§ Jacqui Smith (Redditch)I am glad to have this opportunity to raise an issue that is causing significant financial problems for community and public bodies in my constituency, throughout the county of Worcestershire and I suspect the entire area covered by Severn Trent Water. I draw the Minister's attention particularly to the effects of the change in charging for surface water drainage for non-domestic customers that has been implemented by that company. I ask the Minister to ensure that the Director General of Water Services considers this change and its disproportionate and damaging effects in detail.
The duties of the regulator, as laid down in the Water Industries Act 1991, state that the director general
has a duty to customers to ensure that no undue preference is shown and that there is no undue discrimination in the way companies fix and recover charges, and that rural customers are protected".My argument is that Severn Trent Water's surface water drainage charging policy does, and will, discriminate against non-domestic customers who are least able to pay and that it will also disadvantage rural non-domestic customers.Surface water drainage is part of the sewerage service offered by water companies and, until 1990, Severn Trent Water charged all its customers on the basis of rateable value. Since then, new customers and those with substantially altered properties have been charged on the basis of surface area. The company is now in the midst of a three-year plan to convert all existing customers from the rateable value basis for calculating charges to a system based on the total site area that the properties occupy. That transfer of the vast majority of non-domestic properties is causing the difficulties that I shall address. It is also important to note that my research and contacts with other water companies suggest that no other water company has chosen to make that change.
As the director general points out in his "Report on Tariff Structures and Charges 1999-2000", companies currently charge for surface drainage in a variety of ways. For example, they charge as part of foul sewerage charges through the volumetric tariff, as a flat fee within the fixed charge or through a combination of both, by reference to the rateable value of the property, or via a charge related to the surface area that drains to the public sewer. Severn Trent Water appears to be the only company that has chosen the last option.
I accept that there appears to be a certain logic in charging for drainage on the basis of the size of the area drained. However, as I will demonstrate, the results of that change in practice have been far from fair or logical. The director general may have foreseen some of those difficulties in his 1991 report on water payments when he said that, although surface and highway drainage raised a number of charging issues, recovering the costs associated with those services by reference to the volume of water delivered to customers—that is, instead of the surface area—might be simpler than, and just as good as, other approaches. When I look in detail at the effects of Severn Trent Water's decision, I believe increasingly that the director general was right.
I want to consider in detail the implications of those changes on two types of customers: first, village halls and community centres; and, secondly, schools within 621 Worcestershire. I was first alerted to this issue about a year ago when a village hall in Feckenham in my constituency contacted me. Prior to September 1997, it had paid water bills on the basis of its rateable value. In September 1997, a meter was fitted and it therefore moved to the new site area method of calculating surface water drainage. The effect of the change was a 310 per cent. increase in the charge for sewerage services. The new sewerage charge would have been more than the total water and sewerage bill before the change and the surface water drainage element was by far the largest component of the bill. We should remember that the charge was levied for the service of draining rain water from a property. Can that really be the most costly part of the provision of water and sewerage services?
An administrative difficulty associated with the change became evident at this point. After the village hall appealed to Severn Trent Water, the company surveyed the site properly and agreed that some parts did not drain into its sewers and could therefore be removed from the site area calculation. To the company's credit, it has clearly been willing to put right the many mistakes made in calculating the surface area. However, those mistakes occurred originally because the work of estimating the surface area was put out to contractors who referred simply to ordnance survey maps and made no attempt to determine whether any parts of the total surface area, such as playing fields or lawns, did not drain to the areas served by Severn Trent Water. Furthermore, although the site area taken into consideration was reduced, the Feckenham village hall was left with a 165 per cent. increase in its sewerage charge.
Severn Trent Water and Ofwat have made much of the company's willingness to consider an abatement when part of a site does not drain into the company's sewer. However, for the vast majority of the community and public services affected, that will be just a drop in the ocean—or should I say the sewer—compared with the significant effect of the shift from rateable value to surface area charging.
Following my intervention and pressure from the village hall committee, the Feckenham village hall received a stay of execution as Severn Trent Water agreed that the basis of its surface water charging could revert to rateable value. However, without a change in policy, the village hall volunteers will have to meet the increase next April. The Hereford and Worcester community council and Action with Communities in Rural England—ACRE—have also highlighted the difficulties caused by the company's policy, providing examples of one Worcestershire village community centre that is facing an £800 increase in its water bill and another village hall that will see its bill increase from £550 to £2,000 per year.
Following publicity about the issue, I was contacted by Worcestershire county council which expressed its concern about the effect of the change in water charges on its public buildings, particularly schools. Due to the administrative difficulties and complications inherent in the new system and disputes about the surface areas that should be included in the calculations, Worcestershire county council only recently received detailed information from Severn Trent Water about the effects of the charging changes. The overall effect of this change alone will increase water bills in the county by nearly £200,000. 622 One school in Inkberrow in my constituency faces a yearly increase of £2,560 or 1,106 per cent.—in its water bill. Another school faces an increase of 779 per cent. and one of the smallest first schools in the town faces an increase of £787—or 449 per cent.—in its water bill.
§ Mr. David Lock (Wyre Forest)I am grateful to my hon. Friend for giving way. As a fellow Worcestershire Member of Parliament, I assure the House that this problem affects the whole county. Does my hon. Friend agree that the Government did not allocate extra money to health and education in order to top up Severn Trent Water's dividend? Does she agree also that this problem affects not only schools and community associations but commercial premises? A chain manufacturer in my constituency faced a 250 per cent. increase in his water bill. After we argued the case with the water company, the increase was reduced to 6 per cent. Throughout the Severn Trent Water area, businesses face rising water bills, and the jobs of our constituents are under threat merely so that that company's already massive profits can increase.
§ Jacqui SmithMy hon. Friend makes a good point, and I know that he has been active in raising the issue.
My particular concern is schools. In my constituency, water bills for schools will increase by a total of £24,000 next April. As my hon. Friend pointed out, that money must come from tight education budgets when, as we all agree, it should be spent in the classroom to improve standards.
When I wrote to Severn Trent Water and the Department of the Environment, Transport and the Regions last year about my concerns, both pointed out that any change to charges will result in winners and losers. I agree, but in this case we must consider who will be the losers and the disproportionate extent to which they will lose.
§ Mr. Richard Burden (Birmingham, Northfield)Like my hon. Friend, I have raised this issue with Severn Trent Water and Ofwat and received the same reply about winners and losers. The problem does not relate to rural areas alone, although my hon. Friend rightly stressed their importance, but to urban areas, commercial premises, schools and public buildings. Surely we need more research to find out who are the losers and whether some are subject to undue discrimination. I asked Ofwat and Severn Trent Water what research they did before embarking on the policy, and I await the response with interest.
§ Jacqui SmithMy hon. Friend makes a powerful point, and I shall refer to that later in my speech. I am grateful that hon. Members on both sides of the House have raised the problems caused by the charges set by Severn Trent Water.
The company has argued that the change will be revenue neutral, but if that is the case, some of its non-domestic customers must think that Christmas has come early. Of course, anyone who substantially gained from the change would be unlikely to contact their Member of Parliament to complain, but given Severn Trent Water's assertion and the village halls and schools 623 that are facing the significant losses that I have outlined, it is, as my hon. Friend the Member for Birmingham, Northfield (Mr. Burden) said, incumbent on the company to provide evidence to the director general about the customers who will gain from the change and the extent to which they will benefit.
To return to my point about the nature of the losers, I am concerned that the losses appear to be hitting community and public facilities. The effect of the change is regressive in that it hits services that have little ability to find money to pay the increased charges. The determining factor for the organisations that have been hit badly by the change is the relationship between the rateable value of their property and the surface area that it occupies. In other words, the losers are the non-domestic customers whose property has a low rateable value but a high surface area. Those properties tend to be public buildings and they are predominantly in rural areas.
It is not only the nature of the losers that causes concern but the extent of their losses. Increases of hundreds of per cent. in sewerage charges are not isolated occurrences. It is not reasonable for any customer of a utility to face such enormous increases. Those increases are particularly unreasonable when they will also have social costs. Furthermore, the distorting effect of the change is demonstrated by the large proportion of the overall bill that surface water charges now constitute for many non-domestic customers. That cannot be a true reflection of the costs involved, which the director general set as a priority for charging schemes.
Having outlined the difficulties being caused by the change to surface water charging by Severn Trent Water, I ask my hon. Friend the Minister to undertake to instruct the water regulator—the Director General of Water Services—to consider in detail the effects of the change, with particular reference, as I have already said, to where the losses occur, the disproportionate nature of the increases and the extent to which the new system fulfils his demand that charges should more clearly reflect the costs of delivering the service.
I am encouraged that my hon. Friend will be able to do that following the extension of the director general's powers to approve charging schemes introduced in the Water Industry Bill. I am further encouraged by a letter sent to ACRE in February in which my right hon. Friend the Minister for the Environment stated:
Water companies will have the prime responsibility for considering and proposing their charges schemes. However, these will be subject to approval by OFWAT, and Ministers will have powers to ensure that particular issues are addressed in charges schemes".Later in the letter, he stated:where charges for sewerage are covered by companies' charges schemes—including, for instance, surface water drainage—it will be for the Director General, under the provisions of the Bill, to consider whether to approve such charges schemes.The director general should outline in his consideration whether Severn Trent Water should allow non-domestic customers to opt for their surface water charges to continue to be based on rateable values. That would be appropriate given the repeal of section 145 of the Water Industry Act 1991 in the Water Industry Bill. In its literature, Severn Trent Water has used the need to comply with section 145 as the justification for the change. Now that the need has been removed, it should offer customers the option to stay with rateable values for surface water charging.624 The social costs caused to non-commercial and non-profit-making organisations by those large increases in water charges highlight the demand of organisations such as ACRE that a third tier of water charging should exist for such customers, who fall between commercial and household customers. Severn Trent Water has recognised that there is a distinction to be made because it was willing to defer the introduction of the higher charges for customers and properties that it defined as "sensitive". Those included registered charities and any other non-commercial or non-profit-making organisation. That sensitivity will not disappear next April when Severn Trent Water intends to impose the increased charges. I hope that my hon. Friend the Minister agrees that the company should recognise the particular position of those community and public bodies and find a third way to deal with their water charges.
In conclusion, this change to surface water charging will impose significant social costs; it will hit those who are least able to pay; it is administratively difficult for all involved; and it will drain resources from vital public services such as education. I hope that my hon. Friend will join me and other hon. Friends in resisting the change and seeking a fairer solution.
§ The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Ms Glenda Jackson)I congratulate my hon. Friend the Member for Redditch (Jacqui Smith) on securing this debate and for setting out clearly why surface water drainage charges are a major local concern. I thank her for her generosity in affording time to my hon. Friends the Members for Wyre Forest (Mr. Lock) and for Birmingham, Northfield (Mr. Burden) to express the concerns of their constituents which should be brought to the attention of the House.
Water is an essential service, vital for life and health. The Government believe that a charging system must reflect that fact, ensuring that customers are not deprived of water for drinking, washing, cooking and sanitation. The principles behind our policy are to provide a system of charges that are fair and affordable, particularly for vulnerable customers, to protect public health, to ensure that water supplies are used in a sustainable way and to protect the aquatic environment. We believe that consumer choice should lie at the heart of the new system.
Our consultation document, "Water Charging in England and Wales—A New Approach", set out a number of proposals that we believe offer customers greater fairness and choice. We are now taking our proposals forward through the Water Industry Bill.
It cannot be right for anyone to be deprived of essential water because they cannot afford to pay their water bill. The loss of water supply can have a severe effect not only on the individual consumer but on wider public health concerns. The Water Industry Bill therefore prohibits household disconnection, and ensures that premises providing key services to the community cannot be deprived of their water supply because of non-payment. That provision extends to institutions such as schools, hospitals and nursing homes and children's homes.
We also recognise that some customers—those with high essential use of water—could suffer severe hardship if required to pay on the basis of a measured bill. We propose to ensure that targeted and effective protection 625 is available for vulnerable households. Those entitled to protection should be large families on low incomes and those with medical conditions requiring a high use of water, although we would be happy to consider targeted proposals to protect other groups if a case could be made that they would suffer severe hardship.
We wish to extend customer choice in water charging as far as is practicable. Household customers should have a right to remain on an unmeasured charge when they are using water for essential purposes only. In ruling out universal compulsory metering, we have accepted that meters may suit the circumstances of some customers with low water use. Therefore, household customers should be able to opt for a meter, to be installed free, with the protection that those who do so may revert to an unmeasured charge within one year. In addition, the Bill will remove the deadline for use of rateable values in calculating charges. That fulfils our commitment to continue permitting water companies to use rateable value for charging, avoiding the need for significant upheavals in charging arrangements.
As my hon. Friend the Member for Redditch said, the Director General of Water Services is responsible for economic regulation by controlling companies' overall price limits, ensuring that changes to charges, such as those that my hon. Friend has mentioned, cannot be used as a device to boost company income and profits. The director general also has a responsibility to ensure that charges do not reflect undue preference for, or unduly discriminate against, any class or group of customers. However, the director general does not currently have more specific powers over the individual elements of companies' charges.
The Water Industry Bill will give the director general new powers to approve water companies' charging schemes, and will enable Ministers to give the director general guidance on the exercise of those powers. That represents an important new assurance for customers, and will put greater pressure on companies to consider carefully and thoroughly the impact of their proposals. It is essential that water companies create charging arrangements that are responsive to their customers' concerns and reflect local needs.
Severn Trent Water—as my hon. Friend the Member for Redditch said—charges households for surface and highway drainage by reference to the rateable value of the property. Properties without a rateable value pay a charge related to property type. Severn Trent Water—again as my hon. Friend stated—has embarked on a programme of charging non-household customers on a site area basis. Its intention is that all non-household customers will be charged on that basis by March 2000.
Anglian Water, Welsh Water and South West Water charge for surface and highway drainage through volumetric charge. North West Water, Northumbrian Water, Southern Water, Thames Water and Wessex Water include surface and highway drainage in their standing charges. Northumbrian Water is the only company other than Severn Trent Water that charges non-household properties by a method different from that applied to households. Those companies use a method that refers to rateable value rather than a site area based charging system.
626 The Government understand the concerns that have been expressed about Severn Trent Water's method of charging non-household properties for surface water drainage. Unfortunately, as my hon. Friend the Member for Redditch had occasion to say, any change to underlying charging methods will be likely to throw up winners and losers. Planning how to handle the consequence of change, including identifying likely losers and developing transitional arrangements as necessary, must be a key part of considering the case for change.
It appears that, under a change to charges based on surface area, premises with high rateable values but small sites will gain, but premises with low rateable values and large sites will lose. We understand that Severn Trent Water has agreed to delay the introduction of a site area based charge in some cases on the ground of merit. We also understand that, where properties have significant areas of grass, garden or car park without a drainage system that connects with the main drain, it has agreed to remove those areas from the measured assessment of those properties.
Anyone faced with large increases as a result of the change introduced by Severn Trent Water should contact the company with a view to establishing that the whole of their site indeed drains to the public sewerage system, and the possibility of phasing in the increase in charges. If they are not satisfied with the company's response, they may wish to take up the matter with Ofwat's central customer service committee. That committee has the duty to represent the views of water customers and to investigate their complaints.
Surface water drainage is not a service provided by sewerage undertakers to every customer. Many customers are not aware that they pay such a charge. Much surface water soaks into the ground where it falls, or flows into soakaways on the premises rather than public sewers. Even though in such cases some companies offer a voluntary rebate, rebates are not universal and the onus is on customers to seek them out.
Sewerage charges on customers' bills seldom identify separately the three elements of charge: foul water, surface water and highway drainage. Customers do not, therefore, have full information on the cost of each of those services. The Government believe customers should be aware of all elements of their bills and would expect water companies to ensure that they are separately identified.
The Director General of Water Services also wants more transparency in the way in which customers are billed. Companies which charge for surface and highway drainage through a fixed charge have been asked to show the amount separately on bills, and all companies have been asked to provide, at the very least, an explanation of their charges.
In principle, we consider that all customers who can demonstrate that they do not receive a specific sewerage service should be entitled to an appropriate abatement of charges. Therefore, when customers are only connected for foul drainage, charges levied by companies should not cover surface drainage. In such circumstances, the director general would like companies to provide abatements in charges. The Government support that approach, as we 627 recognise that surface water drainage for some users can make up a substantial element of the overall charge—a point most tellingly made by my hon. Friend the Member for Redditch.
Under the legislative framework that we inherited from the previous Government, water companies have considerable freedom in deciding how to levy charges on customers, including widespread powers to insist on compulsory metering, as well as the method of calculating surface water drainage charges.
§ Mr. LockWhen the Minister for the Environment contacts the Director General of Water Services on—quite rightly—the structure of abatements in charges for properties that have soakaways, will he ensure that the forms that companies issue to customers who want to apply for such abatements are simplified? I recently came across a case of Severn Trent Water requiring detailed plans—which the average householder simply could not produce—to prove that the customers qualified for an abatement to which they were clearly entitled.
§ Ms JacksonI am grateful to my hon. Friend for making that point. It is debatable whether I have ever heard anything more ridiculous than Severn Trent Water's requirements of its customers in that regard, particularly as I would imagine that many of its customers are 628 somewhat elderly and would have some difficulty in reading any form. Being required to discover plans and forward them is absurd.
We are taking action to deliver our manifesto commitment to pursue tough and effective regulation of the water industry in the interests of customers and the environment. The Water Industry Bill that is before Parliament will make the charges of water companies subject to tighter regulation. The Government plan to consult soon on the draft guidance that Ministers will give to the director general on the use of his new powers. I shall ensure that a copy is sent not only to my hon. Friend the Member for Redditch but to my hon. Friends the Members for Wyre Forest and for Northfield as part of the consultation process.
I am sure that the director general will have noted the issues debated today, and will bear them in mind when considering future charges in the Severn Trent Water area and, indeed, the rest of England and Wales. I have little doubt that, if the directors of Severn Trent Water do not notice this debate, they will have it drawn to their attention.
It being before Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.
Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.