Select Committee on Environment, Food and Rural Affairs Written Evidence


Memorandum submitted by the Public Utilities Access Forum

  Founded in 1989, the Public Utilities Access Forum (PUAF) is an informal association of organisations that helps to develop policy on the regulation of the public utilities providing electricity, gas, communications and water services in England and Wales. PUAF facilitates the exchange of information and opinions between bodies concerned with the provision of those utilities to consumers with low incomes or special service needs, such as the elderly and people with mental and physical disabilities. It draws the particular problems of such consumers to the attention of the industries, the regulators and other relevant bodies, promoting the adoption of policies and practices that cater for their needs, exchanging information about service provision and promoting research.

SUMMARY

  1.  On a test of affordability derived from the Government's fuel poverty strategy, between two and four million householders in England and Wales cannot afford their water charges. The households most affected are those living in areas where charges are high, and those receiving means tested social security benefits.

  2.  A number of initiatives are in place to address water poverty or have been considered, but none has been successful. In particular, the Labour Government's attention to benefits provision has not been sufficiently redistributive to make water affordable to all.

  3.  The number of households unable to afford water would increase significantly if prices were to rise by the levels announced by companies in their draft business plans.

EVIDENCE

Affordability

  4.  The UK Fuel Poverty Strategy declared that 10% of a household's income is the maximum people can reasonably be expected to spend on fuel. Thus, for any individual household, it is possible to say whether or not they are experiencing fuel poverty—whether or not fuel is affordable.

  5.  The "poverty line" for fuel was established by examining the expenditure on fuel of householders in the lowest three income deciles. At the time the enquiry was undertaken in 1988 it was found that taken together those households spent 10% of their net income on fuel. Applying this method to water charges, it has been found that the corresponding threshold for water is 3%: that is the amount that, in aggregate, the lowest three income deciles spend on water. Equipped with that figure, it can readily be ascertained whether water charges for a particular household are affordable by expressing them as a percentage of their income. The average of all households' expenditure on water is just 1% of income.

Number of households experiencing water poverty

  6.  It is not known precisely how many households face water poverty, in that that they are obliged to spend more than 3% of their income on the amenity because no relevant data are available - however, it is possible to suggest what the order of magnitude might be. The most recent statistic offered by the Department for the Environment, Food and Rural Affairs in its assessment of water affordability in the context of sustainable development is for 1997-98 and shows the proportion of households in Great Britain spending more than 3% of their income on water charges to be 18%, or, some 4.3 million in total.

  7.  In a recent study, analysis of the anonomised records of 400 households' applications to two water charities showed that applicants needed to spend on average between 4% and 5% of their net income on water. Additional data allowed comparison of the profiles of these applicants' water poverty and fuel poverty and similarities in the distributions of the two "poverties" suggested that the magnitude of water poverty might be of the same order as that of fuel poverty. The number of households in fuel poverty is a matter of controversy at the moment because of disagreement about the appropriate way to calculate household income: it appears that something of the order of between two and four million householders in England and Wales experience fuel poverty.

Regional variation in water charges

  8.  Water bills are far from standard items in household budgeting; they vary greatly depending on where people live. Twenty-four companies supply water and/or sewerage services in England and Wales and their charges vary markedly, the highest being more or less double the lowest. There has been a tendency for regional differences in water charges to increase during the period since privatisation.

The water poverty of social security beneficiaries

  9.  Wherever they live, householders' water charges have over recent years risen faster than social security benefits. The affordability of water for people who have a safety net social security benefit income is readily examined, in notional terms, by taking average water charges and comparing them with published benefit rates. Table 1 shows the proportion of their income that the very poorest benefit recipients in England and Wales are obliged to spend on water. It is notable that all but three of the expenditures shown exceed the 3% threshold suggested for water poverty. The table also includes categories of householder paying water bills at twice or more, and in one case four times, the threshold. This pressure on the very poorest households in England and Wales would be increased significantly were the presumed increases in the forthcoming review to come in at the 30% level indicated by the companies in their recently published draft business plans. The figures in brackets in Table 1 show the proportion of income taken by water charges increasing (except for one case) by between one and four percentage points.

Table 1

WATER BILLS AS A PERCENTAGE OF SOCIAL SECURITY BENEFIT INCOME, 2003-04 (%)
Jobseeker's Allowance—single person £2,841.80 pa Jobseeker's Allowance—couple
£4,459 pa
Minimum
Income Guarantee—single person £5,309.20 pa
Minimum
Income Guarantee—couple
£8,101.60 pa
Average combined bill—
South West Water (highest charging company) £342 pa
12 (16)8 (10)6 (8) 4 (5)
Average combined bill—
Thames Water (lowest charging company £202 pa

7 (9)5 (6)4 (5) 2 (3)
Average measured bill £209 (England and Wales) 7 (10)5 (6)4 (5) 3 (3)
Average unmeasured bill £245 (England and Wales) 9 (11)5 (7)5 (6) 3 (4)


  The figures in brackets show these percentages recalculated on charges inflated by the 30% average increase announced by companies in their draft business plans

Water debt

  10.  Water debt is rising. Data collected by Ofwat over the last four years show that on nearly all measures companies have been less successful in collecting revenue from domestic customers. About a fifth of householders are now in debt to their company, owing on average £150. The regulator announced in early October that two companies had asked him to undertake an interim review of their charges in part because of increasing customer debt, which has led to higher debt-collection costs and loss of revenue; following a similar process last year Ofwat increased price limits for two other companies whose claims had also included unexpected debt recovery costs.

The abolition of disconnection for water debt

  11.  Since 1999 householders who do not pay their water bills can no longer have their supply disconnected. Thus water "deprivation" does not arise when people cannot afford their bills—though some with metered supplies may ration their use, and an unaffordable bill may result in other necessities being foregone. But to suggest that water poverty is not therefore a concerning issue is to confine consideration to the material aspects of water supply. In wealthy Northern societies, "poverty" is almost entirely a matter of being excluded from the mainstream of the culture than it is a question of suffering physical deprivation. It is householders' inability to pay their way in meeting bills for essential services that is damaging—being able to afford this most basic need is critical to social inclusion.

  12.  One view of rising water debt is that it is a consequence of companies' diminished effectiveness in recovering debt, especially since their sanction of disconnection for debt was removed. This view would be that some consumers, having been granted an unconditional "right to water", had decided not to pay their bills. However, we cannot be sure that consumers are aware of the change in the law. Some studies have shown that consumers still think companies can cut off their water if they do not pay their bill. But this is not to suggest that the removal of disconnection has been without consequence. People unable to afford to pay their bills and at a loss to know where to turn may now be in a position to procrastinate for longer, all the while nevertheless fearing the worst.

Measures purporting to address water poverty

  13.  Five measures may be examined in considering our collective arrangements to address the affordability of water bills and these are shown in Table 2. They are benefits and tax credits, the real-terms water price cuts implemented in 2000, charitable provision, the Vulnerable Groups Regulations, and social tariffs. Two points are to be made about these measures. First, none of them has been effective in eliminating water poverty. Second, there is a vast difference in the scale of the measures listed, so much so that it is almost misleading to group them together. The assistance to people who often do not know how they are going to make ends meet has been immeasurably greater through improvements to benefits and tax credits arrangements than through the water price reductions; and those price reductions similarly dwarf charitable and Vulnerable Groups provisions. The benefits and tax credit measures are effective—if the language may be forgiven—in redistributing the affordability of water. But massive though they are in relation to their companion measures, they have nevertheless been insufficiently redistributive. Furthermore, none of the measures addresses the regional imbalance in water charges and last price review's reduction was the first and seems most likely to be reversed at the next review.

Table 2

VALUE AND CHARACTERISTICS OF MEASURES TO ADDRESS WATER POVERTY
MeasureAnnual value (£) AddressingAddressing absolute or relative affordability Redistributive?
Benefits and tax creditsseveral billions incomerelativeinsufficiently
redistributive
Prices0.5 billionprice of water absolutenot redistributive
Charities3.5 million incomerelativeinsignificantly
Vulnerable Groups0.2 million price of waterrelative redistributive
Social tariffsnilprice of water relativepotentially
redistributive

9 October 2003



 
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