Water and Sewerage Charges (South West Water)

(Limited Text - Ministerial Extracts only)

Wednesday 9th March 2011 Westminster Hall

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Richard Benyon)]

It is a great pleasure to serve under your watchful eye today, Mr Amess. I congratulate my hon. Friend the Member for Torbay (Mr Sanders) on securing this important debate. I also congratulate him on his long association with this issue and on standing up for his constituents, like so many other hon. Members, of all parties, this afternoon.

My hon. Friend raised several issues, but a key point was about the role of Ofwat. Other hon. Members, not least the Opposition spokesman, mentioned its role, and it is important to understand how it operates. I am surprised that the hon. Member for Copeland (Mr Reed) has not quite grasped the fact that it is an independent body. It would be entirely wrong of me, as the Minister, to try to influence its approach to its independent role, which is written in statute. That is not to say that we are sitting back and allowing the status quo to go on existing. We are testing, deeply and in great detail, whether Ofwat is fit for purpose and in a suitable condition to go to the next phase. Twenty years after privatisation, it is right for us to examine all aspects of the water industry.

David Gray, a highly respected individual who has great experience in the regulatory world, is carrying out a detailed review. I urge the hon. Member for Copeland and all those who are interested in this fascinating subject to understand the review that is taking place, and the role that Ofwat plays. I am determined that the constituents about whom so many hon. Members have spoken so movingly should be at the forefront of our minds while we consider the issues in question. Ofwat has an important duty to protect and stand up for them, independently of the Government. When the Government get things wrong Ofwat has a duty to tell them so. It also has a duty to ensure that the water companies, which have monopoly interests, are responsible to the people concerned. I take that duty very seriously.

The hon. Member for Plymouth, Moor View (Alison Seabeck), who is no longer here, made a point about water poverty. My hon. Friend the Member for Torbay and others mentioned that there might be some people in the House—I am yet to meet them—who believe that the south-west is full of comfortable people who have moved there in retirement and are relatively wealthy. I know that, largely, the opposite of that is true and that many people and communities suffer high degrees of deprivation. Of course, there are wealthier communities. However, if people assume that any community in the south-west can take such a water bill increase because there is no poverty, they make a fundamental error. That is something I take very seriously.

Yes, I speak to people from the south-west, and, yes, I will listen. That point was raised by my hon. Friend the Member for Totnes (Dr Wollaston). I have listened and will continue to listen to people in the area. I know what an important issue this is and that it is a political as well as a social issue. The matter is fundamental to the concerns that hon. Members have voiced for much too long. I recognise that we must come forward with solutions and, in a moment, I shall talk about how we will achieve that.

I hope that I can address some of the other issues during my remarks and, of course, I remain willing to deal with them. A point was made about the adoption of private sewers. I cannot say precisely when we will introduce proposals on that, but the coalition has a very clear commitment to dealing with that important issue and to ensuring that we do so as equitably as possible. The hon. Member for St Ives (Andrew George) also has a long background in talking about the subject, and I appreciate the support, the many conversations that we have had and the assistance that he has given me on the matter. I accept his point about a default position, and I will follow that up with South West Water and continue to have conversations with him.

My hon. Friend the Member for Camborne and Redruth (George Eustice) has provided me with an interesting idea. I can tell him that officials are crunching his numbers as we speak and that he has contributed some thoughtful suggestions. At this stage, I cannot say how we will take that forward, but I will keep in touch with him. In passing, comments have been made about privatisation. All I shall say is that £90 billion has been invested in the water industry, which is a considerable achievement, and that other Governments have had endless opportunities to reverse what happened 20 years ago. I recognise the very real belief in the south-west that, in the case of that area, not enough thought was given. I will address some of those points, too.

First, I shall discuss the specific issue at hand. Ofwat has announced that average bills for household customers of South West Water in the coming year will increase from £486 to £517, which is an increase of 5.1%. Nearly all that increase is due to inflation, as water bill increases are linked to inflation.

[Dr Wollaston]

May I raise the point that the accepted figure is 8.1% because the figure that the Minister quotes assumes that people will be switching to water meters?

[Richard Benyon]

My understanding is that that is the figure over the piece. However, I am happy to look into that and give my hon. Friend an absolutely clear and unequivocal answer, because it is important that we know that figure. In her earlier remarks, I think she raised the point about why we use the retail prices index rather than the consumer prices index. [Interruption.] Sorry it was not her; it was my hon. Friend the Member for Torbay. Bills have been tied to inflation since privatisation because, when inflation is higher, water companies’ costs increase. As is the case with other regulators, Ofwat uses RPI. Although RPI was higher than CPI this year, it was actually lower than CPI when last year’s bills were calculated, so average bills that year were lower. We can argue about percentage points, but that is an important factor. Let us take that matter forward in our consultation, which I will come to in a moment.

I am acutely aware that nobody wants to see higher bills, particularly in these tough economic times. However, we should not lose sight of the fact that the money raised will pay for £159 million of investment in the region during the next financial year, which will benefit customers. I know that that sounds trite, and I am not diminishing the effect of the increase, but we must recognise that there are also benefits, including £14 million to improve tap water quality, £10 million to repair crumbling sewers and £28 million to further reduce pollution incidents.

[Mr Bradshaw]

Given the severe squeeze on family incomes, would it not have been better for South West Water to have delayed some of that expensive investment and to have frozen the rise? The Minister seems to be giving the impression that the Government do not bear any responsibility for inflation, but it is, of course, his Government who have let inflation rip.

[Richard Benyon]

I chose to ignore the right hon. Gentleman’s earlier remarks about the Government being responsible for the rise in inflation at a time when commodity prices and oil prices are rising. He only has to read the newspapers to see what is happening to food prices and how that is being influenced by so many other different factors. I think I shall move on, because I simply do not accept his point.

[Mr Bradshaw]

Why is inflation in Britain more than twice as high as it is in Germany?

[Richard Benyon]

We could debate that at great length and talk about our reliance on oil, how that might differ from other countries, where we were working from a year ago and the impact of the previous Government’s activities, of whom he was a part. I will be happy to have that debate at another time but, at the moment, I want to talk about the right hon. Gentleman’s constituents and the impact of the increase in water bills. I also want to talk about the actions that are in my power to take to improve that. I am happy to take any interventions that he may wish to make on that.

We have been carefully considering Ofwat’s final advice in relation to the south-west, which I only received in January. These are difficult issues, and, as has been said, there are no simple solutions. It is essential to ensure that our proposals are workable, fair and affordable, particularly in the current economic climate. We hope to issue our consultation on the Walker review soon, but it is essential that we get this right.

Hon. Members have discussed the differential between metered and unmetered bills. The average bill for a metered household in the south-west is around £400, while the average bill for an unmetered household is around £720. Hon. Members have given examples where both types of bill are considerably higher than those averages. That is because—as we have heard—70% of households in the south-west are metered. Average metered and unmetered bills reflect the estimated water consumption between those households. Unmetered households pay more, because, on average, they use more water than metered households. As hon. Members are aware from previous debates, bills vary between companies. That reflects the cost of providing water and sewerage services in an environmentally sustainable way in different regions with different circumstances.

In all cases, Ofwat—as the independent economic regulator of the water industry—ensures that bills are no higher than they need to be to finance the investment required to provide water and sewerage services. My hon. Friend the Member for Totnes and others have discussed how unfair it is that 3% of the population pay to clean up 30% of the coastline, and I know that that is the prevailing view in the south-west. The Walker review looked closely at whether environmental improvements are public or private goods and who should pay for them. Anna Walker concluded that spending on environmental improvements, such as cleaner beaches, is largely required to make sure that the disposal of sewage does not harm the local environment and that the benefits are mainly local. In particular, having a sewage system and beautiful clean beaches delivers huge benefits to the region through tourism. I know that there are many people—I am one of them—who enjoy the beaches and the coastline, but who do not pay those bills. The complication of trying to devise a scheme where we can hypothecate is something that not just I, but my predecessors and many others in this House, have sought to tackle.

Support is available now for low-income and vulnerable households. Currently, the national WaterSure tariff caps the bills of qualifying households at the average metered bill for their company. Households qualify for WaterSure if they are metered and in receipt of means-tested benefits, and either have three or more children living at home under the age of 19, or someone in the household who has a medical condition that necessitates a high use of water.

Individual cases were raised today. As they were described to me, those people should qualify, but are not receiving WaterSure. I want to take those cases up. My hon. Friend the Member for Totnes raised a case about a multiple sclerosis sufferer. I would like to know whether multiple sclerosis has an increased water requirement, and why that case is not covered by WaterSure. That is something that we may have to look at through the consultation that we are about to undertake.

WaterSure ensures that such households do not cut back on their essential use of water due to fears about the size of their bill. This year, some 31,200 households are benefiting from WaterSure and approximately one in three of those households live in the south-west. We are looking at whether WaterSure should offer a more generous cap, which could cap bills at the lower of the national average metered bill, or the company average metered bill, as recommended by Anna Walker. That would deliver substantially lower bills for those households that live in high-cost areas. We are also looking at whether it would be more fair to share the cost of WaterSure across customers in England, rather than fund WaterSure at the company-specific level. We will be inviting views on that when we publish our Walker consultation.

Some have asked why the Government have not made those changes already. We have been considering them alongside Ofwat’s advice on tackling the problem of high water bills in the south-west. I received Ofwat’s final advice only in January. I am sure that hon. Members agree with me that we must ensure that our proposals are workable, fair and have the support of interested parties. I am determined, as I have said frequently—I make no apologies for saying it again, although I wish that we had got there by now—to get this right.

[Andrew George]

On the various alternatives, I know that each one is not easy, as the Minister has made clear. He is clearly very seized of the challenges of coming to an equitable solution. Does he not agree with me that in having a solution that is simply within the company itself—a social tariff within the company boundaries—there would be inevitable unfairness, wherever the line was drawn? People on moderate incomes, who would have difficulty paying the bill, would be subsidising other people in the same company area, when they are already suffering from very high water bills.

[Richard Benyon]

I entirely accept what my hon. Friend has said, which is why I am sure that in the south-west it would be more popular for us to use the national average, which is one of the suggestions that we will be taking forward.

We have started to prepare our guidance on company social tariffs under section 44 of the Flood and Water Management Act 2010, which will enable companies to introduce social tariffs within their own areas to help households that would otherwise struggle to pay their bills in full. We hope to issue our guidance in the autumn, so that companies can consider it ahead of the 2012-13 financial year. Indeed, this afternoon the Department for Environment, Food and Rural Affairs is hosting a discussion with water companies and others to exchange views on what the guidance needs to cover. South West Water is participating in that discussion. I understand that it is very keen on the possibility of bringing forward a company social tariff. It has indicated to me that changes to how it levies sewerage charges could potentially raise about £7.5 million per annum to fund a company social tariff without adding a penny to household bills. That would potentially reduce the bills of 100,000 households in the south-west by about £75 per annum. I strongly encourage the company to look favourably at that possibility.

The hon. Member for Copeland asked when we are going to implement the Walker review. The Walker review identified a number of options. Implementing the review would involve implementing all those options, some of which were more-or-less dismissed by Anna Walker herself. She did, however, identify a number of options that would help to address the problems associated with high water bills in the south-west, in addition to proposed changes to WaterSure. Ofwat has been exploring those options, and we are currently considering the information that it has provided. Some options could potentially benefit all households in the south-west, and not just those on low incomes, which should address some of the comments that have been made today. Options include a one-off, or annual, adjustment funded by the Government, an annual adjustment funded by water customers nationally, a range of tariff options, rebalancing charges and the sale of surplus water. Decisions will be taken imminently, and we will set out our proposals for the south-west in our Walker consultation.

I recently received Ofwat’s final recommendations. I can address the concerns raised by the hon. Member for Copeland and others by saying that we will be taking those forward very soon. I should also mention some of the initiatives that South West Water is taking. Since 2007, its WaterCare scheme has helped households in debt by offering them a benefit and a water tariff check including, if appropriate, a meter. Metered customers also receive a free home water audit and simple low-tech water-saving devices. I have seen those schemes in operation, and they are successful in reducing the amount of water that households use, with minimal impact on their lives. In fact, in some cases there is an improvement, and I applaud any roll-out of such schemes.

South West Water recently announced that it is enhancing its current WaterCare scheme to WaterCare Plus. That will include home energy audits and advice on claiming grants. In addition, in the coming year, it is investing £1 million in its FreshStart programme to offer advice to customers with general debt problems. Both the WaterCare Plus and FreshStart schemes are fully funded by South West Water and do not impact on customer bills. The company will also be making free water-saving packs available to its customers, and it will be promoting them through the local media this month and next. I very much welcome and support those initiatives.

Metering offers an opportunity for some households to save money. Ofwat estimates that three in 10 single pensioners, working-age adults who live alone and, to a lesser degree, pensioner couples in the south-west are currently unmetered and could expect to see their bills go down, if they were metered. South West Water has already undertaken two advertising campaigns—in Plymouth, and in Exeter and Torbay—aimed at encouraging low-income unmetered households to look at whether a meter can reduce their bills. I believe that more can be done to build on that. For example, all unmetered households can investigate whether a meter can save them money by using the Consumer Council for Water’s water meter calculator, which is available at the Consumer Council for Water’s website.

May I reiterate to my hon. Friend the Member for Torbay, who secured the debate, and to other hon. Members for whom the issue is of great concern to them and their constituents, that the Government are very aware of the problem of high water charges in the south-west? Support is already available to help the vulnerable and low-income households with their bills. We will build on that, and our Walker consultation will point the way forward. I hope that hon. Members will bear with me for just a little while longer. I will, of course, be happy to meet any hon. Members with constituencies in the south-west to discuss this and to ensure that they have the understanding that they need to communicate our consultation, when we bring it out. I again commend my hon. Friend the Member for Torbay for bringing this matter to the Chamber today.

[Mr David Amess (in the Chair)]

Order. If no other hon. Members want to contribute to this debate, the sitting is suspended until the Minister arrives for the next debate.