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UK Water Sector

Volume 476: debated on Monday 2 June 2008

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Alan Campbell.]

I am grateful for the opportunity to hold this debate. The future of the water industry affects many areas of the public and private sectors, including the private citizen mindful of the water bills he or she pays; the farmer concerned about the possibility of drought; the community worried about the risk of flooding; the architects and planners building to meet the demand for housing; and the Government in co-operating with other nations to ensure worldwide access to clean and sustainable supplies of water.

Earlier this year, the all-party parliamentary water group concluded its investigation into the future of the UK’s water industry. I want to put on record the help we received from eaga plc, the Society of British Water and Wastewater Industries, Unison, Water UK, Wessex Water, the Consumer Council for Water and WWF-UK.

I am pleased to see that, in addition to my hon. Friend the Member for Plymouth, Devonport (Alison Seabeck), some members of the all-party group are in their places, including my right hon. Friend the Member for Scunthorpe (Mr. Morley) and the hon. Member for St. Ives (Andrew George), who both took part in the inquiry.

The fact that representatives from more than 70 different organisations—ranging from business and industry to trade unions and consumer groups, scientists and environmentalists—attended the report’s launch is testament to the importance of this issue. We produced a range of conclusions and recommendations touching on many areas. However, today I wish to focus on affordability and the future of metering and charging. I hope to allow a little time for my right hon. Friend, the chairman of the all-party group, to add more about water services and management and issues relating to drought and flooding.

I make no apology for the fact that for me the imperative remains affordability, which is at the top of our agenda in the south-west. People face rising fuel prices, and other cost-of-living pressures, set against the backdrop of the credit crunch—difficult economic circumstances which our Government are well placed to guide us through. Water is not a luxury but a necessity, and for that reason we must do all we can to ensure that the regulatory framework bears down on what it costs our constituents. The Minister will know that I have long campaigned on the issue of unfair water charges in the south-west, caused by the botched privatisation by the Conservative Government, which means that our average household water bill is £100 more than elsewhere in the country. Where are the Conservatives tonight?

For elderly individuals living alone on a basic pension or for lone parents with young children, water bills can be a struggle regardless of where they live. The fact is that high water charges often affect most those individuals and groups least able to cope. There are close links between water affordability and water efficiency, so in addressing affordability there are opportunities to dovetail well with the Government’s environmental agenda.

From 1997 onwards, the Government have shown sustained commitment to tackling fuel poverty. Under the Warm Front scheme, representatives visit customers to advise them of ways they can reduce their energy bills, install energy-saving features, such as cavity insulation, and undertake benefit entitlement checks. In my constituency, the scheme has visited 2,832 households, saving them each an average of £200 on their fuel bills.

As the Minister knows, the Warm Front model was used for a similar scheme in the water affordability pilot that was carried out in the south-west. That small study of 520 households managed to find savings of more than 10 times the cost of providing the service. We can imagine the savings that could be made if such a scheme were rolled out nationally. South West Water has since built on that work through its water care scheme, which will help 7,500 customers over three years and is the first of its type in the water industry. I think that Wessex Water has a similar scheme.

I know that South West Water—Water UK has also raised the subject on behalf of the industry in general—would appreciate the same access to data sharing about people on low incomes as the Government proposed this past Friday to explore for energy companies. I hope that the Minister will raise that with his colleagues. In addition to helping to target the schemes that the water industry is introducing, such as the water care scheme that I just mentioned, such a measure could help to turn around the vicious circle of high debt that costs us all £11 per customer nationally.

I think I am right to say that up to 40 per cent. of household energy is used to heat water. An ideal solution would therefore seem to be to combine the Warm Front and water care schemes, with representatives trained to advise on both water and energy efficiency in the same visit. The better we target such help, the more likely it is to create a virtuous circle that will enable water bills to be kept down.

The hon. Lady is making a strong case. Of course, she is absolutely right to say that when the water industry was first privatised it created a relatively risk-free environment for what I would argue was a money-extortion exercise, particularly in areas such as the south-west. For elderly customers, that is a particular problem. Does the hon. Lady agree that in households where occupants are unable to install a water meter, and particularly in houses in multiple occupation, companies should always adopt a default position of going for the assessed charge in order to reduce the water bills for those very low income households?

The hon. Gentleman makes a relevant point. There are many examples of sheltered housing in my constituency, as well as elsewhere in the south-west and all over the country, where such a move could significantly benefit many older people.

Schemes and innovations such as water care can help individuals to save money. The all-party group also recommended fundamental changes to the manner in which water is provided and paid for. The most significant was our call for the phased introduction of universal metering. Indeed, in response to water charges many consumers are already switching to metering by choice. Unsurprisingly, we have seen that in particular in the south-west, where I think some 65 per cent. of consumers—about 13 out of 20—have switched to metering by choice. That has resulted in the development of a two-tier water payment system, leaving those who do not switch at a further disadvantage.

Smart meters, or intelligent meters, present an exciting opportunity to tackle these long-neglected issues. Again, co-operation with the energy industry, which I believe to be likely to introduce smart metering, ought to provide some savings in that regard if it is tackled soon. Many believe that tariffs tailored to the circumstances of the customer could not just deal with some of the supply and demand issues, but could address issues of affordability for many customers.

I am, of course, aware that the Department for Environment, Food and Rural Affairs is conducting a review of the future of metering and charging. I hope that the Minister will update us on the progress of the review and I would be grateful if he would give the House an indication of when it is expected to report.

I would also appreciate hearing the Minister’s assessment of how far the review will go towards finding a solution to the affordability issue. Does he share my view that it could indeed provide light at the end of the tunnel for some of those constituents burdened with high bills? Of course, if that is a solution, it is a medium to long-term one, and while making water charges fairer and possibly lower for more people, we need to be realistic about the fact that there will be losers as well as winners. Some of those losers could be among the least well off if they are not protected. I am thinking especially of large families and those who need to use larger quantities of water for health reasons.

In addition to ensuring that we make the most of the vulnerable persons regulations, I hope that the Minister will consider the all-party group’s call, which has also been made by the Consumer Council for Water, for changes to the tax and benefits system to support those who are struggling most to pay for water. That should be much more affordable to the Exchequer if, through the combination of measures that I have mentioned, we can reduce the extent to which they are needed.

I also support CC Water’s call to limit price rises. It has recently written to all water and sewerage companies in England and Wales to ask them

“to return value to consumers, either by keeping price increases to inflation levels or below, or providing extra investment in pipes, sewers and treatment works that will provide future consumer benefits… We know that the industry did very well from the 2004 price review, as there was a rapid rise in value of companies and that for the first time since privatisation no water companies appealed against the price limits set by Ofwat”.

I hope that the Minister will also look at our report’s recommendations on the vulnerable group regulations. Our report found that the regulations were not working as well as they could. The principal problem is that the WaterSure scheme is not reaching very many people—only 16,200 households nationally, according to the last figures in 2006-07. Not surprisingly, a substantial proportion of that number—3,800, or almost a quarter— are in the South West Water area, which covers Devon and Cornwall’s population of just 1.5 million of England’s total population of 50 million.

Our all-party report recommended that the definition of customer service be extended to include vulnerable customers and be included in the PR09 price-setting review as a specified performance target. The regulator could then set goals for the companies to be proactive in reaching out to vulnerable customers on that and other aspects. I hope that the Minister is giving serious consideration to encouraging the regulator.

Action on water charges for vulnerable customers is long overdue. Water bills have risen a lot in the past two decades. Although there have been very significant benefits to our environment, infrastructure and tourism industry through increased investment, too many people are struggling to pay bills that are unacceptably high. As things stand, the problem looks set to get worse, as shown by DEFRA’s 2004 study of affordability. If that is allowed to continue, more people will fall into more debt, and as a result large bills will become larger still as companies seek to reclaim the money owed.

The Minister must not only find a long-term and comprehensive solution to break this vicious cycle, but consider improving short-term safeguards to protect the most vulnerable. I look forward to his response and to hearing from my right hon. Friend the Member for Scunthorpe.

I congratulate my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) on securing this debate. I pay tribute to her for her role in the inquiry and as the former chair of the all-party water group, in which she was held in very high esteem, and I include the long campaign that she has fought in robustly defending the interests of the people of the south-west.

I want to make a number of short points. First, I echo the point made about affordability. One of the reasons why I strongly support the conclusions on water meters is not only in respect of resource management, important though that is, but in trying to find a more imaginative way to put in place price structures. Various forms of tariff structures could provide an opportunity to assist those people who are on low incomes.

I strongly echo the point made about the pilot scheme in the south-west, with eaga identifying people who could also claim benefits. There is strong link between water and fuel poverty, and my hon. Friend made that point very clearly.

I should also like to mention the part of the report that dealt with innovation. As my hon. Friend says, there is great scope for innovation as regards the possibility of saving heat when heating water, and in relation to the way water is treated; I am thinking of grey water systems and the recycling of water. There are some very good examples, but a great deal more could be done. There is an issue with research and development on the part of industry.

My final point is linked to resource management. The report focused strongly on the fact that there can be environmental gain from resource management, through upland catchment management, which has been pioneered in trials such as the SCAMP—Sustainable Catchment Management Programme—project, and through the extension of sustainable urban drainage, which has a great deal of unfulfilled potential. I acknowledge that the Department for Environment, Food and Rural Affairs consultation put forward the idea of a planning permission system for those who want to pave over gardens and do away with porous paving. That was a good example of innovation and how to encourage sustainable water management. A great deal more could be done.

One of the report’s conclusions is that water has been taken for granted for far too long in this country. It is an important resource and its importance needs to be taken more seriously. It is a valuable resource, and that has to be reflected in the way it is managed and in what we are charged for it. I know all the arguments about the need for profits and investment, but at a time of extremely robust profits for the companies, consumers are facing a significant increase in prices, and we need to have a thought for the most vulnerable.

I congratulate my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) on securing the debate and putting forward a strategy for water that successfully builds a consensus for radical change. I also congratulate my right hon. Friend the Member for Scunthorpe (Mr. Morley). The issue of how we regulate, manage and charge for our water resources and sewerage services is extremely important, and I am grateful for the opportunity to set out the Government’s policy.

2008 is an important year for water policy. In February we published a new water strategy for England. We called it “Future Water”. It set out the Government’s long-term vision for the water sector. I am keen on having a long-term strategy—a 25 year-plus approach to the sector. The policy sets out a coherent framework underpinning water management commitments and outlines the Government’s priorities for the sector. The timing of the debate is therefore fortunate.

The policy sets out a vision of what the sector should look like by 2030 and the steps that we believe will get us there. It looks at the water cycle as a whole, from precipitation, rain and drainage through to treatment and discharge by the water companies. It is founded on the understanding, based on scientific advice, that every action that affects one part of the water environment can potentially have an impact elsewhere. We have a genuinely holistic water policy.

Of course the challenges for sustainable delivery of secure water supplies are significant. Combined with that is the challenge of securing continued improvements to our water environment. As if that were not enough, projections of the impact of climate change and other pressures are now business as usual for the sector. It was therefore a great pleasure to welcome the report from the all-party group on water, which was a timely and powerful contribution to the debate. It rightly emphasises the importance of communicating the value of water to consumers—a point that my right hon. Friend the Member for Scunthorpe repeated tonight. That is a central theme of “Future Water”. Because of our need to adapt to climate change, and because we use more water through having more water-intensive lifestyles as economic prosperity rises as a result of successful economic policies and hard work by the British people, we need to consider using water more efficiently and, more importantly, more sustainably.

The way in which we pump, treat and clean water has been mentioned. The way we heat water has implications for energy use. I am determined that our water strategy should dovetail with our energy efficiency strategy, lowering heating bills as well as water bills. We have an opportunity to do that.

I want to move faster on metering. If it is done properly with social tariffs and other schemes to ensure that we use less water, metering can reduce water use in a fair way. Questions exist about the timing of implementation, the technology, the pace of the roll-out and the impact on customers. I shall return to those topics if time allows.

Although I do not imagine that the Government will address the fundamental problem of the privatisation of the water industry, which is clobbering customers in my area and in the area of the hon. Member for Plymouth, Sutton (Linda Gilroy), if the Minister follows his policy through, he will recognise that in an area like mine with a large number of second homes, those customers clearly benefit a great deal from having water meters, rather than paying by other means. Is he not concerned that not only is there a severe problem of water poverty, but metering is a way of rewarding people who should be paying more?

I commend the hon. Gentleman. The Members of Parliament for the region have done a great job of highlighting the issue. He is right. We have passed the tipping point. Generally—one can only generalise, as it is not possible to be specific about individual households—people not on meters are subsidising people who are on meters. That is especially true in his region and that of my hon. Friend, but it is true around the country. One of the reasons why I look forward to the findings of the independent review that we announced is getting the figures from the research to give us a better understanding of that point.

The all-party group, which my right hon. Friend the Member for Scunthorpe and others have led, has given us important evidence on that point. There are other issues that the report has raised. I particularly want to mention the work on catchment-sensitive farming, which the report examined. It also raised the issue of surface water drainage and the slow take-up of sustainable urban drainage systems. One aim of the consultation on improved surface water drainage that was also part of the “Future Water” strategy was to clarify responsibilities for adoption and management of SUDS, on which my right hon. Friend has been leading the charge for many months and years. The report also welcomed the independent review of competition and innovation in the water industry.

The reviews were not undertaken because we do not know where we are going. They were designed to tell us how to get to where we want to be. The most important issue, which my hon. Friend the Member for Plymouth, Sutton has continued to champion, is charging for water and sewerage services. Only 30 per cent. of households in England have meters. That means that in the majority of cases, charging for water is based on the 1970s rateable value of homes. That does not bear any relation to the amount of water used.

Metering is the usual method of charging for water in most other European countries—and, indeed, beyond European boundaries. It encourages water efficiency, exposes leaks on the domestic side of the supply pipes and reduces overall household water consumption by 10 per cent. That could be reduced further with the right tariff. In England, metering is increasing at about 2 per cent. a year; obviously, at the moment that happens predominantly through customers’ own choices. There is a clear case for meters in areas of serious water stress, and we will need meters to be near-universal in such areas by 2030, if not before. Outside such areas, the case for meters is also strong, on the basis of equity. I look forward to the review’s findings and to seeing whether the policy will be confirmed.

Metering and innovative tariffs are an important weapon in our armoury. However, that is not enough to satisfy my hon. Friend the Member for Plymouth, Sutton. She is looking for other solutions, particularly for the vulnerable and those on low incomes. As more and more householders switch to meters because they might save money, there are transitional problems for those left behind who do not switch. I am thinking particularly of large families on low incomes. I look to the independent review that we have commissioned to provide answers and options in respect of that policy area as well. That will look beyond the current charging framework and advise on changes that could create fair and cost-reflective charges with protection for those vulnerable households. I plan to get the review under way shortly. Its findings will herald the most significant changes in charging since privatisation.

I also want to mention the periodic review of water price limits—or PR09, as it is known. That process, led by Ofwat, is well under way. Draft business plans are expected from companies in August. As part of the process, last year I published a statement of obligations for companies and regulators to bring together and describe the environmental and drinking water legislation applying to the water industry over the PR09 period. Other influences include “Future Water”, which I have already mentioned. It sets out not only the Government’s plans for 2030, but the statutory social and environmental guidance to Ofwat on the areas of social and environmental policy to which the Government expect Ofwat to contribute.

All such considerations have to be placed in a long-term agenda. That is why I particularly welcome the addition by Ofwat of a 25-year strategic direction statement. Furthermore, water companies are planning water resources over a 25-year horizon. Combined with robust business planning through the price review process, that should ensure that companies are prepared for the future. I look to Ofwat to ensure that price limits are as high as they need to be—but no higher—to enable companies to finance their functions.

Affordability continues to be a key concern for the Government; I appreciate the particular problem with affordability in south-west England. Customers there have to pay more for their water and sewerage services than do customers of other regions. As has been said, that situation developed out of privatisation, which required each customer to pay for the costs incurred by their water company. What is to be done? My hon. Friend will be aware of the pilot study that considered ways to target and assess the effectiveness of water affordability assistance in the form of benefit entitlement checks, meter installation and water efficiency devices and advice to low-income households in the south-west. I am pleased that, as my hon. Friend reported, South West Water is taking those measures further and is seeking to provide such a service to 7,500 of its customers.

I am also considering the issue of bad debt. Of course I understand that there are those who cannot pay, but I am not prepared to accept the situation whereby those who will not pay are putting up the bills for the rest of my hon. Friend’s constituents.

I am not sure if my hon. Friend is going to cover my point about data sharing, but does he recognise that that would help companies to distinguish between the two categories?

My hon. Friend predicts my next statement. I do indeed recognise the importance of data sharing. It is wrong that companies cannot identify tenants through access to information from landlords. I am examining the situation to deal with not only those who cannot pay but those who will not pay and are abusing the system and putting up the bills of my hon. Friend’s hard-working, law-abiding constituents as a result. I have talked to the water companies, including South West Water, to see how we can incorporate that. I refer my hon. Friend to the draft Queen’s Speech, which included a proposal for legislation on water and flooding. I make no specific pledges on the point that she made; suffice to say that I think she can draw her own conclusions. I congratulate her on her campaign, as well as other hon. Members across the party divide.

Question put and agreed to.

Adjourned accordingly at nine minutes to Eleven o’clock.