Household Water Charges

– in Westminster Hall at 3:59 pm on 23rd May 2007.

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Photo of Andrew Smith Andrew Smith Labour, Oxford East 3:59 pm, 23rd May 2007

I requested the debate because I think that it is wrong that many thousands of people, especially pensioners but also many residents of tower blocks and one-bedroom flats, are paying over the odds for their water in my constituency and across the country. That scandalous situation has been drawn to my attention by pensioners in housing association accommodation in Lucas place and Remy place in Iffley village, Oxford, and by residents of one of our tower blocks. In both cases, constituents felt that they had had poor service from Thames Water, and that—

Sitting suspended for a Division in the House.

On resuming—

Photo of Andrew Smith Andrew Smith Labour, Oxford East

I was saying that the constituents who drew to my attention the position on household water charges felt that they had received poor service from Thames Water, and that advice given to them was inaccurate and incomplete.

One of the residents whose case I took up applied for a meter in May 2005 and was refused in July 2005. It was not until I took up her case in March this year that she was put on the average household charge. Her own telephone calls to Thames Water did not result in her being given clear or accurate information. Now she is on the average household charge, which saves her a bit in comparison with the water rates, but she is still paying over the odds, because the average household charge operated by Thames Water is the average of all non-business metered users and does not reflect the lower consumption that is typical of someone in her circumstances.

My review of my constituent's case and many others points to several things that need to be done. First, much clearer, more consistent rules on the operation of the water charging regime are required throughout the country; secondly, clear advice should be given to residents on the options that are open to them; and thirdly, for those who cannot have meters fitted, there is a need to have a charging regime as of right that takes account of their household type.

People who cannot have a water meter installed, whether because it is technically not possible or because their landlord will not agree to it, are eligible to choose to go on an average household charge. In most cases, that will save them money on their water charges compared with standard water rates. The savings can amount to a pound or two a week or, in some cases, more. The problem is that they have to apply for a water meter first, and then Thames Water tells them that they cannot have one but that they can go on to the average household charge.

The average household charge is badly publicised, so many people do not know about it. Water companies and landlords should be obliged to advise customers and tenants of their rights. People should be put on the household charge automatically if they cannot have a meter but would be better off not paying standard water rates. Hundreds, if not thousands, of residents in Oxford are losing out, and there must be hundreds of thousands losing out across the country.

The water regulator has responsibilities as well. I looked on the internet for the Ofwat briefing sheet on Thames Water charges—I have a copy with me that I will gladly leave with the Minister afterwards. There is no reference in it whatsoever to people going on to the average household charging scheme if they cannot get a meter.

As the experience of my constituent illustrated, the situation is especially unfair to Thames valley water customers who are pensioners. Even if they get on to the average household charge, no account is taken of household size, so they still pay over the odds. The residents of Lucas place and Remy place in Iffley village whom I mentioned earlier do not have their own washing machines, for example, but they still pay the same average household charge as much larger families in bigger properties.

It is not just pensioners who lose out. A letter was written to The Guardian "money" page last year by someone living in a one-bedroom flat in London. Their water bill, which was based on rateable values, came to £246.68 for the year. They asked for a water meter to be installed and were told that that was not possible. They were put on the average household charge of £244.78—a grand saving of £1.90 a year. However, as they pointed out, the Thames Water website said at the time that the metered charge for a one-bedroom flat would be only £148 for low consumption or £175 on average, so the complainant reasonably felt that they were being done out of at least £70 and possibly £107 a year. When challenged by The Guardian adviser, Thames Water said that any change would be too bureaucratic and costly to administer. Some other water companies, for example Anglian Water, do adjust the charge according to the type of property. If some companies can do it, why cannot Thames Water?

The water regulator Ofwat approved the charging policies for the water companies, so it too has let down pensioners and people in small flats. To be fair to Thames Water, it obviously realised that its position was unsustainable and in an e-mail sent to me after I called this debate, it told me that it will introduce a tiered system of average household charges from 1 April next year. If that fairly addresses the situation of pensioners and others in small properties, it is to be welcomed. However, for many customers of Thames Water, the system will be qualified by the knowledge that it is an admission that they have been overcharged for years. The new charging regime must be approved by Ofwat, but given that it approved the previous manifestly unfair regime, it will need to make an extra effort to show that it is insisting on a fair system for low-consumption customers who cannot get meters.

Section 142 of the Water Industry Act 1991, a copy of which the Library has provided—I am sure that the Minister keeps a copy close by him at all times—states that, under the terms of their licences, water companies must ensure that

"in fixing or agreeing charges...no undue preference is shown to, and that there is no undue discrimination against, any class of customers or potential customers".

I am not qualified to say whether the practices of Thames Water and the other four companies that operate a fixed assessed charge at the average metered level have breached the letter of the law, but they have infringed its spirit. Pensioners in shared blocks are the class of customers who have systematically lost out. Ofwat information note 20 explains the duty that section 142 of the 1991 Act refers to in these terms:

"Any charging method should be fair. The Director has a duty to protect the interests of customers by ensuring that there is no undue discrimination or preference in a company's water and sewerage charges. This means that a customer's bill should, as far as practicable, reflect the costs which that customer imposes on the water and sewerage systems for a supply of clean water, disposal of dirty water and draining surface water from the property and the highways".

That makes it surprising to me that Ofwat has accepted the undifferentiated average household charge for as long as it has.

First, I should like my hon. Friend the Minister to provide an assurance that he will personally look into these matters and use every power at his disposal to obtain a clearer, fairer and more consistent system of entitlement for those who cannot have water meters, so that pensioners do not pay over the odds. Secondly, I urge him to find a means, and to legislate for one if there is none to hand, for water customers to have the right to get accurate information on the charging options open to them, with redress where that does not happen. Thirdly, I should like him to discuss with his colleagues who have responsibility for housing what obligation there is on landlords to inform their tenants of their rights in respect of water charges. After all, this is quite a complicated issue and someone only has to say the words unmetered average household water charge and most people's eyes will glaze over.

Lots of pensioners, tower block residents and one-bedroom flat tenants have been overcharged by hundreds of pounds for their water consumption over many years-money that many people on modest incomes can ill afford. Unlike other utilities, water is a local monopoly, so people cannot go somewhere else for their water, which places more of a duty on the Government and the House to ensure that unfair charging practices are ended and justice is done.

On an entirely different matter, I could not complete a speech today without wishing Liverpool every success in the football this evening.

Photo of Ian Pearson Ian Pearson Minister of State (Climate Change and the Environment), Department for Environment, Food and Rural Affairs 4:25 pm, 23rd May 2007

As always, my right hon. Friend Mr. Smith makes a powerful and eloquent case, and I congratulate him on securing a debate on this issue. We all have to pay for our water and sewerage services, and I agree that it is important we have a fair system for doing so. Assessed or averaged charges are a small but significant part of the wider issue of water charging policy, and I am grateful for the opportunity to highlight what the Government are doing in that respect.

I will briefly set out the background to why the assessed charge exists—some of that background was outlined very well by my right hon. Friend. About two thirds of properties in England and Wales are unmetered and a third are metered. That figure is growing at around 2 per cent. a year, mainly through customer choice. The Government believe that metering is a fair way to charge for water, and it is the norm in most of Europe. Since 2000, all domestic customers have had the option of paying their water and sewerage bills according to the volume that they use. Thus the majority of households can have a meter fitted at no cost to themselves. Many customers would pay significantly lower bills if their property was metered, especially small and single-person households, which include many pensioners. It is important that customers know that the option is available to them, and companies should regularly publicise it.

During the parliamentary passage of the Water Industry Act 1999, we were at great pains to ensure that tenants and owner-occupiers could take advantage of the right to a meter. If a tenant is responsible for paying the charges, they are the consumer and have the right to a meter. Under the 1999 Act, tenancy agreements cannot block the right to a meter.

There is a separate issue of who the consumer is and who pays the bill, and my right hon. Friend raised that. Clearly, if someone is not paying the bill, they do not have the right to pay it in a particular way. Where the landlord is responsible for paying the bill and they recover their costs from the tenant, perhaps as part of a service charge, the landlord is the consumer. The landlord has the relationship with the water company and is the party who can apply to have a meter fitted. That can apply to various tenancies, including sheltered accommodation. I hope that has clarified who pays and who has the right to have a meter fitted.

However, as my right hon. Friend clearly said, in some homes, the cost of installing a meter would be unreasonable and it would be unpracticable to fit one. Ofwat is the economic regulator of the water industry and defines what it believes to be an unreasonable cost to be met by customers. Meters are generally installed at the boundary of a property. However, where companies need to split supply pipes between properties, excessive costs can arise—for example, in homes with shared water supply pipes or in flats. Therefore, in many cities, including Oxford, a number of households are currently unable to have meters fitted.

I hope that the number of households affected will come down as new technological solutions are developed; but in the meantime, we believe that customers who are affected and who have asked to change should not have to stay on their current unmeasured charge. The assessed charge was developed for those customers. Under current legislation, it is only those customers who are eligible, and the assessed charge is very much a fall-back option. None the less, as my right hon. Friend has clearly said, there are issues to be addressed and I recognise that.

Companies must state what their assessed charge is in their charges scheme, which is a public document available directly from companies or on websites. As my right hon. Friend said, those schemes are approved by Ofwat every year. Companies must charge their customers according to their charging schemes. The Secretary of State can give guidance on matters that Ofwat should take into account in approving charging schemes.

In 2000, we issued guidance stating that different companies may put forward different proposals for charges in specific circumstances, depending on local views, priorities and concerns. The guidance gave examples of charges that could work, that are in line with the average measured charge for a company or that bear as much relation as possible to the volume of water that a customer is likely to use. However, it is for individual customers and Ofwat to decide how they set those charges. I am aware that the types of assessed charges differ from water company to water company.

Photo of Andrew Smith Andrew Smith Labour, Oxford East

In my contribution, I questioned the variability to which the Minister is referring, because I think that there is a case for consistency, especially where pensioners are concerned. However, does not that variability make clear publicity all the more important? Residents have a right to redress and to know what they are entitled to. Often the experience of my constituents and others is that they do not get clear and accurate information when they use water company helplines, and they are therefore losing out.

Photo of Ian Pearson Ian Pearson Minister of State (Climate Change and the Environment), Department for Environment, Food and Rural Affairs

I agree with my right hon. Friend that there is an issue about consumers having the information to be able to make choices. In this case, I concur that more ought to be done. Certainly, I expect Ofwat to ensure that charges are fair, and as has been outlined, its policy is that, in setting assessed charges, companies should use a reasonable estimate of the quantity of water that a type of customer is likely to use.

Ofwat used to believe that an assessed charge could be set according to the average metered charge. However, that is no longer deemed acceptable because Ofwat believes—rightly, in my view—that customers who want a meter but are unable to have one fitted will generally have a lower consumption than the average metered household.

In 2006-07, five companies set their assessed charges equal to the average metered bill. Ofwat asked those companies to review their charges, and I am pleased to say that all five companies are addressing the issue. In Thames Water's case, the assessed water charge has been based on the average metered household bill. However, this year, it has been held at the same level as last year, while the average metered bill has increased to £254. I should add also that average unmetered bills remain highest, having increased by £14 to £281.

I understand that, from 1 April 2008, Thames Water will introduce a tiered system of average household charges, which was referred to by my right hon. Friend. We all hope that that will address the issues that he raised in his speech. It should give the company increased flexibility, and allow it to reflect more accurately in its charges the average consumption of different types of household. I accept that, of course, anomalies exist in this system—there will be winners and losers—and we need to look at ways to minimise the impact of that, particularly on vulnerable customers.

Once again, I am grateful to my right hon. Friend for raising this important subject; I agree that it is worthy of further discussion. I want to reflect on the questions that he raised in his contribution and, certainly, I would be happy to raise his points directly with the economic regulator when next I meet Ofwat in June. I agree that it would be beneficial to make the public—particularly, vulnerable pensioner households—more aware of the potential benefits of an assessed charge if they are unable to have a meter fitted.

Photo of Andrew Smith Andrew Smith Labour, Oxford East

I am grateful for the Minister's commitment to raise those matters with the regulator. I stress that, as well as pensioners—of course, they are a key priority—a lot of people in tower blocks and single-bedroomed flats do not necessarily follow such matters as closely as he does. Will he raise specifically with the regulator the question of how we get information, across the board, to those who might benefit? Obviously, in many cases, if the tiering of the unmetered charge is done properly, the gain from getting on it as of next April will be even greater. It is important that people have access to that.

Photo of Ian Pearson Ian Pearson Minister of State (Climate Change and the Environment), Department for Environment, Food and Rural Affairs

There is a case for more publicity in general about the benefits of metering, particularly for a lot of single-person households, including flats, and for households where individual meters cannot be fitted. There is a case also for publicising the assessed charges regime. I am very happy to look into that, to see what more can be done to ensure that better information is out there, so that pensioner and other lower-user households can benefit.

In general, I believe that metering is the fairest way of paying for water, because customers pay only for what they use. We are looking to accelerate the rate of metering in areas of serious water stress if there is a clear resource case for doing so. We consulted recently on a proposal to do just that. In the meantime, however, two thirds of households still have an unmeasured basis of charging. In 1997-98, we reviewed methods of water charging and tariffs, which resulted in the Water Industry Act 1999, which provided, for the first time, protection against disconnection and the free meter option, but I repeat that we can do more to publicise that option.

We remain open to new ideas on charging methods and tariffs, particularly to help vulnerable households and those who struggle to pay their bills, as well as to discourage profligate and excessive use. A project is under way looking at the scope for redistributing among customers a company's burden through tariffs and charges. We are working with water companies to develop a model that will look at the distributional effect of tariffs—in particular, at the winners and losers who would be created among households. The model is looking at the effects of a wide range of measured and unmeasured tariffs.

We have set up a working group that will look at the results of that work and advise on how lower income groups might be affected by any change to the current charging system. The members include representatives from the Treasury, Ofwat, the Consumer Council for Water and water companies themselves. The group is considering how tariffs might distribute the total burden of a company's charges in ways that might address affordability and promote water saving. Both are important objectives for the Government, and we hope that that work will provide ways forward.

The Government appreciate the importance of a fair, cost-reflective and transparent charging system; that is one of the issues that will feature in the new Government water strategy, which we intend to publish later this year. It is now five years since our last review of water policy, "Directing the Flow", was published. We are as committed to its action points today as we were then, and the new strategy will ensure that those commitments are met in a way that helps us to mitigate and adapt to dangerous climate change, and to protect and enhance our natural asset base.

Our previous assumptions about an old wet Britain need to change; "predict and provide" will no longer be enough. We are moving to a new dry Britain, where we need to be smarter and more flexible about our water use. Our preconceptions and policies need to change. The new national water strategy will offer the space for that change, setting a long-term vision for 2030 and onwards. It will provide the water industry, Ofwat and the other water regulators with a timely, high-level steer on the Government's water priorities, as they embark on the next periodic review of water company price limits.

In developing the strategy, we are working closely with key stakeholders, including Ofwat. The strategy will set out a coherent and forward-looking policy framework to underpin our commitments on water availability and quality, thus ensuring that water policy can deliver the required outcomes in the short and long term.

I have no doubt that many lessons will be learned from the ongoing work on charges and charging policy. My right hon. Friend raised specific points about unmeasured charging; I accept fully that we need to get that right. It appears to me that there is room for improvement, certainly in the level of information that can be provided to households to give them the choice of whether to opt for the assessed charge. In addition, we can do more to publicise the advantages to certain customers of moving to a meter and the right to have a meter installed for free.

I assure my right hon. Friend that I am actively engaged in this issue. I shall continue to work closely with stakeholders, and I certainly intend to raise the issue with the economic regulator, Ofwat, when we next meet, which is next month.