2009 report (prices/conditions are set every 5 years ofwat ) next 2014
Independent Review of Charging for Household Water and Sewerage Services,
Area 2C,
Ergon House,
Horseferry Road,
London,
SW1P 2AL
email:
charging.review@defra.gsi.gov.ukThis document is available in full from our website:
www.defra.gov.uk/environ...ustry/walkerreview/indexDEF-PB13336-WatChCOV 4/12/09 15:48 Page 21
Heading
Dear Secretary of State and Welsh Minister,
You asked me in August 2008 to conduct a review into charging for
household water and sewerage services. The aim of the review was to:
– Examine the current system of charging households for water and sewerage
services; and assess the effectiveness and fairness of current and alternative
methods of charging including the issue of affordability;
– Consider social, economic and environmental concerns; and
– Make recommendations on any action that should be taken to ensure that
England and Wales have a sustainable and fair system of charging in place.
This could include changes to current legislation and guidance.
I am now enclosing my final report.
The conclusions are based on responses to an initial call for evidence in 2008 and my interim report
in July 2009. We also held workshops across the country, including two in Plymouth. The report
draws on published research and some analytical work of our own.
Overall, I have concluded that while the regulatory regime in the water industry has served customers
well over the last twenty years, we now face considerable new challenges. Changes are needed to
ensure we are ready to meet these. The charging system can play an important role in doing so. It
is important that the changes are made soon before the challenges become much bigger and more
expensive to handle.
The biggest issue is the mismatch between how we value water now and how we will need to do
so in future. Most of us currently consider water cheap and plentiful. Increasingly this may not be
the case. Demand for water is growing. Water supply is already under pressure across the south and
east of England. Climate change projections suggest the challenges will become more significant.
Summers will be warmer and drier; river flows may reduce significantly. At other times of the year,
rainfall will be heavier. Severe seasonal flooding will have consequences for our drainage system. In
addition, there are continuing upward pressures on costs as we renew our, often Victorian,
infrastructure and meet demanding environmental requirements. Affordability is already an issue for
some customers and will become more so.
Against this background, there were two clear messages from my consultations:
– It is very important that the charging system should incentivise the efficient use of water to
ensure we have a sustainable water supply.
– Water, as an essential of life, also needs to be affordable, particularly to those on low incomes..
The report highlights significant and growing concerns over the current mixed (rateable value and
metering) charging system, Rateable Value no longer targets those who need help with their bills.
Unmetered bills are rising at a faster rate than metered bills: by 29 per cent over the next five years
in the South West. The current system also does not incentivise the efficient use of water. People are
voting with their feet and opting for meters to save money on their bills.
Keeping costs down, while ensuring companies can make a fair return on their investments, will be
the most effective way of ensuring people can afford their water bills. The report makes some
recommendations to help achieve this. It also highlights the importance of ensuring the full value of
water is taken into account in any investment decisions, so we value water appropriately.
The report concludes that charging by volume of water used (which requires meters to be installed)
is the fairest approach to charging. It can incentivise more efficient use of water. However, installing
meters incurs costs. The report therefore looks at the costs and benefits of metering. It concludes
that in evaluating the benefits it is necessary to take account of both the potential water savings and
the reduced costs of more systematic metering. The current largely optant system is a very expensive
way to install meters.
The report concludes that there is a strong case for metering where water is scarce and the benefits
therefore outweigh the costs; for high discretionary users (who may not be paying for what they use
at the moment); and on change of occupancy. The case for metering is less compelling when water
is not in short supply. With metering becoming more widespread, there is a transition from one
charging system to another already under way. This cannot be achieved successfully without
leadership. The report recommends that Ofwat, working with others including the Environment
Agency, should provide this leadership. It also recommends that a working group should be set up to
ensure any synergies with the smart metering programme in the energy sector are fully exploited. The
report suggests that if these recommendations are adopted, about 80 per cent of households in
England will be metered by 2020 (it will be much lower in Wales because they have more available
water).
The report highlights that affordability is already a real issue for some groups of customers and in
high cost areas such as the South West. It therefore recommends a package of help closely targeted
on customers with low incomes. The package includes help with bills and proposes water efficiency
schemes alongside similar energy schemes. Decisions will be needed on who should fund this
package – government or water customers. The report highlights the key issues. Ofwat already has
a duty to have regard to low income customers and the report recommends that, working with the
companies, the regulator should play a more pro-active role advising government, where necessary,
on any further help which may be needed.
Bad debt is clearly placing too much of a burden on the water customers who pay their bills. The
cost to paying customers is about £12 a year, which many customers can ill afford. Debt in the water
industry is three times higher than in the energy sector, although bills are a third of energy bills. This
suggests that something is fundamentally wrong. The report recommends urgent legislative changes
to allow water companies to bill named customers, thereby allowing them to pursue debts through
the courts, if necessary.
The report also looks at who should pay for different elements of the current bill. It concludes that
prices should continue to be regional reflecting water costs. It also concludes that it is appropriate
for water customers to pay for improvements to the quality of water and the disposal of sewerage
as they are benefiting from the improvements. It stresses, however, that if water customers are to
pay for these improvements, it is vitally important that they are consulted on the additional costs
before governments agree to them – or water prices will begin to be seen as a “stealth tax” and
face real opposition, as has already occurred in the South West.
The report also concludes that the future challenge from flooding is such that the charging system
should incentivise household customers to minimise their surface drainage. It recommends that the
highways authorities should become responsible for highways drainage as they are in the best
position to influence th
The report looks at the issues in the South West. Bills are, on average, 43 per cent higher than other
areas. Local people feel that this is unfair and it raises questions of affordability. The report concludes
that the high prices have been caused by a combination of the need to install new sewerage systems
since 1989 requiring significant investment, the costs of which have fallen to the relatively small
population. The report sets out some potential remedies including a corrective adjustment paid for
either by government or by other water customers; or a package of measures to help customers in
the South West, including the possible use of a seasonal tariff.
Finally, I would like to thank everyone who has provided input to this review by way of evidence,
attending workshops or responding to our requests for information. We have had very thoughtful
input which has been greatly appreciated. I also want to thank my review team very warmly for their
continued hard work, their good humour and their willingness to go on grappling with what are very
tricky issues! These have not been easy to deal with but we hope we will have contributed to the
design of a future charging system which will help ensure sustainable supplies of water for us all at
prices that everyone can afford.
Anna Walker
December 2009
07/10/13 ref article in Telegraph
Water bills have risen sharply while investment to stop leaks has fallen, according to the latest research.
Analysis shows that four of the biggest water companies have increased bills by up to a third since 2007-08.
Over the same period, investment by the companies has fallen by up to 20 per cent, prompting calls for the Government to take action.
The report by Charlie Elphicke, a back-bench Conservative MP, has been sent to George Osborne, the Chancellor, and Owen Paterson, the Environment Secretary.
The findings come amid reports that Mr Osborne is looking to crack down on water bills as part of an assault on the rising cost of living.
Millions face higher bills under plans for compulsory water meters 09 Aug 2013
Mr Elphicke, a former tax lawyer, found that Thames Water had increased average annual bills by 28 per cent over the past six years, rising to £354 last year.
However, his analysis suggests that over the same period, real total capital expenditure fell by 20 per cent. Similarly, Southern Water pushed up average bills by 35 per cent to £449 per household, yet investment fell by 21 per cent over the same period.
Yorkshire Water saw average bills increase by 23 per cent to £368 per home, while investment fell by 13 per cent.
Both Thames and Yorkshire Water made large profits last year, of £128 million and £184 million respectively, but paid no corporation tax.
Mr Elphicke’s findings also showed evidence that many water companies had large debts, which he said was risking their financial stability.
He said: “Clearly something is rotten in the state of the water industry. Ofwat needs to act and get a grip.”
He added: “Water companies should give back their excess profits by cutting bills, and investment needs to increase so we have a 'fit for purpose’ water and sewage system. The water industry needs to improve its corporate culture. It needs to have a greater sense of social responsibility to the taxpayer and the customer.
“Water is an essential supply and the industry needs to operate in a more responsible, low risk, lower billing way.”
A spokesman for the water industry regulator said: “Ofwat is aware that water companies have benefited from very low interest rates and higher than expected inflation, while household incomes have gone down.
“We have called on companies to share these unexpected gains and listen to their customers. We believe there is scope for bills to come down over the next five-year period.”
A spokesman for Thames Water said it had not paid any tax last year “because it is investing so heavily”.
He said: “The amount we are currently spending on upgrades to our ageing pipes and sewers has never been higher than now, while our bills, at £354 a year per household on average, remain the second lowest in England and Wales.
“With further significant infrastructure upgrades needed in coming years, our customers’ bills are set to move closer to the industry average.
“The financing of this essential work, however, ensures the cost is spread over the long term, smoothing the impact on bills.”
A Southern Water spokesman said its annual price limits are approved by Ofwat.
She added: “Water companies’ investment programmes run on a five-year cycle, therefore, there will be peaks and troughs within the regulatory cycle as projects start up and conclude.”
A Yorkshire Water spokesman said: “There are no secrets here. Our prices and our capital expenditure programme are regulated by Ofwat and are a matter of public record, judged as good value for money by our customers.”
She added that the company complied “with both the spirit and letter of UK tax law and the Treasury is happy with the amount of tax we pay”.