Written submission to
Department for Regional Development
“The Reform of Water and Sewerage Services in Northern Ireland”
June 2003
1. Introduction
The General Consumer Council for Northern Ireland is a statutory body set up in 1985 with the general duty to promote and protect the interests of consumers. The Council aims to make the consumer voice heard and to make it count. We welcome the opportunity to comment on the reform of water and sewerage services in Northern Ireland.
For ease of reference this response follows the sequence of the proposals identified in the Department for Regional Development’s consultation. Our response includes results from a consumer survey carried out by the Council in August 2002 to gauge consumer views on the issue of water charging. This response should be read alongside our ‘Paying for Water’ [1] information paper published in May 2003.
Given that the decision to introduce direct charges has been taken prior to the consultation the Council has responded within this context. However, the debate over the past months shows that the public is confused about current methods of payment and about the options for funding better service provision. Greater clarity and consensus is essential before proceeding with any major change.
2. Overall context
Health
The right to an adequate supply of safe, wholesome water should be considered a basic entitlement for reasons of public health. Water is an everyday essential for living; there is no practical substitute for water. Water is an investment for the future. In addition, there are major implications for public health.
Any reform of water and sewerage services must continue to protect public health [2]. Access must continue to be affordable and the supply must be safe, secure and continuous.
Current payment
Consumers already pay for water. While the method may no longer be clear, consumers pay for water and sewerage services through either general taxation or, until 1999, the regional rate. The present proposals are about paying more. The confusion on this subject has not helped the consultation or the subsequent debate.
Implications of rating review
If the proposals go ahead, not only will the public pay new direct charges for their water but they may also have to pay increased rates as a result of the rating review. The Council believes that, given the likely impact, these two changes must be considered in tandem.
Future costs
The paper refers to a requirement for £3 billion for infrastructure investment but omits to give a detailed justification or breakdown. It is essential to know the basis on which this sum has been calculated to clarify exactly where the money will be spent and how consumers will benefit. Consumers must be re-assured that there has been no ‘gold plating’ and that every effort has been made to hold costs down.
Similarly, the public should be made aware that some of the money raised by water charges may be used to finance the debt incurred under the Reform and Reinvestment Initiative.
Self financing
The Council would make a distinction between direct charging and full self-financing. The paper assumes that direct charging means full self-financing but does not justify it. There are many examples of other services that contribute to society, including Northern Ireland’s public transport system, which receive greater or lesser support from public funds.
Good practice outside GB
In terms of the examples used in the consultation document there is a bias in favour of looking at what is done in Great Britain for guidance. A wider use of models / initiatives from other countries may well have helped promote more informed debate. Consideration of such examples should be given and included in future consultations on the reform of water and sewerage services.
Monopoly provision
Whatever proposals are adopted as a result of this consultation, water and sewerage services in Northern Ireland will remain a natural monopoly. Therefore, external pressures must be brought to bear on service standards. Ultimately, the system adopted must protect consumers while keeping the costs down.
3. On what basis should domestic water charges be set?
The consultation paper sets out three options for charging for water and queries if metering should be revisited.
Water charging has to be equitable, affordable, transparent and fair in the burden of costs between different groups of consumers. It must also recognise that the water industry needs to make an economic return to finance and maintain the investment levels needed [3].
In a recent publication the National Consumer Council [4] suggested three tests for assessing a charging regime:
l Is it economic / cost-reflective?
l Is it sustainable / does it encourage conservation?
l Is it socially just / fair?
We believe that these provide a useful tool for gauging the relative merits of the water charging options proposed.
With regard to metering, there are advantages. The public understands the concept of metering and being charged for the amount used. This is perceived as fair. Metering is also useful because it encourages conservation of water supplies.
However, there are disadvantages associated with metering particularly concerning the apparent cost in both capital (installation) and recurrent (reading, maintaining and billing) terms.
There are indications that costs may now be lower than was previously the case. Clear information needs to be provided on the true costs of introducing metering as a method of charging in order to help to identify the ‘balance of benefit’ to consumers.
The information required includes:
l Number of properties that are already metered
l Number of properties with meter points
l Cost of installing meters to homes with meter points
l Cost of installing meters in all other homes
l Cost of installing meters in all ‘new build’ properties
l Lifespan and replacement cost of meters
l Cost of reading and maintaining meters
l Cost of establishing, administering and maintaining a billing system, for metering
Other factors including the timescale for delivering metering to all homes across Northern Ireland and the potential for multi-utility metering should be explored. Once all of this information is available then full discussion and consultation can take place on the potential for introducing metering.
Therefore, the Council recommends that metering should be examined as an option for water charging.
The Council believes that, if introduced, metering should be compulsory and not voluntary. This is because consumers whose reduced water use means they benefit from lower water bills often choose optional metering. This loss of revenue is then cross-subsidised by un-metered customers and transparency becomes compromised. We recommend that there should be a universal system of charging that is applicable to all domestic consumers.
There are two possible outcomes regarding metering. First, metering may not be an economic option. Second, if metering is an economic option, meters could not be installed in all Northern Ireland homes in time for the 2006 deadline for introducing direct charges.
Therefore one of the three options presented in the consultation must be chosen in the short-term. At the present time we believe that a water charge based on rateable / property value is the fairest and most economic option as an interim measure. On the basis of the three tests, it is not desirable as a long-term option. Further consultation is required as to a long-term basis for charging.
Non-payment may pose a problem if water charges are imposed as a separate bill rather than incorporated into a rates bill. We recommend that bills should be clear, regular and easy to understand so that bills will not remain unpaid due to confusion, fear or lack of understanding [5]. If volumetric charges are adopted we recommend that bills should state the approximate or average total consumption and a breakdown of the main elements of service: water supply, sewage disposal and rainwater disposal.
4. Protecting vulnerable consumers
Given the essential nature of water and the wider public health implications provision or safeguards must be considered for those with
special needs [6] to enable consumers to afford the water they need.
Water charges in Northern Ireland may be particularly regressive where lower-income consumers would pay proportionately more of their disposable income on water charges. This is particularly important given the lower incomes and greater reliance on the benefits system here. For example, household incomes here are 19% below the UK average [7] and 21% of household income depends on social security benefits compared with 12% reliance in Great Britain [8]. We also pay more for essential utility services with households in Northern Ireland paying on average 26% more (£3 per week) for fuel, light and power than households in the rest of the UK.
There is concern that households here, who may already be in fuel poverty, could be similarly pushed into water poverty. The projected annual charge for Northern Ireland, based on current costs, is £350-400. Even the lower end of this scale would result in costs 53% above the average in England and Wales and 9% above average costs in Scotland.
Elsewhere, households who pay more than 3% of their total income on water charges are defined as being in water poverty. A charge of £350 would mean that household income would need to be in the region of £11,700 to avoid water poverty.
Direct charges raise the prospect of unpaid bills. The Council recommends that the disconnection of household supply for non-payment of charges be prohibited. By banning domestic disconnections we understand that the worst potential consequences of water debt, including serious public health risks, were removed [9].
However, Northern Ireland needs to avoid mistakes made elsewhere and identify the good practice in evidence throughout the world. The system of claiming assistance in Great Britain is clearly not working with one in five homes now in water debt. In England and Wales vulnerable groups’ bills are subsidised as a result of the Water Industry Act, 1999. However, recent Government estimates of vulnerable people benefiting from the social tariff represented just 0.6% of those estimated as eligible [10]. Northern Ireland must learn from this experience and ensure that consumers can easily access assistance.
Our research shows public support for ensuring that everyone should be able to afford enough water to meet his or her daily needs. There is widespread support for the principle of help being provided to vulnerable groups particularly for the elderly and those who may require assistance on health/medical grounds [refer to Figure 1].
There are two main methods of providing assistance: cross-subsidy and benefits. Overall, the Council favours benefits. We also recommend that part of the extra money raised from direct charging should be used in public support (i.e. for consumers requiring assistance).
We further believe that consumers should not be penalised for ‘won’t pay’ customers. This is an implied form of cross-subsidy since non-payers of bills are effectively cross subsidised by all those who do pay their bills [11]. There are concerns about potential for other cross-subsidy; for example, between higher-income and lower-income households, large households compared to single people living in properties with a higher rateable value and the rural property-dweller against denser urban housing.
5. Business models
The Council is neutral on the question of business models because, in most circumstances, consumers are more concerned about how goods and services are delivered rather than ownership in itself. Consumers want a safe, clean and affordable service that provides an efficient, reliable and continuous water supply and sewage disposal.
In deciding which business model would be the most appropriate for Northern Ireland a number of points should be taken into account:
l Public opinion - Our survey showed 92% of the public was opposed to privatisation in 2002. This opinion has strengthened from 71% opposition in 1993.
l Balance of benefit – The cost efficiency of each model should be considered.
l Assets - There are doubts about the feasibility of privatisation due to uncertainty over the asset base and the lack of trading record of the Water Service.
l Return on capital - Experience with electricity suggests that any model which entails the sale of assets results in consumers paying more than they otherwise would to enable the company to make a return on its investment.
l Crown immunity - If any of the options result in the removal of crown immunity, there are further issues. On the one hand measures are needed to penalise polluters. However, removal of immunity could result in consumers having to pay for the inadequacies of the system inherited from the present Water Service. Very careful consideration needs to be given to this when identifying which business model would be best for Northern Ireland.
Crucially, and irrespective of the option supported, water and sewerage services will remain a monopoly and will therefore be removed from normal market pressures. Further steps will therefore need to be taken to ensure that the model is clearly accountable and is subject to strong regulation of activities to protect the interests of consumers and the environment.
Finally, a contingency plan is required should the operator fail or go into administration / bankruptcy.
6. Regulation
In the absence of competition, regulation is essential to replace the disciplines of the marketplace. Regulatory and water charging structures promote the protection and wise use of water resources. Consumers will ultimately have to pay the cost of regulation therefore the most cost-effective regulatory model should be adopted.
Robust, effective and independent regulation of water and sewerage services is necessary to ensure that all environmental, water quality and service standards and obligations are met.
The regulator’s range of responsibilities and the principles that should apply to any regulatory system have been previously identified in our ‘Paying for Water’ paper [refer to Section 5].
The regulator should work closely with the consumer representative body in relation to the needs and interests of water service users in all his/her decisions. We strongly recommend that consumers’ interests should be a primary objective of regulatory policy but arrangements for its expression should remain independent of the regulator’s office.