Paying for Water
A General Consumer Council
Information Paper
May 2003
A General Consumer Council Information Paper
on the Government Consultation on the Reform
of Water and Sewerage Services
Contents
1.
Introduction
2.
Paying for Water
3.
Protecting Vulnerable Consumers
4.
Business Models
5.
Regulation
6.
Consumer Representation
7.
Joined-up Government
8.
Other Key Issues
9.
More Questions
Appendix A: Research Methodology
Please contact us if you would like an Executive Summary on disk, in
large type, in other accessible formats or in minority ethnic
languages.
1
1. Introduction
“This consultation is underpinned by the proposal to move Northern
Ireland’s water and sewerage services onto a self-financing basis …
In principle, self-financing arrangements will require the introduction
of domestic water charges …“
Angela Smith MP, Parliamentary Under-Secretary of State, March 2003
In March 2003, the Department for Regional Development launched its consultation on
Water Reform for Northern Ireland. It means the introduction of direct charges for
water and sewerage services and an overhaul of the existing regulatory and supply
arrangements.
Water services in Northern Ireland
Water and sewerage services have been paid for out of public funds since midVictorian times, mainly because of implications for health. The right to an adequate
supply of safe, wholesome water continues to be considered a basic entitlement today.
In Northern Ireland much of our infrastructure remains from those same Victorian days.
Therefore, our system is in need of major investment to protect the future safety of our
water. This problem was worsened by 30 years of under-investment resulting in an
infrastructure that requires major investment to reduce leakage and meet the
requirements of increasingly stringent European legislation, for example the Water
Framework Directive.
Northern Ireland is currently failing to meet European Directives that dictate water
supply and sewage disposal standards. The EU has said that continued underinvestment in the public water supply could result in costly fines for failing to meet
quality standards. These Directives, especially with regard to improving sewage
disposal, must be implemented within the next three to seven years. This will mean a
considerable financial commitment. Doing nothing is no longer an option. A policy for
capital infrastructure funding is required as a matter of urgency.
Promoting informed debate
The purpose of the document is to help promote a well informed debate and outcome
on the key issues in the consultation paper. We believe that the consultation is
important for Northern Ireland in order to get the best deal for all at the end of the
process. The Council has sought to avoid favouring any particular views at this stage.
This paper includes results from a consumer survey carried out by the Council in
August 2002 to gauge consumer views on the issue of water charging.
2
For ease of reference this paper has been set out, where possible, in the context of the
questions and proposals identified in the Department for Regional Development’s
consultation document. This will enable the readers to consider the information in this
paper alongside the Department’s consultation document.
The General Consumer Council will be making a formal response to the consultation in
due course.
3
2. Paying for Water
In Northern Ireland there is, at best, a confused perception of how water is paid for.
The public largely believe that they pay for water through their rates bill. When asked
what their rates covered, ‘water’ (41%) was the second most mentioned service after
‘refuse collection’ (61%)1.
This is not an unreasonable assumption for the public to make. Until April 1999 the
Regional Rate, the only form of local taxation in Northern Ireland, funded water and
sewerage services. The Rates Collection Agency website2 lists a number of public
services the Regional Rate contributes towards including ‘Water and Sewerage’.
Since then, funding for water comes via a direct grant from the Northern Ireland
Assembly budget, which consists of the Northern Ireland Block Grant (received from
HM Treasury) and the income from the Regional Rate.
In 1998/99 the average charge for water to domestic ratepayers in Northern Ireland
was £127 compared with £242 in England and Wales3. The consultation document
stated that any new charge is likely to be in the region of £350-£400 per household, will
be phased in and is likely to rise as investment increases.
Paying for water in Great Britain
In England and Wales two methods of direct water charges are used. Most households
pay on the basis of the rateable values of homes. However, all homes have the option
to ask for a meter and to pay by volume of water used and around 23% have chosen
this option to date. Metered bills are, on average, 17% lower than bills calculated by
rateable value4.
Water suppliers in England and Wales have the right to install a water meter in
properties if the householder uses a particularly large amount of water for non-essential
purposes.
Glas Cymru/Welsh Water has a policy of voluntary metering. There is no charge for
installation. If customers have chosen to have a meter installed they have one month
after the first bill to change back to unmeasured charging. If a customer moves into a
metered property he cannot have the meter removed.
Scottish consumers pay water and waste water charges to Scottish Water (a new
public sector organisation, formed from the previous three Scottish water authorities)
via their local councils. Charges for non-metered households are calculated according
1
GCCNI Water Survey, August 2002
Rates Collection Agency website ‘How is your rates money spent?’
(www.ratecollectionagencyni.gov.uk/spent.htm) - 24 April 03
3 DoE, Water and Sewerage Services in Northern Ireland. A Consultation Paper (1998)
4 DRD, Reform of Water and Sewerage Service in Northern Ireland: A Consultation Document
2
4
to Council Tax property bands. Households can opt to be metered but the high
standing charges have meant that fewer than 1,000 homes have done so.
The Water Industry Commissioner for Scotland regulates all household charges.
Joining three authorities into one means that increases to charges will be less than
under three separate authorities. The aim is to have equal charges across the country
by 2006. Currently charges range between £195 and £700.
Cost of delivering water to our homes
It is often argued that water is a free resource that falls from the sky. However,
storage, treatment to achieve drinking water quality, the network of pipes for delivery,
the provision of sewers, sewage treatment and disposal, rainwater disposal from
properties, highway/roads drainage and administrating the system are all costly. Unlike
other utilities, such as electricity, the majority of the costs are generated by the
provision of infrastructure and water preparation rather than being related to usage.
It may be possible for some of the disposal costs (for example, highway drainage) to be
paid for by other sectors of society to reduce the burden on householders. This is
considered further in Section 8 of this paper under ‘Other Key Issues’.
Northern Ireland is a dispersed community with a large rural population, which has
implications for increased costs because it is more expensive to supply sparse
properties than it is to service denser, urban neighbourhoods.
Water resources in Northern Ireland
Natural rainfall in Northern Ireland is relatively high compared with, say, the south
eastern half of England. This helps replenish the reservoirs, which provide the largest
source (47%) of our water supply. Lough Neagh is also a major resource providing
32% of local water. Northern Ireland does not have to rely on groundwater abstraction
with only 6% of our supplies coming from these sources. Loughs (9%) and rivers (6%)
provide the rest of our water supply5.
We do not have the same concerns that exist in the south of England regarding water
shortages, hosepipe bans and the need to conserve water to ensure supply meets
consumer demand. However, the Water Service believes that with increasing demands
for water and an increasing population Northern Ireland could have a 20% shortfall in
its water supply by 20306.
Water is tested across Northern Ireland. The water supply is safe with regional water
quality standards remaining in the highest decile at the latest Drinking Water
Inspectorate report. Worryingly however, there have been outbreaks of water-borne
disease.
5
6
Source: Water Service, Northern Ireland Water Resource Strategy 2002-2030
Water Service, Water: Providing for the Future 2002
5
Leakage
We do have a higher level of leakage than England and Wales. There is approximately
37% leakage of treated water from Northern Ireland’s infrastructure compared with 22%
in England and Wales and 36% in Scotland. Indeed, Northern Ireland’s leakage rate is
comparable to developing Eastern European countries rather than Western European
countries where leakage rates are as low as 9%7. Addressing leakage is considered
further in Section 8 in ‘Other Key Issues’.
What happens elsewhere in the world?
Water charging is increasing throughout the world, both in developed and developing
countries. In most countries water is metered. Generally water pricing is moving away
from using fixed charges to systems where water usage is charged. In some countries
including Hungary, Poland, the Czech Republic and South Korea there has been a
move to paying for water by usage without any fixed charge/standing charge element.
Other methods of charging are used elsewhere such as in Iceland where users pay for
water per m2 of property plus an overall charge per property.
Some countries are interested in selective metering, for example compulsory metering
where water is scarce, where households are consuming significant amounts of water
for non-essential use and where meter installation is relatively inexpensive (new
builds). For example in Cambridge, England the water company decided to
compulsory meter all sprinkler users.
Some countries are experimenting with peak pricing arrangements (seasonal pricing
and time-of-day pricing).
Who should pay for water and sewerage services?
Four out of five (79%) consumers believed that someone must pay for water and
sewerage services. The largest proportion (34%) stated that Government should pay
while a further 16% believed it should be the local Council. Thirty per cent (30%)
believed that ratepayers should pay, 22% thought that water users should fund water
while 4% felt that businesses should meet the cost.
7
OECD, Sustainable Water Use in Europe
6
Figure 1: Who should pay for water and sewerage services?
34
Government
Ratepayers
All Users
Local Government/Councils
Income Tax
The Householder
Businesses
Other
Don't Know
30
22
Response
16
5
5
4
1
5
0
10
20
30
40
% of respondents
Source: GCCNI Water Survey, August 2002. Figures do not add to 100 as respondents were allowed to give more
than one answer.
Consumer views on water charging methods
Respondents to the Council’s Water Survey were asked to rate a variety of charging
methods for water; assuming charging was to be introduced. As Figure 2 shows there
was a high level of support for paying for the amount of water used with 63%
supporting this approach. However, this did not take into account the capital cost of
installing meters or the replacement and maintenance costs associated with metering.
This could well affect support for this option once the true cost is known.
Two-fifths (41%) of the sample agreed with a fixed charge for everyone. However,
there was also support for a safeguard that those who can least afford water should
have to pay the least.
The number of inhabitants in the house represented the third preference while the
options based on house characteristics (size, value and type of house) were each
supported by only about one-fifth to one-quarter of the sample (27%, 23% and 20%
respectively). Respondents in non-TSN8 areas were more likely to agree that future
payments be based on these.
8
New Targeting Social Need
7
Figure 2: Considerations for future payment of water and
sewerage services
1
22
Frequency
5
1
2
2
25
35
7
12
34
4
5
50
7
19
51
6
52
50
40
4
42
23
19
2
Value of
House
Don' t Know
17
19
15
2
2
2
Size of
House
Type of
House
Number of
People in
House
Strongly Disagree
Disagree
Neither
9
2
8
2
Fixed Charge Amount of
for Everyone Water used
Agree
Strongly Agree
Source: GCCNI Water Survey, August 2002.
The benefits and disadvantages of metering as a basis for charging are discussed
more fully on pages 10-12.
Question 1: What is the most appropriate and effective basis for the
determination of domestic water and sewerage charges in Northern
Ireland? [Chapter 2; pages 13-18 of the Water Reform NI consultation
document]
The consultation considers 3 options other than metering. We have highlighted these
below identifying potential advantages and disadvantages for consumers.
Option 1: A uniform (flat) charge that applies equally to all households
This charging mechanism treats all properties as equal and is the equivalent of a 100%
standing charge per household.
Our survey revealed limited support for every household to pay the same for water
regardless of income. Three-fifths (61%) of the sample disagreed with this statement.
Advantages

Fixed costs are a large proportion of the total cost of providing the service
8


All households impose broadly similar costs on Water Service
Cheap form of billing and collecting payments
Disadvantages




Inequitable, is highly regressive because lower-income consumers pay
proportionately more of their disposable household income on a flat rate water
charge
Does not take account of the householder’s ability to pay
Cross-subsidises the better-off at the expense of the worst-off, the heavy user
against the light user and the rural property against denser urban housing
No incentive to reduce water use or wastage
Option 2: Charges based on the capital or rental value of the property
Rateable values [RV] could be used as a proxy for the cost of providing water and
sewerage services. However, it may not bear a close relationship to the cost.
From 2006 it is proposed that the capital value of a house be used as the basis for the
domestic rating system in Northern Ireland. This is considered to be fairer and more upto-date than the previous rental value calculations.
Advantages



The Rates bill is already tied into the benefits system so needy consumers
should continue to easily receive assistance
Rates Collection Agency could continue to calculate bills and collect water
charges
Easier administration if water charges are included in a single rates bill
Disadvantages



Need to protect disadvantaged consumer groups living in high rateable value
homes or single occupancy households
No incentive to reduce use
Does not take into account householder’s ability to pay
Option 3: Combination of a fixed and variable charge
Most of the cost of delivering water and sewerage services is fixed due to the capitalintensive nature of the water industry. However, the amount of water used or a
measure of a household’s ability to pay could also be considered in water charges.
9
Advantages

More reflective of the nature of cost of providing water and sewerage services
Disadvantages


The fixed charge element is regressive and does not take into account a
household’s ability to pay
No incentive to reduce water use / wastage
Metering
Question 2: Metering of domestic water supplies was specifically
ruled out by the Executive as an option for water charging in the
Rating Policy Review. Is there a need to revisit the metering of
domestic water supplies as an option for water charging? [Chapter
2; pages 18-20 of the Water Reform NI consultation document]
Comprehensive compulsory metering is the charging method for water used in most
other countries in Europe and North America. It is also used for all other utilities
(electricity and gas) delivered to households.
The Council’s recent survey (2002) found that consumers in Northern Ireland were
broadly supportive of a volumetric charge but as highlighted earlier this should be
treated with caution as respondents were not aware of the likely cost impact of
metering all homes and the ongoing replacement and maintenance of a metered
service.
Figure 3 highlights a number of demand management options and their relative
expense in terms of water saved.
Figure 3: Costs and savings of demand management options 9
Demand Management Option
Voluntary Metering
Demand
Management
Cost
(pence/m3)
113
9
Savings
(Ml/day)
Relative
Index *
538
574
National Consumer Council. (2002) Towards a Sustainable Water Charging Policy. National Consumer
Council, London; 8, 9,11, 14, 37, 38.
10
Compulsory Metering (all)
Offer of £100 cost subsidy to replace
pre-1981 WCs with 6 litre flush model
Compulsory Metering (sprinklers)
Converting 9 litre WCs to 7.5 litre
Leakage Control
Converting 9 litre WCs to dual flush
94
74.5
1233
268
477
378
51
27.2
19.7
17.2
240
543
3151
858
259
138
100
87
* Leakage control is used as the benchmark against which other initiatives are measured
There are several potential options associated with water metering. First, continue to
rule out meters as a basis for charging. Second, the consumer’s right to choose may
mean that there should be an option for voluntary metering. Third, it may be
appropriate to meter all new properties (new builds). Fourth, all households could be
metered either immediately or over a period of time. Finally, high non-essential water
users could be metered.
Advantages






Provides an incentive to reduce use
The public supports metering as it appears to be fair in linking payment to water
used
Different metering options exist, as outlined above
Meters could be used to provide water allowances per household (for example
through rising, decreasing or floating block tariffs)
Could be used to charge consumers for non-essential water use
Helpful in identifying where leakage may be occurring
Disadvantages








10
Water used accounts for just 27% of the total cost of supplying water 10
May create affordability problems for low-income families. Larger households
[larger family households are the least likely to have a net income of over
£20,000 per year (Scottish Executive, 1999)] and consumers requiring large
volumes of water for health reasons
The average cost of a meter is understood to be approximately £200. This
would have to be met from public expenditure or recovered through charges to
consumers
Money may be better spent renewing the existing infrastructure
Voluntary metering is the most expensive form of demand management (refer to
Figure 3) with disappointing reductions in water use
It is almost twice as expensive to install meters as it is to provide an equivalent
amount of water to that saved by metering
Meters have to be read and bills issued at a cost
Current high levels of water leakage would undermine water savings accrued
Water Service. (2002) Annual Report.
11

Problem of debt/non-payment, high capital costs, requirement to renew meters
after 8-10 years and effects on water bills
An informed decision by consumers on the issue of water metering depends on
accurate and timely information being provided to consumers on the real costs of
metering, including the proportion of a household bill made up of fixed/standing
charges, compared with the potential benefit to consumers.
Principles of water charging
There are several principles that should underline any system of water charging 11.
Most importantly, public heath must continue to be protected. Access must continue to
be affordable, supply must be continuous and the system must be fair, transparent and
sustainable.
Further work is necessary to properly evaluate and assess all of the available
alternatives, including non-UK models. For each charging system considered, the
‘balance of benefit’ to consumers needs to be established so that all consultees can
make an informed decision on the options available.
Any change in paying for water also has to be considered alongside the review of rating
policy to ensure that Northern Ireland consumers are not faced with massive increases
in household expenditure over a short period of time and that the new rates and the
new water charge amount to a reasonable total for each household.
11
National Consumer Council. (1997) Review of the Water-charging System in England and Wales.
National Consumer Council, London.
12
3. Protecting Vulnerable Consumers
Question 3: Which categories of customers may require some
degree of relief from the cost of domestic water and sewerage
charges?
Question 4: How should customers’ needs be addressed and their
rights protected within the new water charging regime?
[Chapter 2; pages 20-21 of the Water Reform NI consultation
document]
The affordability of any water charging regime is a particular concern in Northern
Ireland. The needs of disadvantaged consumers and low-income groups must be
taken into account to ensure affordability and avoid a huge debt problem occurring.
Household income in Northern Ireland
While it is being widely quoted how much is being paid in Great Britain it has to be
considered that household incomes are much lower here - Northern Ireland average
household income is 19% below the UK average. Northern Ireland households have
an income of £445 per week compared with £550 per week for UK as a whole12.
There is also a greater reliance on benefits here with on average 21% of Northern
Ireland household income coming from benefits compared with 12% in the UK as a
whole13.
Household expenditure on utilities in Northern Ireland
Consumers in Northern Ireland already pay more for other essential utility services, for
example energy. A previous report by the General Consumer Council, Frozen Out14,
highlighted that 170,000 homes here are in fuel poverty and that Northern Ireland
households pay on average 26% more (£3 per week) for fuel, light and power than
households in the rest of the UK.
Any move to impose direct charges for domestic water provision would affect the most
vulnerable in society. Water policy must recognise the interests of low-income
consumers and take into account people’s actual ability to pay. There would be
implications for low-income households if a system of direct charging were introduced
and provision or safeguards would have to be considered for those with special
needs15.
12
Family Spending 2001-02, Office for National Statistics
NISRA, Northern Ireland Family Expenditure Survey Report 1998/99. (2000)
14 GCCNI, Frozen Out: Tackling Fuel Poverty in Northern Ireland (2002)
15 In this context special needs refers to family circumstances requiring exceptionally high water use for
reasons of health, for example dialysis or incontinence.
13
13
Helping vulnerable consumers
Many people believe that everyone should be able to afford enough water to meet their
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.
When asked, 86% of the respondents agreed that special allowances should be made
for the elderly (people aged 65 years and above). Respondents in the older age
groups were more likely to favour allowances, particularly on health/medical grounds,
for the elderly. There was less support for special allowances for larger families (those
comprising more than 6 people) and those with young children (under three years old)
[refer to Figure 4].
Figure 4: Perceptions of entitlement to special allowances when
paying for water and sewerage services
10
18
25
15
33
Frequency
37
45
56
10
58
53
7
34
6
26
4
14
10
1
2
4
2
6
2
4
8
2
2
Medical /Health
Conditions
Families on
Low Incomes
Large Families
The Elderly
5
2
Those w ith
Young Children
Criteria
Don' t Know
Strongly Disagree
Disagree
Neither
Agree
Strongly Agree
Source: GCCNI, Water Survey (August 2002)
However, for those using large amounts of water for non-essential purposes there is
little sympathy. Nine out of ten consumers agreed that homes with private swimming
pools should pay extra, as should those with large gardens requiring watering (72%)
and people using water for other non-essential purposes (54%). The washing of the
family car should also represent an extra charge to water users according to two-fifths
(39%) of this sample.
14
In Northern Ireland non-payment may pose a problem if water charges are imposed as
a separate bill rather than incorporated into a Rates bill. Bills must be clear, regular
and easy to understand so that bills will not remain unpaid due to confusion, fear or
lack of understanding 16.
The consultation outlines three proposals to protect consumers.
Option 1: Charge all households on the same basis with no special protection for
the vulnerable
It seems reasonable to charge all households the same. This is because supply costs
are more significant than the actual amount of water used when calculating the water
charge. On this basis option 1 appears reasonable and avoids the problem of crosssubsidy.
A consumer’s ability to pay should be taken into account and vulnerable consumer
groups protected from impact as a result of water charges being introduced. In
England and Wales vulnerable groups are protected by the Water Industry
(Charges/Vulnerable Groups) Regulations 1999. However, in the first year of the
scheme’s operation (2000-01) only 1,724 successful claims were made, representing
just 0.6% of those estimated as eligible17.
Household’s water supply cannot be disconnected in England and Wales but debt is a
real problem, especially among poorer consumers and those with abnormally high
water needs. Nineteen per cent (or 4.4 million 18) of English and Welsh consumers,
mainly low-income households, had an average debt of £154 19 at the end of the
2000/2001 financial year. There is potential for debt to become a real problem in
Northern Ireland because household incomes here are 19% below the UK average 20.
Government intervened and protected large families on low incomes and those
suffering certain medical conditions from high measured bills by capping bills at the
average measured charges for the local water and sewerage companies 21.
Option 2: Rebates/discounts given to those on low incomes with the shortfall in
revenue made up through higher charges to the better-off
The introduction of water charges could have health and economic implications for
Northern Ireland consumers. There are economic and social arguments for a rebate
16
Anon. (2002) Customers in Need. Utility Week, 06.09.02; 20.
National Consumer Council. (2002) Charging for Water: the Implications for Consumers, the
Environment and Future Supplies. National Consumer Council, London.
18 Papworth, J. (2001) Poorest Pay the Highest Price. Guardian, 21.07.01; 11.
19 Fitch, M. and Price, H. (2002) Water Poverty in England and Wales. Chartered Institute of
Environmental Health
20 Family Spending 2001-02, Office for National Statistics
21 Fitch, M. and Price, H. (2002). Water Poverty in England and Wales. Chartered Institute of
Environmental Health.
17
15
system. Government social policy, water charging policy or a mixture of both could
protect vulnerable consumers when introducing water charges. Legislation covering
water charges could allow discounts or special payment arrangements to be offered. In
order that the majority do not bear the burden of a large minority it may be preferable if
relief is by way of social policy.
The existing social security system could protect consumers. Those who already
receive certain social security benefits could automatically receive a water benefit.
Housing Benefit does not provide a specific rebate for water and sewerage costs but
water charges could be automatically incorporated into costs met by the social security
system. However, the potential for water bills to increase faster than benefit rates
would have to be considered.
If water is metered, low-income consumers might be protected by providing an amount
of free or low cost water for all or by reserving an amount for less well off consumers
subject to a test of eligibility (means testing) 22. This is the method used in Flanders,
Belgium, where since 1997, the first 15m3 of water consumed per person in each
Flemish household are provided free of charge.
In England and Wales, those in vulnerable groups (low incomes and in receipt of
specified benefits with three or more children or a medical condition requiring a greater
use of water) can apply for a special metered tariff capped at the average household
charge. Similarly, Scottish Water provides a reduction in charges for households in
receipt of Council Tax Benefit and whose charges are above a set limit.
There is a firm view in the industry that help for lower-income consumers should come
from Government (through taxation) and not be subsidised by better-off consumers
who pay their bills. The principle of transparency and the need for efficiency mean that
cross subsidies should be avoided where possible and be open to public scrutiny
where they do exist.
If new water charges are introduced, cross-subsidies may occur between higherincome and lower-income households, large households compared to single people
living in properties with a high rateable value, the rural property-dweller against denser
urban housing, and those who pay their bill and those who don’t. These and possibly
other categories could be disadvantaged from the averaging of costs across all
consumers. Other groups which may require protection if direct water charges are
imposed include large families and those with medical conditions that require an
abnormally high water use.
Option 3: Subsidies to the vulnerable paid from the NI Departmental Expenditure
Level at the expense of other programmes resulting in cuts in public services
This interpretation could be seen as misleading. Any continuing public subsidy for
water services should not result in cuts in public services. If water services become
completely self-financing an additional £250 million would become available for the
22
National Consumer Council. (2002) Towards a Sustainable Water Charging Policy. National Consumer
Council, London.
16
Northern Ireland budget. It may be that some of this money could be used to provide
protection for less well-off consumers.
Consideration could be given to a scheme similar to the Warm Homes Scheme used to
deal with fuel poverty. Qualification for help under Warm Homes is triggered by the
Social Security system i.e. people who qualify for certain benefits can access help
through the scheme. However, consideration may need to be given to other vulnerable
groups such as those who are ‘near benefits’. Efforts would be required to ensure
maximum take-up of such schemes.
Just under one-quarter (23%) of the sample in the Council’s 2002 survey believed that
the public should pay more for water and sewerage services in order to raise money for
other essential public services.
17
4. Business Models
Question 5: Which business model for delivering water and
sewerage services would be best for NI? [Chapter 3; pages 22–34 of
the Water Reform NI consultation document]
Currently, there is direct civil service provision in Northern Ireland via Water Service, an
Executive Agency of the Department for Regional Development.
Throughout the world there is greater involvement of the private sector in the delivery of
water and sewerage services. This includes the financing, building, management of
infrastructure or facilities. However, Governments are maintaining a role in the system
albeit they are becoming regulators of water services rather than deliverers. It is now
common to see the public and private sectors working more closely together in the
delivery of water and sewerage services to consumers.
Consumers, in most cases, are not overly concerned about actual ownership of water
and sewerage services but are concerned about how a product or service is delivered.
Consumers want a safe, clean and affordable service that provides an efficient, reliable
and continuous water supply and sewage disposal.
Irrespective of the option chosen water and sewerage services will be a monopoly.
Therefore, the organisation must be clearly accountable to customers and be subject to
strong regulation of activities to protect the interests of consumers and the
environment. The following issues should be taken into account when considering a
new operational structure:

Who should own the assets? If public assets are to be transferred to a new owner,
is it important to retain some control over their disposal and if so how?

Which system will provide best value for money and keep down charges?

What would provide the highest quality service and secure EU compliance?

How should the service be accountable to Ministers and customers?

What is the balance of benefit for consumers from each model?

Adequate provision would be required in relation to contingency measures in the
event of bankruptcy or other reason for water or sewerage service withdrawal by
the supplier.

Do other models exist elsewhere in the world?
The consultation paper sets out a range of options for consideration. In all of these
Government retains responsibility for setting and enforcing performance standards but
can have varying degrees of involvement in the direct delivery of services.
18
Privatisation
A 1993 GCC survey found that 71% of the Northern Ireland public were opposed to
privatising the water supply. In the past 10 years this opposition has grown - 92%
stated their opposition to privatisation in the 2002 GCCNI Water Survey while just 4%
supported the option.
While information is available on public attitudes to privatisation, views on the range of
alternative business models ranging from part private to publicly owned are not
available.
19
5. Regulation
Question 6: What is the most effective model for the economic and
consumer regulation of water and sewerage services in NI?
[Chapter 4; pages 35-41 of the Water Reform NI consultation
document]
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. Northern Ireland does not have any system of economic
regulation, therefore the Water Service is not pressurised for efficiencies by an
external, independent body.
The Regulator should have a range of responsibilities. These should include:

Powers to penalise those who fail to meet contracts/licences

Role to encourage innovation in service delivery and water conservation

The ability to introduce price control

Setting and monitoring the quality of service provided and enforcing compliance
with minimum quality standards and with contracts

Monitoring infrastructure investment

Social policy responsibilities
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. The consumer
interest should always be considered but arrangements for its expression should
remain independent of the Regulator’s office. This is considered in Section 6 on
Consumer Representation.
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. For any regulatory system the following principles apply:

Ministers’ and regulators’ roles should be well defined

Regulators should be seen as independent of Government

Government determination through statutory guidelines how regulation should meet
broader social and environmental objectives

Water users should be taken into account in all the regulators’ decisions
20

Regulation duties should monitor economic planning and performance, efficiency
and cost-effectiveness

It should approve the allocation and recovery of costs and service charges

It should encourage water conservation and provide consumer information

Services should be publicly accountable

Operational policies and performance should be transparent and open to public
scrutiny
There are three options for economic and consumer regulation:
Option 1: Appoint a Northern Ireland Utilities Regulator
This option would extend the role of the Northern Ireland Authority for Energy
Regulation to embrace water and sewerage delivery. This means that the Authority,
established by the Northern Ireland Energy Order 2003, could potentially have
responsibility for the economic and consumer regulation of the water and energy
industries in Northern Ireland.
Advantages include the use of an existing pool of regulatory skills and expertise within
OFREG/Northern Ireland Authority for Energy Regulation and potential for cost savings
through economies of scale. This could minimise the cost implications for Northern
Ireland utility companies and consumers who will pay for the service. It could also
provide an opportunity for greater co-ordination of utility roadworks/road openings.
However, the Authority does not at present have any prior direct experience relating to
the water industry.
Option 2: Establish a Water Regulator for Northern Ireland
This option would involve establishing a specific regulator for water and sewerage
services. This regulator would have the specific focus and water industry background.
However establishing a separate regulator is likely to cost more than the other options,
which centre on extending the remit of existing regulatory bodies.
Option 3: Engage the skills and resources of an existing water industry regulator
(OFWAT or the Scottish Water Industry Commissioner).
Scotland has faced a similar legacy of under-investment and faces challenging levels of
capital investment over the next decade providing a useful comparator for Northern
Ireland. This option would provide access to regulatory skills and water industry-
21
specific expertise and avoid set up costs and diseconomies of scale of a separate
Northern Ireland regulator [Water Reform Unit, 2003].
There are three regulators for water in Scotland. The Independent Commissioner
promotes the interests of customers of the Scottish water and sewerage authorities and
regulates all aspects of the economic and customer service performance of the water
authority. The Scottish Environmental Protection Agency (SEPA) regulates the
discharge of treated wastewater and ensures compliance with EU law, such as the
Urban Waste Water Treatment Directive. The Scottish Executive Water Services Unit
is responsible for the regulation of drinking water quality.
The Water Bill is currently going through Parliament (published on 20 February 2003,
had its second reading in the House of Lords on 6 March) and is expected to gain
Royal Assent before the end of 2003. It includes provision for the abolition of OFWAT
and the transfer of its functions to a new Crown body to be known as the Water
Services Regulations Authority. It will have broadly the same duties as OFWAT but will
have the additional duty to have regard to guidance on social and environmental
matters. Water companies will also have additional duties in relation to consumer
matters and social issues.
Appropriate controls must be established to ensure that services are delivered
effectively, that sound investment decisions are made and the consumer interest is
recognised in the setting of charges.
22
6. Consumer Representation
Question 7: What is the most effective model for customer
representation on water and sewerage issues in NI? [Chapter 5;
pages 42-44 of the Water Reform NI consultation document]
Why consumer representation is important
There is no official consumer representative body to articulate the views of Northern
Ireland’s 647,500 households. Consumer representation is particularly important
because Northern Ireland’s water and sewerage services are a natural monopoly. As a
result consumers have no meaningful chance of influencing the provider through the
normal market mechanisms. Therefore, domestic consumers are often in a weak and
vulnerable position.
They need to be confident that their interests are being effectively represented to
decision-makers. The interests of both present-day consumers and future consumers
need to be represented, and balanced, especially to ensure these vital services are
affordable to all, and to ensure the sustainable use of resources. Almost three-quarters
(74%) of the Council’s 2002 sample believed that there is a need for an organisation to
represent the views of water users. An effective framework for consumer representation
is therefore essential.
Principles underpinning effective consumer representation
Any consumer body must be:

Independent - In its governance and management, the body should be
independent of the industry, regulator, central and local government, particularly in
its choice of work and in the views expressed.

Effective - To be effective consumer advocates, the body needs to be respected
for its policy analyses and recommendations. Its work must be well informed and
based on sound, high quality research including research into consumers’
experiences and the regulated companies’ activities.

Representative of domestic consumers - The body should have a general duty to
advance the interests of existing and future consumers with a specific duty to
represent the particular needs of disadvantaged and vulnerable consumers.

Transparent and accountable - The body should operate under the principle of
openness and be publicly accountable.
23

In touch with consumers - The body should develop dialogue with consumers,
both to inform consumers about their choices in the competitive marketplace, and
also to collect information about consumers’ views and experiences.
Operational requirements
Clear powers and duties - These should include:


The legal standing to represent consumers’ interests to relevant decision-makers
A prime duty to represent consumers’ interests with specific focus on domestic,
disadvantaged and vulnerable consumers
Powers to investigate complaints and propose remedies
Powers to publish research and other information
Duties on regulators and others to consult the consumer representatives
Duties to have clear and accessible procedures
Relationships with regulators set out in clear memoranda that are reviewed at
least every 3 years
Access to information - The body should have the power to obtain relevant
information directly from regulated companies and regulators. A core of information
(on debt, complaints and service standards) should be routinely available.
There should be clear and fair procedures for challenging refusals to disclose
information.
The body should have powers to monitor and investigate key aspects of customer
service and complaints by regulated companies.

Rights to challenge regulators’ decisions - The body should have the right to be
consulted by the regulator on competition and non-competition issues with the legal
right to appeal against all the regulator’s decisions.

Openness - The body must be open in all it does; provide clear reasons for
withholding any information and provide the opportunity to appeal against any
decision to withhold information.

Adequate resources - The body should have adequate financial resources to carry
out and plan these functions effectively and efficiently in consumers’ interests. Its
independence from funders must be maintained.

Research capacity - The body should have duties and the capacity to carry out
social/economic research into complaint trends, consumers’ experiences and
market developments.
Open appointments - The body should be large enough to have an adequate
spread of expertise and interest taking into account the range and diversity of
consumers’ interests. Members and staff should be recruited through a transparent
and accountable appointment process.

24

Links with other consumer bodies - The body should liaise with other bodies that
collect consumer information and handle complaints. It should consult other
consumer bodies prior to major changes in its work programme. It should liaise with
other consumer bodies on issues of common interest.
The options
The consultation paper presents three models for consumer representation:
1.
2.
3.
A new customer representation body on water issues
Strengthen the role of the Northern Ireland Water Council
Strengthen the role of the General Consumer Council for Northern Ireland
Either options 1 or 3 would be suitable because both meet the criteria for effective
consumer representation.

Northern Ireland Water Council
The Northern Ireland Water Council has an important function in providing advice to
Ministers on the role of DRD, DOE, DCAL and others in respect of any water-related
issue. However, this role is very different from consumer representation as described
above and should be performed separately. The Water Council could not be
transformed into a consumer body without losing its current role.

New customer representation body or enhanced General Consumer Council
A new customer representation body on water issues would need to be properly
resourced, have the desired background and have the critical mass and experience to
discharge its role effectively.
However, there are reasons supporting strengthening the role of the General
Consumer Council as the consumer representation model of choice.
25
An enhanced General Consumer Council
The General Consumer Council would appear to be well placed to fulfil this function:

The Council is Northern Ireland-focused. It would be a more cost-effective solution
given the size of Northern Ireland and avoids unnecessary duplication of consumer
bodies, systems and resources. The Council already has expertise among
members and staff in the wider consumer field, in water matters and in relation to a
regulated monopoly, for example coal, gas, electricity and public transport.
Enhancing the present GCC will give it a dedicated focus while facilitating read
across of best practice from other fields.

The Council’s existing statutory functions and responsibilities in all other utility
sectors (electricity, gas, coal and passenger transport) means that, with the addition
of water, it is the only organisation that could become a one-stop shop for all
utilities.

It will assist easy recognition by consumers and avoid confusion (using March 2003
data, 64% of consumers had heard of GCC23).

It makes sense in terms of the Council’s experience in representation, policy making
and handling of transport complaints (for example, from 1.6 million potential
passengers). It would deal with ‘second stage’ water complaints where the
complainant has already approached the company but remains dissatisfied with its
response. It would advise first stage complainants to approach the relevant
authority and would redirect queries/complaints to where they may be better
resolved; for example, technical queries.

Additional responsibilities in relation to water and sewerage services need to be
properly resourced and supported by legislation to ensure statutory authority to
exercise its functions properly. Extra resources for the GCC (additional members,
staff and guaranteed ongoing funding) would buy a better level of service compared
with setting up another consumer body.

A certain critical mass is required for effective consumer representation. There are
complex issues surrounding the regulation of utility industries. The best guarantee
of addressing them is to have sufficient staff with the necessary range and depth of
professional experience. Staff with the appropriate technical and professional
expertise can provide the team environment and corporate memory to give effect to
the policies and strategy determined by the Council members. GCC already has
the necessary critical mass and, with enhanced resources, could deliver the best
service to Government, all water consumers and the regulator.
23
GCC Consumer Proficiency Study March 2003 (not yet published)
26
7. Joined-up Government
Question 8: Do you have any comments on how it is proposed to
integrate Water Reform within other Government policies? [Chapter
6; pages 43-47 of the Water Reform NI consultation document]
The Department for Regional Development has indicated in its consultation document a
range of other Government policies that will be considered as part of the consultation
process. These are:
i)
ii)
iii)
iv)
v)
vi)
vii)
Equality Impact Assessment
Rural proofing
Health impact
Sustainable development and environmental impact (opportunity to discuss
grey water initiative etc)
New TSN assessment will be undertaken
Regulatory Impact Assessment in terms of costs, benefits and risks
Human rights
The importance and consideration being given to integrate water reform within other
government policies is in keeping with the principle of joined-up government. Full
recognition should be given to the role of joined-up government in the development of
any future regulatory and charging regime.
One area that has not been included but is relevant to the outcome is the ongoing
review of rating policy. Any proposed increases to domestic rates bills as a result of the
rating policy review should be considered alongside water charging to ensure that
overall Northern Ireland consumers are not being disadvantaged.
27
8. Other Key Issues
Re-allocation of costs
It may be possible for some water supply and sewage disposal costs to be paid for by
other sectors of society. For example, while water supply is the most obvious of the
water services, there are also three other quite distinct disposal services: sewage
disposal, rainwater disposal from properties, and highway drainage. If no surface water
from a property drains into the public sewers, the householder may be eligible for a
reduction in his bill.
Currently, everyone pays for highway drainage even though it is not a domestic
service. The Council survey asked respondents who they thought should pay for
rainwater disposal from houses and for highway drainage from public roads and
motorways. Almost one-fifth (19%) stated that they believed the householder should
pay for rainwater disposal while one in eight (13%) felt that road users should pay for
highway drainage. This is important because Northern Ireland has more than double
the length of road per head of the population than the rest of the UK [refer to Figure 5].
Serious consideration should be given to paying for highway drainage from general
taxation and not from charges paid by water consumers.
Figure 5: Kilometres of roads per 1000 population: Great Britain v Northern
Ireland
6.9
Great Britain
14.7
Northern Ireland
0
5
10
15
20
km of road per 1000 population
Source: GB figures –
Transport Statistics Great Britain: 2002 Edition, Department for Transport. NI Figures – DRD Transport
Statistics 2001-2002. Population figures taken from 2001 Census
Leakage control
Leakage control is an important means of improving the efficiency of production of the
treated water supply and should be monitored by a regulatory body. A total of 250
million litres of water is lost each day in Northern Ireland according to the Assembly’s
Public Accounts Committee. This is the equivalent of approximately 40% of all treated
water in the public water supply. To set this into context, Northern Ireland consumers
use approximately 145 litres of water per person per day while approximately as much
water is leaked.
28
The aim is to reduce leakage in Northern Ireland to an economic level of 180 Ml per
day by 2006 24. The average figure for the water and sewerage companies in England
and Wales is 203 Ml per day (with companies ranging between 80 to 455 ML of
leakage per day). The Economic Level of Leakage (ELL) is the level of leakage at
which it would cost more to make further reductions than to produce the water from
another source. Operating at ELL means that the total cost to the customer of
supplying water is minimised and the supplier is operating efficiently. The desirability of
operating at the ELL needs to be communicated to the consumer in order to displace
the perception that operating at zero leakage is an economic alternative.
However, reducing leakage requires significant capital investment to replace Northern
Ireland’s decaying pipe infrastructure.
Demand management
Consumers have a responsibility to use water sensibly in order that there is a
sustainable supply. There are long-term benefits in raising consumer awareness of the
need to use water wisely. It has been calculated that it is 2 to 4 times cheaper to save
water rather than to build a completely new water source 25. This will become ever
more important when consumers start to pay for water.
Some demand management incentives (listed below) and the development of new
initiatives may be considered the duty of the Department for Regional Development as
part of a wide education initiative. This would need to be coupled with a public
awareness and advertising campaign.
Non-financial incentives






Education – this is a key initiative. This could alert households to water wastage
e.g. the fact that between 5 and 10 litres of water can be lost for every minute a
tap is left running while brushing teeth.
Targeted information in the form of household water audits
Fitting water-efficient devices and appliances (for example low-water-use washing
machines and dishwashers, timed garden sprinkler systems and low-flush toilets
in households)
Recycling grey water (water from the bathroom, including showers, baths and
wash basins) can reduce water use by 30% to 50% if, for example, it is used
when watering gardens or washing cars.
Waste water re-use and water usage restrictions
Capture rainwater for use (water butts)
Appliance standards
There is no incentive in England and Wales for the majority of households to conserve
water. Since 1996 Finland’s toilets have a 2 to 4 litre flush compared to England’s 9.5
Robinson, P. (2002) Water Resource Strategy 2002 – 2030.
National Consumer Council. (2002) Towards a Sustainable Water Charging Policy. National Consumer
Council, London.
24
25
29
litre flush. Efficiency standards could be established for domestic appliances in much
the same way as for energy efficiency or a date could be set after which all new
appliances must reach certain water efficiency standards, for example dishwashers and
washing machines.
The right to information
The consultation document accepts that consumers are not aware of how they
currently pay for water. This lack of knowledge is unlikely to improve if consumers are
not educated. Any changes to how water is currently funded and which public services
are funded through rates would need to be coupled with a public awareness and
advertising campaign. Clear advice leaflets on the new charging system would need to
be produced and made readily available to customers across Northern Ireland.
Water or rates bills should clearly state the contribution of domestic payments to Water
Service and a breakdown of the main elements of service: water supply, sewerage
disposal, rainwater disposal and highway drainage.
Incentives and information need to be provided to raise public awareness about how to
reduce household water use. This would be particularly important if consumers are
charged for water on the basis of amount used. It would also be in keeping with
government policy for sustainable development.
Domestic and non-essential water consumption
There may be an argument to distinguish between domestic and non-essential use
when charging households for water. Higher charges may be appropriate for
households using abnormally high amounts of non-essential water. For the purpose of
water charging in Britain, domestic use has been defined as water supplied on any
premises for drinking, washing, cooking, central heating and sanitation. In the case of
houses, it includes water used for garden watering and car washing but only if the
water is drawn from a tap inside the house, without using a hosepipe or similar
apparatus 26.
Non-essential use is not necessarily easy to determine. Car washing would be hard to
monitor; the owner of a large garden may not be sufficiently interested to want to water
it, and private swimming pools are thought to be sufficiently rare that a significant sum
might not be raised. These issues must be considered in any decisions made.
Pollution
The contribution of agriculture to total water contamination is still growing. However, at
present, water customers pay for clean-up costs resulting from diffuse pollution. The
Chairman of Watervoice, the consumer body for England and Wales, has already said
26
National Consumer Council. (2002) Charging for Water: the Implications for Consumers, the
Environment and Future Supplies. National Consumer Council, London.
30
that it would be unfair if sectors like transport and agriculture did not carry part of the
burden for cleaning up Britain’s watercourses in order to meet the requirements of the
Water Framework Directive.
31
9. More Questions
The General Consumer Council has sought to provide considerable information in this
paper. However, it is clear that many questions may remain unanswered. We have
identified a number of questions and areas where we believe answers or additional
information would aid informed debate and enable consultees to make considered
decisions once the information and facts are made available:
1.
There is a distinction between direct charging and being self-financing. Selffinancing by nature represents a ‘profitable’ model to realise the significant sums
required for infrastructure investment.
What restrictions, if any, would be made on the ability to make profits/surpluses at
the consumers’ expense?
2.
In light of the high infrastructure cost, why has any element of subsidy been ruled
out when other infrastructure-intensive industries (for example the British railways
network) still receive public subsidy?
3.
Some of the business models would result in the removal of ‘crown immunity’.
Would consumers be responsible for paying the costs of fines or compensation
resulting from legal rulings e.g. if the new sewerage provider is fined for pollution?
4.
Will householders be liable only for the proportion of costs that can be attributed to
the supply of water and sewerage services to homes? For example, who will pay
for water delivered to ‘support’ services such as schools, hospitals and any other
bodies/organisations/government departments who may not already pay for water
services?
What proportion of infrastructure costs will be apportioned to householders as
opposed to other users of the network?
5.
Would the business plan of the proposed supplier be open to public consultation
and scrutiny given that this is likely to have an indirect effect on consumer prices?
6.
In the event of an investment deficit or business failure what measures will be put
in place to secure services?
7.
Does water charging have to be collected separately from rates or could they still
be collected together, albeit charged and allocated separately?
8.
What will be done to prevent debt or self-disconnection from the water supply?
9.
What other charging mechanisms exist throughout the world that take account of
ability to pay without externalising these costs onto other consumer groups?
10. What role does Government Social Policy have in relation to securing adequate
provision of water and sewerage services to all consumers?
32
11. What consideration has been given to redirecting money saved from public
expenditure to provide protection of vulnerable consumers?
12. What evidence is available from elsewhere, e.g. nTSN areas or Health Action
Zones in England, Wales or Scotland, on the impact of the introduction of water
charging on consumers?
13. Who will be responsible for informing and educating the public about issues such
as water payment and conservation and how will this be managed/regulated?
14. Is there any evidence of an education programme in the UK or elsewhere to
advise consumers how to conserve water supplies and what consideration has
been given to its roll out in Northern Ireland?
15. In light of consultation reliance on GB examples it would be helpful for other
worldwide models to be considered at the next stage.
33
APPENDIX A
 Research methodology
In order to inform the water reform consultation in Northern Ireland the Council
commissioned research into consumers’ views and concerns of the water and
sewerage service. In total, 1,014 consumers were interviewed in their own homes in
an ad hoc survey using a quota-based sampling strategy that was representative of the
Northern Ireland population. Interviews took place in late-August across all 26 local
government districts. MORI MRC carried out all research and data analyses.
The sample comprised 497 (49%) males and 517 (51%) females. Socio-economic
groupings were as follows: ABC1 = 34%; C2 = 22% and DE = 44%. More than onequarter of the sample (27%) was from new Targeting Social Need (TSN) areas.
The results have been used in this information paper.
34
Elizabeth House
116 Holywood Road
Belfast BT4 1NY
Telephone/Textphone
028 9067 2488
Fax
028 9065 7701
e mail
[email protected]
Websites
www.gccni.org.uk
www.consumerline.org
ISBN No: 1 871095 28 X
May 2003
35