Government response
Introduction
The Government welcomes the Environment, Food and
Rural Affairs Select Committee's report on the Water White Paper.
We thank the Committee for its efforts in producing this report
and look forward to engaging further with the Committee through
pre-legislative scrutiny on the draft Water Bill.
The Government has already made significant progress
on the commitments set out in the White Paper. The Committee's
report is a helpful response, recognising the scale of the challenge
we face to deliver sustainable and resilient water resources,
the progress made and where we need to maintain momentum and meet
the ambitious targets for water policy set out in the White Paper.
The following are the Government's specific responses
to the Committee's recommendations and conclusions following their
inquiry.
Abstraction
The Government is committed to tackling the unsustainable
abstraction we see today, and to reforming the regime so that
is fit for the challenges for the future, placing this at the
centre of its plans in the White Paper. This requires a twin
track approach - taking action using the tools we have available
now to address the over abstraction which is damaging ecosystems,
while ensuring that a reformed regime is in place in good time
to enable us to manage our water resources more effectively in
the future. Reform of the regime is designed to build resilience
and flexibility for meeting future challenges; it is not the route
for tackling existing unsustainable abstraction.
1. The recent drought has underlined the importance
of introducing a reformed abstraction regime able to provide sustainable
and reliable supplies of water. The timescales set out in the
White Paper lack ambition and unnecessarily risk further environmental
damage. We believe that ten years is an adequate period in which
to plan and implement reform of the abstraction regime and recommend
that the reformed regime be in place no later than 2022. (Paragraph
10)
The Government agrees with the Committee on the importance
of getting a reformed regime as soon as practicable. We also
recognise the importance of getting this reform right. The abstraction
regime is a complex system from an economic and environmental
perspective, and we must ensure that our plans for reform are
based on firm evidence and take full account of the likely impact
on abstractors' businesses and the environment. The reformed
regime will need to be in place for a long time and able to cope
with the changing but unknown circumstances that climate change
and population growth will present. We are therefore taking a
measured, evidence-based and phased approach, working closely
with stakeholders to understand the impact of reform proposals.
We are working to gather evidence to inform our impact
assessment of reform options, before formally consulting at the
end of 2013 and legislating early in the following Parliament.
Far from lacking ambition, this is a challenging timescale, and
we would expect implementation to start in the highest priority
catchments in advance of the Committee's proposed target date
of 2022. Implementation would however be phased to reflect the
number of licences that will need to be varied and to minimise
disruption to major industries, such as manufacturing, food and
drink production, and power generation. This phased approach
also will allow the reforms to be tailored to the circumstances
of over a hundred different catchments, where the effects of reform
will be felt differently. Catchments where risks of over abstraction
are lower would be brought into the new system later, with the
aim being to have completed roll out by the mid to late 2020s.
2. Even with this shorter timescale, momentum
may be lost. We recommend that the Government work with regulators,
water companies and environmental groups to produce a workplan
setting out key milestones for the duration of the reform period,
and annually report on progress against them. (Paragraph 11)
We are committed to maintaining momentum on the reform
agenda and shorter term action to reduce unsustainable abstraction.
Defra, the Environment Agency and Ofwat are working together
in a joint project team to deliver a challenging work plan which
maps out the reform process. We have established the Abstraction
Reform Advisory Group, comprising stakeholders representing major
abstracting sectors, environmental NGOs and government representatives,
which meets quarterly and is also involved in more technical work.
We are reporting on progress to this group and the minutes of
the meetings are publicly available.[1]
To report formally on progress on an annual basis would add another
reporting layer to the project and could detract from work on
developing and implementing the reform.
We are working closely with the Environment Agency
and Ofwat to implement short term measures to enable us to deal
more efficiently with licences that are posing a risk to the environment.
These include: Ofwat's Abstraction Incentive Mechanism; moving
funding of water company solutions for restoring sustainable abstractions
into the price review process; a modified charging scheme which
will allow the Environmental Improvement Unit Charge to be used
to fund changes to river channels to protect water ecosystems;
using a power in the Water Act 2003 to enable licences causing
serious damage to our rivers to be removed or altered without
compensation; and a reverse auction tool pilot to enable licensees
whose abstraction is damaging the environment, to bid to sell
back part or all of their licensed volume to the Environment Agency,
reducing the cost of restoring sustainable abstraction.
3. We are pleased that the Environment Agency
and the Minister acknowledged the importance of ensuring that
the agricultural sector retains access to a reliable water supply.
As the reforms go through, we recommend that the Environment
Agency maintains a constructive dialogue with farmers and food
producers, recognising their key role in promoting self-sufficiency
and food security. (Paragraph 13)
The agricultural and food production sectors are
represented on the Abstraction Reform Advisory Group and we are
working closely with them to ensure that food security is considered
fully during the development of the reform options.
4. We urge Defra and the Environment Agency to
work with the Institution of Civil Engineers to complete the reviews
of both A guide to the Reservoirs Act 1975 and the Floods and
Reservoir Safety guidance by December 2012. (Paragraph 14)
The reviews of both "A guide to the Reservoirs
Act 1975" and "Floods and reservoir safety, 3rd
edition" are in progress by the Institution of Civil
Engineers, working with the Environment Agency. The review
of "A guide to the Reservoirs Act 1975" is focused
on changes to the legislation and will be completed once the amendments
set out in Schedule 4 of the Flood and Water Management Act 2010
have been commenced. The review of "Floods and reservoir
safety, 3rd edition" has a primary focus on
technical matters with a remit to take into account current guidance
and research and relevant changes to UK reservoirs legislation.
It was commissioned in August 2011 with "Target timescale
two years, subject to consideration of a detailed programme and
budget". We are working with the Institution's working
group to achieve publication as soon as possible.
5. The current mechanism for the removal of environmentally
unsustainable abstraction licences is clearly unsatisfactory and
is causing ongoing and severe damage to the environment. We recommend
that the White Paper's proposal that funding for the Restoring
Sustainable Abstraction Programme be incorporated within the price
review process be implemented as a matter of urgency. Defra should
work with Ofwat and the Environment Agency to ensure that this
change is made in time for the RSA programme to funded from the
2014 price review. (Paragraph 18)
We are working with the Environment Agency and Ofwat
to put in place a range of measures to deal more efficiently with
current licences that pose a risk to the environment. Government,
the Environment Agency and Ofwat all believe that including water
company solutions for restoring sustainable abstractions in the
price review process has the potential to deliver better outcomes
for both customers and the environment. As stated in the Water
White Paper, we are working closely together to identify how this
can best be achieved with a clear focus on having the new arrangements
in place for the 2014 price review.
Bulk trading and interconnections
6. Defra's decision to focus on maximising "strategic"
interconnections allowing water to be transferred over relatively
short distances is a sensible starting point and we look forward
to the Environment Agency's forthcoming overview of interconnection
options. Defra should remain open to considering whether large-scale
infrastructure may be an appropriate and cost-effective solution
in some circumstances. Defra and the Environment Agency should
in particular look to exploit interconnection opportunities presented
by other large infrastructure projects, thus minimising environmental
impact and economic costs. (Paragraph 23)
We want to increase interconnection in our water
supply system so that we can use our resources more flexibly and
efficiently, and develop a more resilient water supply. Large
scale infrastructure investment is costly, and water is heavy
and expensive to move. Relatively local connections are likely
to be the most attractive options, incrementally building a more
integrated network. The Environment Agency is currently looking
at the environmental barriers to large scale transfers via the
existing rivers and canal network and we will be considering this
as one of a range of options, including opportunities presented
by other large infrastructure projects.
Floods, drainage and the automatic right to connect
7. Five years on from the devastating floods of
2007 we are not convinced that Defra's work to improve the management
of surface water has been carried out with sufficient urgency.
Defra must ensure that implementation of the relevant provisions
of the Flood and Water Management Act is not subject to any further
unnecessary delay. The White Paper says disappointingly little
about the retrofitting of Sustainable Drainage Systems and we
recommend that Defra develop more concrete proposals to encourage
this. (Paragraph 29)
The majority of provisions in the Flood and Water
Management Act 2010 (the Act) affecting the management of surface
water have been commenced. Although there is no legal timeframe
set, Defra is encouraging Lead Local Flood Authorities (LLFAs)
to prepare, publish and implement their local flood risk management
strategies by spring 2013. The strategies which are a requirement
of the Act, will help identify areas where retrofitting of sustainable
drainage systems may be useful. Some local authorities are well
advanced and close to publishing their local strategies and
for the majority it is work in progress.
The recent flooding experienced in many parts
of the country has yet again demonstrated the urgent need for
better management of surface water flooding caused by heavy rain
and local authorities working in partnership with sewerage companies
are now well placed to undertake this work. A large programme
of capacity building has been rolled out since 2010 helping local
authorities build their skills and understanding of how to carry
out their new role.
Following our consultation on Sustainable Drainage
Systems in new and re-development,[2]
we are developing our policy proposals to ensure that implementation
achieves effective outcomes and that there are no additional burdens
on stakeholders which might impact wider, significant agendas
such as the need to drive and sustain growth. We have committed
to working through the areas where our consultation has told us
that there may be remaining issues (such as the content of the
National Standards, for example) with stakeholders throughout
the summer and autumn and will look to implement the provisions
as soon as the policy is right.
The Water White Paper signals our intent to continue
to encourage the uptake and retrofitting of sustainable drainage
systems in existing properties. We are doing this at present
by supporting Ciria's Susdrain interactive web-based community
site, which aims to highlight, share and disseminate good practice
options for the uptake of sustainable drainage systems. We have
also worked with Ciria to develop the comprehensive retrofit guidance
for sustainable drainage systems published in April. We also
actively encourage the uptake of sustainable drainage systems
in our measures on water quality, for example, through the River
Restoration Fund and Advice Notes on the Water Framework Directive.
In addition, The National Planning Policy Framework
published in March 2012 sets out that when determining planning
applications, local planning authorities should ensure flood risk
is not increased elsewhere and only consider development appropriate
in areas at risk of flooding where, informed by a site-specific
flood risk assessment. This includes giving priority to the use
of sustainable drainage systems.
Flood Insurance
8. It is deeply worrying that with only a year
remaining until the current Statement of Principles on flood insurance
is due to expire, and eighteen months on from this Committee's
call for urgency in establishing its replacement, Government has
not yet been able to reach agreement with the industry. Defra
must redouble its efforts to achieve a workable and affordable
solution to this issue. (Paragraph 32)
The Government is working hard with the industry
to deliver widely available and affordable household insurance
in flood risk areas long beyond next summer when the current Statement
of Principles expires. However, this is a difficult issue with
no easy answers, and so it may take a little more time to find
the right solution. The insurance industry recognises that.
We are working closely with industry and are considering
an internal industry levy which would formalise the existing cross-subsidy
in place between policyholders. This would allow policyholders
in high flood risk areas to continue to secure affordable insurance
without having an impact on bills more generally. We are looking
for a deliverable, value for money approach that balances the
needs of those living with the risk of flooding, other policyholders,
and the taxpayer. Urgent, constructive discussions with the insurance
industry continue.
Metering
9. It is extremely disappointing that a White
Paper that places such an emphasis on valuing water says so little
about metering. With water set to become an increasingly scarce
resource, we believe that the Government must use water meters
as a means to encourage responsible use of water. We recommend
that the Government set a clear and ambitious objective to increase
levels of metering, taking account of Anna Walker's recommendation
that metering penetration reach 80% by 2020. (Paragraph 41)
The Water White Paper recognised that metering is
a useful tool for managing demand and that it is a fair way of
charging for water. However, it also recognised that the costs
and benefits of increasing levels of metering vary from region
to region depending on the level of water stress. This reflects
the findings of the Walker Review which concluded that there is
a strong case for metering where water is scarce and the benefits
outweigh the costs. It stated that the case is less compelling
in areas where water resources are not seriously stressed.
Water companies in areas of serious water stress
are able to roll out programmes of universal metering if they
include plans to do so in their Water Resources Management Plans.
The Government therefore remains convinced that water companies
are best placed to take decisions about the role metering should
play alongside other tools in managing the supply-demand balance
in their areas. A centrally dictated Government objective on
metering uptake would be a blunt instrument and risk driving solutions
that were inappropriate to the circumstances of particular areas.
We have, however, committed in the Water White Paper to reviewing
the methodology for the designation of areas of serious water
stress to ensure that it takes account of the latest evidence
and inform water company decision making. The Environment Agency
has developed an updated version of the methodology and will be
consulting on this shortly.
Rainwater Harvesting and Recycling Water
10. We recommend that Defra take more active steps
to promote rainwater harvesting and water recycling and seek to
incorporate incentives or requirements for their inclusion in
the design of new developments. (Paragraph 44)
Under an Enhanced Capital Allowance scheme for water,
businesses can claim 100 per cent first-year allowances,
i.e. tax relief, on investments in designated water saving technologies,
including rainwater harvesting equipment. For new housing, both
the Building Regulations 2010 and the Code for Sustainable Homes
encourage water efficiency and recognise that rainwater harvesting
and water recycling can be used where appropriate.
The Local Housing Delivery Group, chaired by Sir
John Harman, recently published a dual review of Local Plan viability
testing and local standards in new housing development. Their
report observed, amongst other things, that it would be inappropriate
to set very demanding water efficiency standards that could only
be reached with the use of rainwater harvesting and/or grey water
recycling systems. The Harman review recognised that rainwater
harvesting and grey water recycling were still not generally welcomed
by social landlords or by private owners because of the associated
running and maintenance costs, and that some systems could have
a negative effect on embodied and operational carbon emissions
as identified through research by the Environment Agency, the
Energy Savings Trust and the NHBC Foundation.
It is important that in line with the National Planning
Policy Framework, new housing is built to sustainable standards
for water and that simplification does not mean lower standards
in this respect. We will continue to work with DCLG to encourage
Local Authorities and water companies to engage with each other
and with the industry to achieve sustainable development, in a
way that makes sense for the local area. We want to start to
see large developments coming forward that are highly efficient
in their use of water, both through simple water efficiency measures
but also, where appropriate, properly designed, installed and
maintained water reuse systems. There is scope for improvements
in carbon efficiency and maintenance requirements, improvements
which should in future make water reuse technology a more viable
proposition.
The package of market reforms set out in the draft
Water Bill include proposals to allow new entrants to apply for
discounts where customers do something to reduce pressure on public
water and sewerage networks. This could incentivise customers
to introduce rainwater harvesting and water recycling systems
to reduce pressure on water supply networks and to reduce the
amount of wastewater put into the public sewer system.
Leakage
11. We recognise the progress that water companies
have made in reducing leakage levels but urge companies and the
regulator to do more to reduce the amount of water that is wasted
through leakage. We recommend that in reviewing guidance to companies
on the Sustainable Economic Level of Leakage, the Government and
regulators should take account of the impact that leakage levels
have on customers' willingness to engage with efficiency measures,
if necessary carrying out further research to seek to quantify
this impact. (Paragraph 47)
Ofwat currently set annual leakage targets for water
companies based on a Sustainable Economic Level of Leakage and
a cost/benefit analysis. Defra, the Environment Agency and Ofwat
are currently reviewing the assumptions water companies used in
their calculations of the Sustainable Economic Level of Leakage
and its integration with water resource planning at the last price
review with a view to ensuing that the methodology used by companies
is robust and applied consistently. Ofwat is also considering
its approach to regulating leakage in the next price review.
It is important that any new approach fully takes account of the
short and longer term benefits and balances these against the
impact on customer bills. Water company consultation with its
customer challenge group will be key to ensuring the priorities
identified in customer research are fully reflected in company
business plans.
Affordability
12. It is simply unacceptable that, at a time
when so many are struggling to afford their water bills, customers
face the additional burden of subsidising those who refuse to
pay what they owe. Legislation already exists that would make
it easier for water companies to recover bad debt and the Minister
acknowledged that money recovered from debtors would be "money
in the pocket" for those who do pay their bills. We urge
the Department to implement the relevant provisions of the Flood
and Water Management Act without further delay. (Paragraph 55)
13. Take-up levels of WaterSure suggest that many
of those who currently qualify for help with their bills do not
receive it, and we are concerned that company social tariffs will
face similar barriers to take-up. We recommend that the Government
take a more proactive approach to publicising the help that is
available to poorer customers. Defra should work with the Department
for Work and Pensions to ensure that all means-tested benefit
claimants are given the option to consent to the sharing of their
data with their water company for the purposes of help with affordability
issues, and should also use the opportunity to inform claimants
of existing support, such as the WaterSure tariff. (Paragraph
59)
14. We recommend that the Government make clear
that the design and promotion of company social tariffs should
not focus exclusively on customers in receipt of benefits to the
detriment of others who may struggle to afford their bills. (Paragraph
60)
Government has consulted on the provisions of the
Flood and Water Management Act to tackle bad debt and an alternative
voluntary scheme. We are committed to tackling bad debt, but
are also mindful of the burden that imposing liability for bills
could place on landlords, many of which are small and micro businesses.
We are considering our approach in the light of consultation
responses, especially in light of the Government's commitment
to reducing regulation and the moratorium on regulation for micro
businesses, and will make an announcement during the autumn.
We also believe that no one measure or one source of information
for water companies can fully tackle the issue of bad debt. We
want to encourage water companies to tackle bad debt including
by investigating alternative sources of data sharing where this
is legal and feasible.
Water companies are encouraged to advertise the WaterSure
scheme to their customers. We have made it clear in the Company
Social Tariffs Guidance, published 22 June, that companies should
engage with their customers and consider a holistic approach to
supporting them. We suggested they may work with partners to
ensure that a range of different kinds of appropriate support
is available. We are working with DWP to discuss what kinds of
data sharing, including by consent, could be available. Our guidance
made it clear that water companies should design social tariffs
most suited to their customers' needs and that customers who are
not in receipt of benefits may also struggle to afford their bills.
Market Reforms: Timescales
15. Increased competition in the water sector
will bring clear benefits to customers. The Government should
not delay reforms because of an overcautious approach to investor
confidence. We recommend that Defra open the retail market three
years from Royal Assent to a Water Act. Reforms to the upstream
market may necessarily follow a different timescale to the retail
reforms, but they should not be unduly delayed. (Paragraph 68)
The Government agrees that the market reforms that
we have set out in the Water White Paper will bring benefits to
customers. We want to set an ambitious but realistic timetable
for the opening of the reformed retail market. High level analysis
of the work required suggests that market opening in April 2017
is likely to be a realistic target date if the Water Bill achieves
Royal Assent by the end of the Third Session. However, we want
to work with key players in the market to develop a detailed roadmap
before confirming this target date. The Government also agrees
that upstream reforms may follow a different timescale particularly
in the case of upstream sewerage on which there is limited experience
to draw. The work to develop a roadmap will also cover the upstream
package.
The Scottish experience
16. The experience of introducing a competitive
water market in Scotland and the lessons learned from it must
be fully exploited as the White Paper's proposals for market reform
are implemented. (Paragraph 71)
The Government agrees that it will be important to
capture the lessons learnt in Scotland as we introduce our retail
reforms. It is also important to bring in expertise from other
sectors where retail competition has also been developed. In
doing this we must recognise the differences in the respective
English and Scottish markets and the scale and diversity of the
English water sector.
The Government has set up a high level steering group
drawing on experience and expertise from across the sector to
help us to set the right direction for delivering this challenging
programme. This will include members from the Scottish Government,
WICS and Business Stream as well as from the English water industry
and representatives of customers.
A joint Anglo-Scottish market
17. We welcome the proposed joint Anglo-Scottish
water market but would be concerned should this lead to any duplication
or conflict between regulators, or any additional bureaucracy
for water companies and their customers. We recommend that Defra
work with the Scottish Government to ensure that the most effective
regulatory model is adopted, including an assessment of whether
a single regulator for the joint market may be appropriate. The
Government should ensure that protocols setting out the relationship
between, and respective duties of, the English and Scottish regulators
are in place before the joint market opens. (Paragraph 73)
The Government is grateful for the Committee's support
for the setting up of a cross-border market for retail water services.
We will work with the Scottish Government to ensure that customers
gain maximum benefits from the joining of the two markets. The
Water Bill will include provisions that will mean that a new entrant
would only need to make an application to one rather than two
regulators in order to enter the Anglo-Scottish market.
We do not think that a single regulator is necessary
to make the cross-border market work properly. The example of
the single market for natural gas and electricity for the island
of Ireland provides us with an example of a joint market with
more than one regulator from which we can learn. In the meantime,
Ofwat and WICS have confirmed that they will put in place a memorandum
of understanding ahead of market opening to reduce the risk of
duplicated effort and to put in place mechanisms to resolve disputes
and handle complaints etc.
Future structure of the water sector
18. Defra should consider setting out a requirement
for functional separation in the draft Water Bill. Defra should
also consider setting out in legislation a lighter-touch regulatory
regime for companies which have legally separated their retail
and wholesale functions. (Paragraph 78)
19. We are not persuaded by the Minister's arguments
against allowing a mechanism for companies to voluntarily exit
the retail market and we agree with the English and Scottish regulators
that providing an exit route should enhance competition and efficiency
in the sector. We note in particular Ofwat's view of the importance
of an exit mechanism in achieving a well-functioning and dynamic
market. We recommend that Defra include such a mechanism in the
legislation implementing the market reforms. (Paragraph 80)
The Government is not minded to set out a requirement
in the Water Bill for incumbent water companies to functionally
separate their retail and wholesale arms. We agree with Ofwat
that it should be able to decide how best to police the competitive
market using existing tools, codes of conduct etc. Ofwat does
not need any additional powers to do this. However, the Government
does agree that there could be benefits for customers and incumbent
water companies if they take additional steps to voluntarily separate
their businesses such as we have seen with the joint retail venture
set up by Wessex Water and Bristol Water.
However, we do not agree that the Water Bill should
provide an exit route for those incumbents that no longer wish
to provide retail services either to business customers or to
business and household customers (e.g. through a separate retail
appointment). The Water White Paper set out our rationale for
avoiding the risks and disruption that structural change to the
industry could create, whether mandated or voluntary. We want
to maintain the strengths of the existing regime, and also to
ensure that all customers - households as well as businesses -
benefit from the retail arm of water companies becoming more customer
focused. Ensuring this sharing of benefit is essential given
we do not think there is a case for opening up the household market
to competition in the foreseeable future. Water companies have
other routes they could take if they no longer wish to concentrate
on providing retail services, for example outsourcing or entering
into partnerships with other water companies. However, the Government's
position remains that as the statutory water and sewerage undertakers
they should retain ultimate responsibility for the service delivered
to all the customers in their areas who have not actively taken
a decision to switch to an alternative supplier.
Consumer representation
20. It is essential that there is a strong voice
to represent the interests of consumers through the far-reaching
reforms to the water sector to be implemented over the coming
years. We recommend that Defra commit to retain the Consumer
Council for Water in its current form for a period of three years
after the White Paper's market reforms are implemented. Any new
arrangements for consumer representation which are introduced
subsequently must take account of the unique needs of business
customers. (Paragraph 84)
As we said in the Water White Paper, the Government
believes in principle that there would be benefits for water consumers
in having their interests represented by a single body that is
also responsible for other regulated sectors. We also agree
with the Committee that business customers will need effective
representation as the competitive market develops. However,
we agree with the Committee that the timing of any change is critical,
not least because of the change the sector is facing both through
the next price review period and the implementation of the market
reform programme. We have therefore committed to maintaining
the role of the Consumer Council for Water until 2014, and will
ensure that the review of next steps in advance of that takes
account of the Committee's recommendation.
21. We expect the conclusions and recommendations
in this report to be taken fully into account as Government draws
up the draft Water Bill. We look forward to the timely publication
of the draft Bill for Parliamentary scrutiny. (Paragraph 87)
The Committee wrote in the summary to its report
that "Legislation should be brought forward swiftly and
we look forward to publication of a draft Water Bill before the
summer recess." We published the draft Bill on the 10
July. Given that the Committee's report was published on 5 July
there was unfortunately no time to reflect its contents in the
draft Bill.
We are committed to full scrutiny and consultation
of the draft Bill and have therefore published the Bill for pre-legislative
scrutiny by the Committee. We look forward to receiving any further
comments on how the legislation should be framed for introduction.
1 http://www.defra.gov.uk/abstraction-reform/working-with/advisory-group/
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2
http://www.defra.gov.uk/consult/2011/12/20/sustainable-drainage-systems-1112/ Back
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