The Environment, Transport and Regional Affairs
Committee has agreed to the following Report:
DRAFT WATER BILL
1. In November 2000, the Government published Water
Bill - Consultation on draft legislation. The draft Bill included
all the clauses relating to regulation that had been removed from
the Utilities Bill along with arrangements to reform the abstraction
licensing system and a collection of other minor reforms.
2. We decided to undertake a brief inquiry on the
Bill, in order to contribute to the pre-legislative process. We
invited submissions on the content of the draft Bill as it stood,
but also on any matters which had not been included in the Bill.
We received in reply over 30 written memoranda, and held 3 sessions
of oral evidence. In doing so, we heard from individuals and organisations
involved with the water industry and also those with a direct
interest in the workings of water regulation and licensing. Our
advisers, Caspar Henderson, John Thackray and Neil Summerton CB,
ensured that we were well informed and advised about all aspects
of the draft Bill.
3. We welcome publication of the draft Bill, and
the opportunity which it affords for consultation on the Government's
proposals for changes to the regulatory system, and for further
consultation on detailed proposals for reform of the abstraction
licensing system. There is an urgent need both to reform the system
of abstraction licences and to improve some aspects of regulation,
and publication of the Bill was already long overdue. But our
consideration of the Bill was hampered by the fact that it is
incomplete: in particular, it lacks the clauses on competition
and the use of economic instruments in abstraction licensing.
There is an obvious and important interaction between the proposals
for abstraction licensing and any proposals to encourage competition
in the water industry. It is, therefore, difficult to judge fully
the adequacy and effectiveness of the clauses on abstraction without
sight of the clauses on competition.
4. As a result of the partial nature of the Bill
before us, and of the limited time available, we have decided
not to produce a full Report on the provisions in the draft Bill
as published. However, the written and oral evidence submitted
to our inquiry was of a very high quality and raised a number
of important issues. We therefore recommend that the Government
examine carefully all of the evidence we received, both in writing
and orally, as part of the consultation procedure on the draft
5. Despite the brevity of our inquiry, there were
two specific aspects of the Bill on which we do wish to report.
Human Rights Act 1998
6. We strongly support the proposed reforms of
the abstraction licensing system, especially in order to ensure
that water abstraction does not take place at the expense of the
environment. The basis of abstraction licensing has been little
changed since the Water Resources Act 1963, although the understanding
of how abstraction can harm the environment has advanced much
since that Act was passed. The balance between the need to abstract
water and the need to protect the environment now needs to be
re-addressed and the reform of the existing system is both long
awaited and much required.
7. Although we support the overall thrust of the
reforms, we do have reservations about two particular implications
of the changes proposed. Firstly, we are concerned that one aspect
of the licence reforms could fall foul of the Human Rights Act
1998. Clause 17 of the draft Bill specifies that existing non-time
limited licences ('licences of right') may, after 2012, be revoked
without any compensation, if this is deemed necessary to prevent
'serious environmental damage'. The Government hopes that the
prospect of revocation without compensation will achieve the objective
of encouraging holders of such licences to convert them to time-limited
status. However, the National Farmers Union suggest that this
particular clause could amount to the confiscation of property
without compensation and may, therefore, be in contravention of
the Human Rights Act 1998.
8. When we questioned officials from the DETR on
this matter, they told us of the "balance to be struck between
the public interest, which might be construed in terms of environmental
protection, and the rights of, in this case, the licence holder."
They went on to argue that the long period of notice which the
Government has given abstractors about this provision (15 years
from when the proposal was first made, in 1997) meant that it
would not come into conflict with the Human Rights Act 1998. However,
we remain concerned that the provision to revoke abstraction
licences without compensation could face challenge under the Human
Rights Act 1998.
9. Our second concern about the proposals for abstraction
licensing relates to the effect on those undertaking trickle irrigation
of the draft Bill's proposal to require them, for the first time,
to seek a licence for abstraction for this purpose. Trickle irrigation
is widely recognised as being more efficient (and therefore less
than spray irrigation and does not currently require a licence.
Whilst there was no dissension from the principle that abstraction
for this purpose should now, given the reforms envisaged, be brought
into the licensing system, some witnesses were concerned at the
way in which this will be done and, in particular, about the way
in which the Environment Agency, as a matter of policy, proposes
to use the powers in the draft Bill.
10. We heard of the concerns of the National Farmers
Union, who told us that "current proposals will result in
inequitable treatment for trickle irrigators",
and also those of John Place, a fruit farmer from Norfolk, who
told us that he faced the possible loss of his business as a result
of implementation of the Bill.
Essentially, as the proposals stand, there is a risk that the
historic situation whereby trickle irrigation did not require
a licence could result in existing trickle irrigators being refused
licences under the new system. Where resources are not under pressure
it is likely that licences will be granted, but it seems that
where resources are stretched they may simply be refused, on the
grounds that others are already taking the water available before
environmental damage occurs. As a result of not previously requiring
a licence, the needs of trickle irrigators could now be given
the lowest priority in the licensing system.
11. Indeed, it seems that the Environment Agency
are already telling trickle irrigators in some areas that they
will not receive a licence once the new system is introduced because
resources are under pressure.
The Agency told us that "bringing these activities into the
licensing regime will control the potential for environmental
damage and place such activities on an equal footing with other
forms of irrigation."
We agree that action must be taken where necessary to protect
the environment, but the 'equal footing' referred to must also
confer equal rights and equal opportunities. Any system of licensing
must aim to treat all abstractors fairly. Where resources are
scarce, this could involve reviewing all licences to free up some
capacity for trickle irrigators
or, as one witness suggested, organising a local market for abstraction
12. Despite the Environment Agency's developing policy
in this area, both DETR officials and Mr Meacher assured us that
trickle irrigators would not be disadvantaged by the licensing
proposals. Mr Meacher told us that:
"I would be stunned
... if a trickle irrigator were not to receive a licence for abstraction
in the absence of wholly exceptional circumstances and, even in
those cases, I would expect probably other forms of abstraction
would be where the cuts were made, not in respect of a trickle
13. If trickle irrigators are ultimately unable to
obtain licences, many farmers and fruit growers who have pursued
this form of irrigation as their businesses have grown will suffer
and could be forced out of business. We therefore question whether
a situation in which spray irrigators hold licences at the expense
of those wishing to trickle irrigate could be considered either
equitable, or sensible in environmental terms. The Government
appears to be keeping options open for the transitional arrangements
for trickle irrigators: suggestions have included the automatic
granting of time-limited licences.
Although this could help alleviate the immediate problem for trickle
irrigators, it does not aid the Environment Agency in moving quickly
to protect the environment where resources are already over-stretched.
A more sophisticated approach is needed to ensure both that the
environment is protected and that trickle irrigators are
not unfairly penalised.
14. Trickle irrigation is an efficient form of
irrigation. We urge the Government to consider how trickle irrigation
can be guaranteed fair treatment in the new system of abstraction
licensing. Where resources are scarce, the needs of existing trickle
irrigators whose use has been notified to the Environment Agency
must be considered equal to those of existing licensed abstractors.
The Environment Agency will be responsible for implementing the
licensing system and they must be provided with a very clear framework
by Government which defines how trickle irrigators are to be introduced
to the scheme whilst ensuring that environmental protection is
15. The other matter which we have considered in
some depth was that of the duty of the economic regulator to give
consideration to environmental matters generally and sustainable
development in particular. This is an issue which our colleagues
on the Environmental Audit Committee examined in their inquiry
into Water Prices and the Environment at the end of last year.
In their Report, they concluded that:
"the Director General of Ofwat should be directly
accountable for ensuring that Ofwat makes a positive contribution
to the Government's sustainability agenda. The Committee recommends
that, in line with the Government's own commitment, the Director
General should have a specific duty to have regard to sustainable
16. Some witnesses to our inquiry argued that such
a duty was required and were disappointed that it was not incorporated
into the draft Bill.
The placing on the Director-General of Water Services of a duty
to have regard to sustainable development would be in line with
the Government's Sustainable Development policy, which states
that the creation of all new public bodies should "include
consideration of a specific remit on sustainable development".
Although this commitment post-dates the formation of Ofwat, the
draft Water Bill provides an ideal opportunity to place such a
duty on the water regulator. We were encouraged that, after consideration,
the new Director-General, Philip Fletcher, had concluded that
the introduction of a duty may be acceptable.
This marks a change of attitude from his predecessor, Sir Ian
Byatt, who had declared himself opposed to a sustainable development
duty. The Minister for the Environment, Mr Meacher, also told
us of his personal view that a duty would be desirable.
17. However, there is also a good deal of opposition
to the duty being introduced. Some witnesses argued that there
was nothing but confusion to be gained. Water UK stated that any
duty on Ofwat would "blur accountabilities"
of Ofwat and the Environment Agency with a risk that the two organisations
would develop their own, separate ideas of what constituted sustainable
development. Water UK stressed that efforts should be focussed
on improving the relationship between Ofwat and the Environment
Agency to ensure that Ofwat give full regard to the Agency's representations
on environmental matters.
Indeed, several witnesses raised the issue of co-operation between
the various regulatory bodies in the water sector.
For example, the Consumers Association wrote of the problems of
regulation in the water industry and stated that "lines of
responsibility and accountability need to be far more clearly
defined and formalised."
18. The question of relationships and accountabilities
of the different regulatory arms is in our view, however, an entirely
separate one from whether or not Ofwat should be given a duty
to have regard to sustainable development. Sustainable development
is about bringing economic, social and environmental goals into
accord, thereby delivering better quality of life now and for
future generations. With issues such as climate change likely
to gain in importance, a new duty would send a signal about commitment
to forward thinking about the country's water and sewerage systems.
It would help to ensure the necessary balance between economic,
social and environmental objectives and enhance the robustness
and value of what should be a long-term industry, to the benefit
of all stakeholders. The new duty would accord with the Government's
position that sustainable development should be at the heart of
everything we do as a society without compromising in any way
Ofwat's ability to fulfil its other primary duties.
19. Indeed, to give Ofwat such a duty would not be
to imply that the economic regulator should take on any of the
responsibility for protection of the environment or of human health
which currently lie with the Environment Agency and the Drinking
Water Inspectorate, nor that either of these bodies should not
continue to be accountable for the way in which they exercise
those responsibilities. Rather, it would aim to ensure that Ofwat
took full account of the need for sustainable development in taking
decisions on those matters which are the responsibility of the
20. The draft Bill includes provision for the Secretary
of State to offer advice to the Director-General on social and
environmental matters (which, along with economic matters, are
the main pillars of sustainable development).
However, we do not believe that this will be sufficient to ensure
that all aspects of sustainable development are at the forefront
of thinking on regulation of the water industry. We are concerned
that the pursuit of sustainable development is not sufficiently
prominent within the role of the Director-General. We therefore
recommend that Ofwat should be given a duty 'to facilitate sustainable
development'. So framed, the duty will help to provide an appropriately
broad and balanced context in which co-operative working between
the economic regulator, the Environment Agency and other actors
in the regulatory process can flourish.
1 See Ev p21, p75 Back
2 Ev p91 Back
3 Q84 Back
4 Q90, Q511 Back
5 Ev p90 Back
6 See QQ305-314 Back
7 Q249. Water resources are
under pressure across much of the south-east of England (Q256) Back
8 Ev p86 Back
9 Q305 Back
10 Ev p27 Back
11 Q515 Back
12 Ev p91 Back
Audit Committee, Water Prices and the Environment, Seventh
Report, Session 1999-2000, 597-I, Paragraph 220 Back
14 See, for example,
Ev p88 Back
15 Box beneath
Paragraph 5.27, Cm 4345 A better quality of life. A strategy
for sustainable development for the United Kingdom, Department
of the Environment, Transport and the Regions, May 1999 Back
16 Q54 Back
17 Q489 Back
18 Ev p46 Back
19 Ev p44 Back
20 Ofwat, the
Environment Agency, the Drinking Water Inspectorate and the DETR
21 Ev p94, section
22 Clause 28 Back