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§ Mr. David Heyes (Ashton-under-Lyne) (Lab)
I am pleased to have secured this short debate on what I know is a matter of great and immediate concern to many of my constituents. The timing of the debate is fortunate, as it comes as the process of the periodic review of water prices in England reaches a critical phase and moves towards its conclusion in December, with the new price regime and inevitable price rises to be introduced from next April. We are expecting a response from the water companies next week to the draft determination of price limits published last month by Ofwat. Other consultation responses will be received until 13 October, and the final determination of price limits will be made known by Ofwat on 2 December. When the Secretary of State published the principal guidance to Ofwat at the start of the process, she acknowledged that she was concerned about the effect of water bills, especially on those least able to pay. It is precisely that concern that has excited the interest of many of my constituents, and it is on that aspect of the price review that I will concentrate most of my remarks today.
At the time of the last periodic review, Ofwat gave some comfort to water consumers by forcing a cut in the apparently remorseless price increases that had taken place since privatisation in 1989. However, to judge from the current aspirations of the water companies we can expect a return to significant price increases over and above inflation for each of the next five years. Even though the regulator has cut back on the 30 per cent. plus claims of the companies, most consumers can expect increases of 13 to 15 per cent. above inflation in the years until 2010. The local supplier for my constituency, United Utilities Water, has been told to plan for increases of about 18 per cent. above inflation. Inevitably, potential price rises on that scale will conjure memories of fat-cat salaries and the huge profit hikes that characterised the industry in the 1990s, which did so much to undermine public confidence in the claims of the industry's leaders.
One way or another, water customers can expect a big increase in their bills over the next few years. I recognise that there is a need for investment to implement directives on water quality and environmental improvements, and I shall not challenge that need. Questions could be raised about the failure to make progress on some of those fronts since privatisation, especially in the light of the constant upward movement in profits. Questions could also be raised about whether the funds for such investments should be raised only from the consumer and not from the owners of the businesses—the shareholders. Indeed, on the issue of environmental improvements, some have raised challenging questions about the extent to which the polluter should pay. However, given the limited time available today I shall leave those questions hanging and turn instead to my main purpose, which is to urge my hon. Friend the Minister to use the opportunity of the review to bring forward proposals to help water consumers who cannot pay their bills and who will struggle even more if prices continue to escalate.
The situation today is so bad that about one in five households are in arrears with their water bills. The latest figure, provided for me today by United Utilities 236WH Water, is that in the north-west about 600,000 households do not pay a proportion of their water bill. More than 4 million households are thought to spend more than the widely recognised affordability threshold of 3 per cent. of income on water. Many benefits recipients spend more than 10 per cent. of their income on water bills.
According to figures produced by Ofwat, which were derived from the water companies and released two years ago, unpaid bills totalled more than £750 million, with more than £400 million outstanding for 12 months or more. I have been unable to find any evidence of a fall in those figures since then. Self-evidently, the round of price increases we look set to see over the next five years can serve only to make the situation worse. Just last year, the chief executive of United Utilities Water told the Select Committee on Environment, Food and Rural Affairs that he expected the number of his customers having difficulties in paying their bills to rise broadly in line with the rise in prices. I pause to pay tribute to the excellent work of the Committee on water pricing, which is continuing. I am sure that the Minister will take proper account of its deliberations and recommendations.
How should the issue of water poverty be addressed? I shall start by referring to the encouraging progress being made through the reform of the tax and benefits system. The long-term aim is to eradicate poverty, and family credit and pension credit are important first steps on that road. They are the route to bringing household income up to a level at which utility bills are affordable, but we are not there yet, and if the experience of my constituents is anything to go by, we have a long way to go.
The more immediate question is about the adequacy of the existing systems to help people in genuine water poverty, whose situation is likely to get worse as a result of the probable outcome of the current periodic price review. I fully support the Minister's principal guidance to Ofwat in March, which stated:The policies contained in this guidance are strongly informed by the interests of customers.My hon. Friend went on to repeat the Secretary of State's concern about the effect of water bills, especially on those least able to pay, and undertook to review the way in which lower income households are helped with their water and sewerage. One way in which he will do so is through the ongoing review of the vulnerable customers scheme. It is welcome that the review is being carried out in parallel with the periodic price review, which seems likely to lead to big price increases and hence to higher indebtedness and greater numbers of people in water poverty.
I am sorry to have to tell my hon. Friend that the present provisions for tackling the problem have been desperately ineffective. The vulnerable group regulations were very tightly drawn; they apply only to consumers who are on a metered water supply, with three children under 16, a specified medical condition and a specified welfare benefit. At best, the scheme can do no more than cap their water bill at the average in their home area. Very few water consumers know about the scheme, and, not surprisingly, take-up has been abysmal, with fewer than 2 per cent. of those who might be eligible taking advantage of it. To cap that, the 237WH scheme costs more to run than is being paid out to consumers. For example, United Utilities in the north-west has 2.7 million water customers, of whom 472,000 are in metered properties; of those, only just over 1,000 customers meet the stringent requirements of the vulnerable customer tariff.
The review of the scheme is welcome and there has been widespread consultation on the proposals of the Department for Environment, Food and Rural Affairs. An announcement about a new scheme can be expected soon, although some people are scratching their heads wondering when that might be. However, I am sorry to say that even if all the suggested improvements to the scheme were adopted, it would still apply only to a tiny minority of consumers and would make no noticeable contribution to tackling the huge and growing problem of water poverty.
The inadequacy of the present system to help vulnerable customers had led to the emergence of a hotch-potch of voluntary and charitable schemes being set up or supported by the water companies. In the north-west, for example, United Utilities' hardship scheme will assist customers who can satisfy criteria requiring that they should be recipients of income support, have a disability, be longer-term unemployed, be a pensioner or have multiple debt. For every pound that the customer pays towards their water debt, the company will write off a further pound. A recent big push by United Utilities has increased the number of beneficiaries under the scheme to more than 6,000, which is commendable, but they are little more than 1 per cent. of its customers who have difficulty paying their water bill each year.
A recent announcement by United Utilities brought news of a plan to join the growing band of water companies that have set up and sponsored a charitable trust to help those having difficulties paying their water bills. It is hard not to interpret that as a response by United Utilities to the inevitable backlash that will result from the Ofwat proposals, which would entail an increase in real terms of almost 18 per cent. in water bills, by an average of £47 to £315, over the next five years. Although full details of the United Utilities-backed charity are awaited, it seems unlikely that the £15 million that the company has pledged to the charity over the five years will assist more than 3 per cent. of its customers who experience serious water bill difficulties. Frankly, the growing trend towards water companies sponsoring charities as a solution to the problem of water poverty has an unpleasant whiff of Victorian paternalism and the concepts of the deserving and undeserving poor.
The rules around such charities tend to be tightly drawn. For example, the Anglian Water Trust Fund says:Grants are given solely at the discretion of the Trustees depending on the person's circumstances. They are not available to 'claim' or given as an 'entitlement' for people in difficult circumstances.It also notes:Each week, the Trust gets asked for about three times as much money as it has available. This means that we cannot help everyone and Trust staff have to make very difficult decisions about who they can help.238WH Bizarrely, it adds:Sometimes the application shows that applicants have more money going out than they have coming in".I would have thought that that was the definition of water poverty, but the trust continues:In such cases, the Trust is unlikely to make a payment".Other schemes have equally illogical constraints, such as:
If you receive an award from the Trust, you cannot reapply to the Trust for two years.All those things suggest that charitable trusts are an inadequate substitute for a welfare assistance scheme that is properly funded and administered by the state. To return to United Utilities, the combined benefits of its vulnerable customers scheme, its hardship scheme and the proposed charity will, even on an optimistic projection, reach little more than 5 per cent. of customers in potential bill-paying difficulties.
What are constituents who might be struggling to pay their water bills to do? First, and most important, they need not fear having their water disconnected. Nowadays, thanks to firm action by the Government, water companies are not allowed to disconnect, and that policy must continue, if only in the interests of public health. Equally, any attempt to reintroduce pre-payment meters must be opposed. They are simply an invitation to self-disconnect and give rise to the same worries about wider public health consequences.
There is little evidence that the Government's policy decisions have encouraged the non-payment of water bills; on the contrary, the non-disconnection policy is little known, and those who are genuinely struggling to meet their utility and household bills tend to give highest priority to paying the water bill because of the widely held and continuing fear of disconnection. Given the lack of a benefits-based solution, however, the problem is that the costs of the non-payment of water bills accrue year by year. Eventually, the additional cost must be borne by those water consumers who can pay their bills.
Significant numbers of households are struggling, and in many cases failing, to pay their water bills. That situation is likely to worsen in the short term, given the latest round of price rises. The lack of an effective mechanism to provide assistance to deal with water poverty results in an accumulating debt burden, initially for the companies but ultimately for paying customers. In time, the Government's core aim of reducing and eventually eradicating poverty through work and the tax and benefits system should resolve the problem of water bill affordability. However, that will not happen in the current five-year water price review period, even on the most optimistic projections. In the meantime, the Government, the regulator and the companies must decide how to tackle the issue of affordability in the foreseeable future.
In the current round of price reviews, the Secretary of State's initial guidance to Ofwat suggested that its deliberations should give due weight to the economic and social effects of policies, and especially the impact of water bills on vulnerable consumers. Affordability must be more central to Ofwat's considerations than has hitherto been the case in price reviews. If necessary, the Secretary of State's guidance to Ofwat must be clearer and stronger in that respect.
239WH It is clear that the draft determination that Ofwat published last month gave too little weight to such concerns. I hope that my hon. Friend will take the opportunity, in his final guidance to Ofwat, which is imminent, to give it a robust reminder of such factors and to urge it to take a further critical look at the affordability of bills against the setting of water companies' continued and accelerating profitability. It is also clear that the Government need a more thorough and far-reaching review of the support scheme for vulnerable consumers than is promised by the proposals under consideration. It would be nice if the water companies were obliged to introduce more effective proposals for customer assistance than those in their inherently timid and constrained charitable trust schemes. What about a levy on their still considerable profits, following the precedent set by the windfall tax? I am sure that that would pay for a comprehensive scheme.
I am convinced that co-ordinated action of this sort by the Government, the regulator and the industry can bring about an early solution to the problem. It is time for the pass-the-parcel approach to dealing with water poverty to stop.
§ The Minister for the Environment and Agri-environment (Mr. Elliot Morley)
I congratulate my hon. Friend the Member for Ashton-under-Lyne (Mr. Heyes) on securing the debate. He raised several serious points about the affordability of water. Water is a basic need that the Government take very seriously, and there was a great deal of concern during privatisation because of its importance. We campaigned very strongly for the obligation, unique among utilities, not to disconnect people because of the essential role of water in relation to health. The Government have played an important part in recognising the needs and rights of consumers, and in ensuring effective regulation of prices.
My hon. Friend has made a powerful case concerning those who have difficulties with affordability. I was impressed by his detailed figures relating to United Utilities in his constituency and the impact felt by local people. He raised some important factors that the Government are trying to address. I shall come to those points in a moment.
The key issue in tackling the problem of affordability is recognising that it is important to everyone. We start on the basis that we do not want any more price increases than are necessary to provide improvements in infrastructure and to invest in environmental and quality improvements, which people recognise are important. They are an important part of the early investment process in the water sector. There is a system of periodic reviews of water price limits that takes into account all those factors. I pay tribute to Philip Fletcher, who has done a very professional job in going through the companies' draft plans and producing his current determinations, which await ministerial guidance and response from the companies. He will then produce his final guidance towards the end of the year.
The role of Ministers is limited to giving guidance on the quality programme. Ofwat published its draft price determinations for consultation on 5 August, 240WH containing numbers substantially below those in the companies' draft plans. I know that my hon. Friend will welcome that. The national headline figures that came out of the regulator's proposals showed that average household bills would rise by £33—a 13 per cent. increase—from £249 to £282 before inflation, over five years. That compares with the companies' proposals for an average increase of £70. Price limits stood at 3.1 per cent. per year for five years, which is roughly half the increase sought by companies. An increase of 7.6 per cent. in price limits is proposed for 2005, to reflect the build-up of customers' costs, tailing off to 1.2 per cent. in 2009. The companies sought an increase of 13.4 per cent. in 2005, so there has been a substantial change if one compares the regulator's proposals with what the companies asked for. The regulator has rightly challenged the companies' figures and looked very carefully at the costs. The process has been thorough, and it involved all agencies. As my hon. Friend rightly states, we are near the end of that process, with the final price determinations due to be published on 2 December. Those price limits should be sufficient for the companies to undertake the minimum programme consistent with delivering the policies and outputs required, but they should be no higher than they have to be. That is an important consideration.
My hon. Friend concentrated on affordability, and I understand his case. He has made a persuasive argument, and there are sections of the community for whom water is an issue of affordability. That is a key concern, and the Environment, Food and Rural Affairs Committee and the Environmental Audit Committee have encouraged the Government to review the ways in which lower-income households are helped with their water and sewerage charges. We have responded to that request and a review, led by a cross-Government steering group, is under way. We have sought the views of interested parties outside the Government, and a well-attended seminar was held on 18 June involving a range of stakeholders. Since then there has been a series of bilateral meetings with those stakeholders to develop and consolidate their comments and ideas. We will respond to that consultation shortly, and put out our response to the discussion.
Of course, my hon. Friend is right to say that what we can do for vulnerable groups in the regulations covers a comparatively small proportion of customers. I do not want unduly to raise expectations, because that is not likely to change. He understands that the more concessions we make on prices, the more we will have to put up prices for customers across the board. We are concerned to ensure that prices are kept as low as possible for everyone, while recognising that there are vulnerable groups who require special consideration. Those are people who could suffer real hardship because of prices, and in some cases because they need to use a lot of water. That is why the regulations are drafted in a fairly restrictive way. They recognise that there are special circumstances, which are not common but do affect some people. We must acknowledge that.
The regulations apply to people who are on a meter, and the number of people on meters is increasing. About 15 per cent. of United Utilities customers in my hon. Friend's area are on a meter, and there is considerable scope for that figure to increase. Many people who have not yet asked to go on to a water meter would find that it 241WH was very much to their advantage to do so. For example, meters are likely to benefit pensioners. Many people find that their bill goes down right away when they move to a water meter, which is installed free of charge under the regulations that we have put in place.
§ Mr. Heyes
On that point, the people who are transferring to a metered water supply in increasing numbers tend to be those who live in larger properties—households containing just a single person or a couple. There are significant savings to be made as a result of making such a transfer, which is obviously sensible for them. However, because the costs are borne entirely within the industry, is it not the case that the overall effect is to increase the financial burden for the people who remain on the existing system?
§ Mr. Morley
Ultimately, that could be the case and there will have to be adjustments in the pricing regime at some point, when the proportion of people on water meters passes a certain threshold. The regulator is sensitive to that, but at the moment there is considerable scope for people who have not yet transferred to a meter to consider doing so. That has the effect of reducing water use; there are also other ways of doing that, promoted by the Environment Agency and the water companies themselves. Those are matters to take forward.
We do not want to see families on low incomes cutting down on essential water use to make ends meet, and we want to offer protection in such circumstances. We have put forward for consultation proposals for the regulations on vulnerable groups, and the Government's response to those will be published shortly. It is intended that vulnerable customers will be protected from being disadvantaged by having to pay for an unduly high volume of water. We want to offer the alternative of an average of the metered charge so that the water company removes the disadvantage.
In the consultation paper launched in 2003, the Government also proposed a further extension to the vulnerable groups scheme. Any changes made to the regulations as a result of the consultation will come into force in April 2005—the same time as the introduction of the new price limits. In deciding what extensions we might need to make, we must bear it in mind that the scheme is there to protect customers with high essential water use.
The Water Industry Act 1999 also introduced assistance to protect customers from disconnection and from having to cut down on essential water use. In providing essential services water companies occupy a prominent position in the community, and I take my hon. Friend's point that they should demonstrate their 242WH regard for the interest of all stakeholders in their businesses. When devising tariffs and payment methods, water companies should bear in mind their poorer customers. They have a range of options apart from the regulations on vulnerable groups: they can offer a frequent payment option as well as appropriate tariffs, and they can take a proactive stance in informing customers of the choices available to them. That is an important part of the service.
My hon. Friend mentioned charitable trusts to help customers in genuine need. Some companies have had those for a long time. If my memory serves me right. Severn Trent Water had such a trust pre-privatisation. My hon. Friend the Member for Mansfield (Mr. Meale) holds a long connection with that trust, and it works very well. There is a role for trusts—although they are not the answer and I would not want to pretend otherwise—in a range of measures to help vulnerable groups, and I welcome the fact that United Utilities is taking that into account.
I understand the point that my hon. Friend the Member for Ashton-under-Lyne makes about financial support and the benefit system, but it is a matter for the Department for Work and Pensions. The Government's preference has been to raise living standards generally, and we have had considerable success. Since 1997, families with children are on average £1,350 a year better off as a result of the changes introduced by the Chancellor. Families with children in the poorest fifth of the population will be on average £3,000 a year better off, which reflects the Chancellor's targeting of those on lowest incomes. Pensioner households will be on average £1,300 a year better off—about £26 a week. The poorest third of pensioner households will have gained £1,750 a year. The tax credit system and the targeting of benefits have been successful in lifting out of poverty the poorest sections of our community.
I would not want to suggest to my hon. Friend that we should not worry about the impact of water prices on vulnerable groups; we recognise that there is a real issue to take into account. However, we must consider overall incomes for average families, and rent and child care costs, which can constitute a much larger proportion of costs, although they are part of an accumulative approach.
My hon. Friend has made a persuasive and powerful case for taking vulnerable groups into account in water charging. I am pleased to see that charges have been tempered by robust and effective regulation, and I am sure that he will welcome some of the changes to the regulations on vulnerable groups. I accept that they will be targeted at a small percentage of the population, but it is more important to keep down prices for everybody, while ensuring that there is adequate investment in our water services.