§ The Secretary of State for Environment, Food and Rural Affairs (Margaret Beckett)
I have today issued my Principal Guidance to the Director-General of Water Services (Ofwat) on policies affecting the 2004 Periodic Review of water price limits in England. The review will produce price limits, set by Ofwat, for the years 2005–10.
This guidance is the second public contribution to the 2004 Periodic Review. My Initial Guidance was published in January 2003.
This Principal Guidance sets out my main decisions and views on a wide range of relevant policies and legal requirements which bear on price limits. It takes account of the information and advice so far to hand, including the proposals and costings put forward by companies in their draft business plans in August 2003, views on these cost estimates from Ofwat, further policy advice from Ofwat and from the other regulators, and the views of customers and other interested parties.
The main areas for decision by Government now are the drinking water and environment programmes. Previous Periodic Reviews have raised the standards of our drinking water and of water in the environment. It is our policy to continue these improvements, while taking account of the effects on customers' bills.
Companies' programmes must deliver existing commitments including our EU obligations and other statutory obligations. These will produce very significant benefits to the environment and for customers. I have also selected for inclusion in companies' final business plans and Ofwat's draft price 107WS limits, some further programmes that go beyond what is strictly required under EU commitments, and which appear to offer good value for money.
Two existing long-term programmes to improve customers' drinking water will be completed during the 2005–10 period. One is a programme of improvements to remove contaminants at water treatment works to ensure that they can continue to provide wholesome drinking water supplies. The other is a 20-year programme to replace or reline old, corroding water mains. Work will continue to lower yet further the level of lead in drinking water.
The programme of environmental improvements to our inland and coastal waters recognises the need to build on the achievements already made and start work towards the demanding future objectives set by the EU Water Framework Directive. But it also stands in its own right and addresses a range of issues including the need to improve further the condition of water and wetland sites of special scientific interest, bring more waters up to the standards required for fresh water fish and improve bathing waters.
The whole programme must be carried out at the minimum cost to customers. The process of challenge and refining has already substantially reduced the potential programmes. This process has yet some way to go and I would expect costs to be driven down further. My Department will continue to work with the Drinking Water Inspectorate, English Nature and the Environment Agency on how they should translate the guidance into regulatory requirements. I expect those regulators to work with companies to identify how legal commitments and the other policy outcomes specified in this guidance can be delivered by pragmatic cost-effective solutions.
It is then for Ofwat to challenge the costs that companies need to deliver the requirements of the regulators and the policies in this guidance. I am confident that Ofwat will scrutinise and challenge with equal attention all aspects of companies' costs underlying their business plans, including the costs that companies assign to delivering the commitments and policies set out in this guidance.
I am also clear that achievement of future water quality standards will require significant action by a much wider range of actors than the water industry, including land managers as well as others who are responsible for diffuse water pollution. As part of this process, we will be shortly publishing an action plan outlining a full range of options for addressing diffuse pollution from agriculture.
The policies contained in this guidance are strongly informed by the interests of customers. I am concerned about the effect of water bills, especially on those least able to pay. I will be reviewing the way in which lower income households are helped with their water and sewerage charges.
My Department will work with the regulators to refine the cost benefit analysis and will also prepare and publish a regulatory impact assessment of the improvement policies in this guidance that go beyond existing commitments and the costs to customers that they imply. These processes will inform the final guidance.108WS
In the light of companies' final business plans, the draft price limits published by Ofwat and their implications for customers' bills, as well as any further advice from the regulators and the regulatory impact assessment, I shall issue my final guidance in Autumn 2004.