the recipients, as we are, of these wide ranging attempts to quantify potential costs?
  (Mr Terry) We do not have the resources in our organisation or the technical capability to do that work. We believe it should be done. We would suggest—if we might be so bold—that perhaps the government should commission Ofwat to do some of that work. There is a range of bodies that would have to be involved, but clearly as the financial regulator I think much of the work in terms of assessment of what the cost is going to be and how that would then potentially work through into customers' bills, should be a study which is done. Who are the best people to do it? It is going to have to have inputs from organisations such as the Environment Agency, but probably it is going to have to be done by someone like Ofwat who have the authoritative knowledge of how those costs are likely to work.

  92. Do you think that the knowledge does exist? One of the things that seems to be difficult for everybody is to actually work out what the costs and benefits of this whole exercise are. Given the billions that the top end estimates are talking about, it is an unusual departure in policy terms to be marching into the distance, committing yourself to achieve something by 2015 which potentially could have great big numbers attached to it.
  (Ms Reiter) We would share that. It was one of the disappointments to us that this was not taken into account at the time the Directive was actually being formulated. At the time it was being formulated we were not actually engaged in discussion in Europe with the Commission. Now the Bathing Water Directive Revision is in we have been much more active and we have made our views known very clearly that the cost and the benefits really ought to be looked at before we actually embark upon something. It is difficult to determine the benefits because very little evaluation and validation has been done on any previous directives that have been passed and implemented.

  93. In paragraph 20 of your evidence you say "We wish to see a realistic, water customer friendly approach to implementation". You have just used the words "costs" and "benefits". Given that customers—in the broader sense of that word—are the recipients of what water companies and all of those who are involved in river basin management activities, whatever their outputs are, there are people who are affected by it if we define "customers" in that sense. There are many who have a passionate interest in the environment (in inverted commas)—some of whom sent evidence to us—who would put huge store as customers by the perceived environmental gains that come from this directive. Do you feel that you know enough about the value of the benefits to be able to include that into your cost/benefit thoughts?
  (Ms Reiter) I think that is one of the difficulties, actually. The benefits have not been properly evaluated. I think what we have to do is to make sure that we are looking for not only cost solutions but actually alternative solutions that actually do deliver benefits to customers both in terms of lower rises in bills, but also give us the environmental benefit as well. We have had a case recently where at the last periodic review in my area—in WaterVoice Wessex, I am Chairman of the Wessex Committee—there was a scheme there that was going to cost £105 million which was £11 for ever on customers' bills. After very careful examination of the situation there by all the parties concerned, all the environment bodies and water companies (three water companies working togther to see what they could do) we have actually achieved a solution now which we believe will deliver something like 87 per cent of the benefits that were looked for from the environmental point of view at a cost of under a million pounds. That is the sort of activity that we believe should be going on. We are disappointed that that has not been driven by Europe, but we hope to see it driven here in the UK.

Paddy Tipping

  94. In the RSPB's evidence—we are going to be hearing from them later on—there is a sort of fervour that comes through from their submission that they want everything there possibly can be to be banged into this whole exercise. This is the great opportunity—as they see it—to have every wetland properly defended, every environmental issue sorted out. How do you think there should be a proper balance struck between those with this great enthusiasm and passion and the customers whom I suspect you have in mind—the people at the end of a tap—in terms of getting the right balance between costs and benefit. In all of these directives parliamentarians are continually told that the United Kingdom gold plates everything. How do we get the right balance between officialdom and gold plating, and those with passion and enthusiasm versus those who have to pay?
  (Ms Reiter) I think it is only by very close examination of all the plans that are put forward. That starts actually with ministerial advice on what is actually required for the regulator to deliver in the light of the directive that he has to comply with, balanced against what other environmental groups may wish to have, balanced again against customers' ability to pay. The one thing I think we bear in mind at the end of it is when we are looking at what the impact on bills is going to be we think in terms of what inflation is and what, for instance, is the increase in a pensioner's income or those on low incomes; what increase are they getting per annum out of which they have to meet these bills?

  95. Many of the people you have described may also be members of the environmental bodies.
  (Ms Reiter) Yes.

  96. And I have not seen anything at the moment to suggest, for example, that water companies, the Environment Agency, the government are going to give customers any kind of menu which says that the environment they are enjoying as citizens could be improved by the introduction of this measure. Here are some possible options in terms of extra costs. Would you like to pay? We talk about the consumer, but the last person to know about this is going to be the guy in 2015 who gets his water bill and says, "Oh, something has happened". How do we approach that?
  (Ms Reiter) Within the Framework Directive there is a requirement for consultation, and that is one of the areas in which we believe we can be very active, but we cannot be the only active party because we only represent the customers of the water companies. We do not represent the environmental side. We will represent the customer issues. But we have, in fact, coming up for the next periodic review already had conducted some joint research conducted for us by MORI. The participants have been DEFRA, Ofwat, EA, DWI et cetera. What is interesting out of that is that everyone feels friendly towards the environment, but when you actually come to ask how much they are prepared to pay, it starts at £5 and the maximum would be £20. Already customers are beginning, if asked, to think in terms of the balance of what they will pay.
  (Mr Terry) If I might just say to you, I think it is a key point that if you are going to take something forward like this Framework Directive. We were actually disappointed that the final Framework Directive did not have perhaps a stronger definition of what was required in terms of public consultation. I think Sheila is right; it is exactly that point. If you extend that public consultation in a complete form with all the interested bodies, that is probably the way that you are going to get a measure of whether people are prepared to pay more (either directly through their water bills or indirectly through other costs associated with farming or direct taxation or whatever), and how much they are prepared to pay. I think one of the key messages that we would want to get across to you is that as you go forward into something which is likely to be costly over a long period of time, let us make sure that we look at this properly and let us make sure we do thoroughly consult all the stakeholder groups (of which we are the representative of one, the billpayer).
  (Ms Reiter) The scale and pace of the implementation will be a very important factor in getting to the end point, as it were.
  (Mr Terry) If you do it all today, or are you prepared to prioritise and also have a realistic approach. Let us do it in a way which will maintain the capability of the various organisations to implement it and also the ability of the customers concerned—across the board, not just water and sewerage customers—to afford the resultant bills.

Mr Lepper

  97. In view of what you have just been saying, do you feel that WaterVoice has a role to play in trying to convince the customers in some circumstances of the importance of certain programs going ahead perhaps rather faster than might be the case if customer resistance to price increases was the determining factor? Have you got a role to play there, not just advocating for the customers but advocating for change?
  (Mr Terry) Yes. Again, I would want to put it in perspective. Our organisation is all about water customers; that is our role as defined in the current statute. I think from that perspective we would say that providing the customers who pay the bill are to be seen as a key stakeholder, we would be very happy to work constructively with all the other legitimate stakeholders in the process. Whether I would go so far as to say that we would be prepared to start advocating price increase to achieve some things that come out of the Water Framework Directive, I would want to take a raincheck on that one. We are not an organisation that is just saying "Bills down". We have said that the top customer priority in terms of water and sewerage services is to eliminate sewer flooding. We know that has a big bill; potentially it has a big bill to customers that goes with it. But we are saying that that is something in our judgment customers would be prepared to bear because it has a demonstrable outcome. So, yes, we have a role. I do not think we would ever see ourselves as being the leading light in that role; we would see ourselves as being a very important player in the role and certainly in any area of public consultation through which we believe the process should go.

  Mr Lepper: I will come back to that point later on.

Mr Todd

  98. One of the things we learned last week when we listened to someone from the Commission was that the whole concept of cost benefit analysis is alien to this process. The goals have been set down and they are supposed to be achieved through least cost route. Therefore it is not a question of "if". We have bought into this and we have to find some way of delivering it. Does that alarm you that we have this agenda ahead of us, we do not know how much it is going to cost, have not quantified the benefits very clearly and there is a pretty clear objective in terms of near pristine water to achieve within a time scale.
  (Mr Terry) It does worry us. It worried us when, from the outset, cost benefit or the cost implications of this directive were not considered. I remember being at a conference a few months ago and challenging one of the senior people in Brussels. They said that the benefits are so obvious to see, why do we have to quantify them? That is fine from a bureaucrat, but from an organisation—and organisations that are actually representing people—who are going to fund that in way one or another I think it is right that we say "Hang on a bit".

  99. But it would be worth at least attempting to nail down what might be the benefits to the customer. Obviously water companies will have a lower clean up cost in due course, not immediately, from cleaner water sources.
  (Mr Terry) Absolutely and I think that is one of the points I was trying to make earlier. If you take that holistic approach you will actually get a solution and not solve the symptoms, but you are absolutely right. We would support that, but how that works into the process and who is going to be a leader in that, I am not quite sure.
  (Ms Reiter) One of the things we hope, of course, is that the Water Framework Directive by its own nature will supercede some of the existing directives, but we must remember that there is a whole series of directives that we are still having to meet (Habitats Directives, Shellfish Directives, the Nitrate Directive and next year there is going to be a Ground Water Directive 2003). This was the point that we were very concerned to make in Europe and we tried very hard, pounding the corridors there, to get this message across. It is fine for each individual committee to be working on one directive, but when you look at the cumulative effect of this—whilst it might actually drive some costs out from different directives—the total package is very big. That is why it is very important to us that in looking to take this forward the scale of work and the time scale has to be taken into account. Not only the environmental benefits but the customers' ability to pay for it.

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