Consultation outcome

Consultation response summary: charge proposals for water quality permits

Updated 24 May 2024

Introduction

The Environment Agency is responsible for regulating water quality in England, including discharges to surface water and groundwater. We fund these activities through environmental permitting charges.

We launched a public consultation in January 2024 asking you to share your views on proposed changes to our environmental permitting charges for water quality permits. These charges are issued under the Environmental Permitting (England and Wales) Regulations 2016 (environmental permitting regulations) and have not been revised since 2018. In the consultation, we used the term ‘water quality permits’ to refer collectively to permits for water discharge activities and groundwater activities.

We designed the proposed changes to recover the full cost of our services. This is so we can achieve and sustain expected levels of regulatory and environmental performance. This will transform the that way we regulate the water industry. Our proposals also support government’s Plan for Water which makes a commitment to renew charges, fund more inspections and sets new targets for our oversight of water companies.

We proposed to:

• increase permit application charges, including additional charges for habitats assessment
• increase most annual subsistence charges
• introduce new annual subsistence charges for permits held by sewerage undertakers operating the public sewerage system and treatment activities
• introduce new duties and charges following Environmental Permitting (England and Wales) (Amendment) (England) Regulations 2023 groundwater amendments
• introduce supplementary charges for specific substances assessments and amend the circumstances when they are payable

This document provides an overview of how we ran the consultation and a summary of the responses we received. We identify key themes raised by consultees and set out our responses to each. We also confirm where there are implications for the final charging scheme and specify any subsequent amendments to our original proposals.

How we ran the consultation

The consultation ran for 6 weeks, from 29 January 2024 to 11 March 2024. It was hosted on GOV.UK and our Citizen Space consultation tool and was open to anyone who would like to respond. Any respondents who were unable to use the Citizen Space tool could request an emailed or printed copy of the documents to allow them to respond by email or post.

We ran the consultation in line with our legal requirements to consult following the Cabinet Office’s consultation principles guidelines and after approval from the Secretary of State for Environment, Food and Rural Affairs.

We were keen to hear from all our customers and others with an interest in the consultation to help determine if our proposals would need to be changed.

It was important to make sure all customers who would be affected by the proposed changes were aware of:

• how they would be impacted
• why changes were proposed
• how they could share their views

We wrote to all current permit holders (nearly 10,500) including those within agriculture, hospitality, industrial and manufacturing sectors. This was to ensure they had sufficient information to respond to the consultation and knew who to contact if they had questions.

We also identified which sectors would be most impacted by the proposed changes, and the organisations that represent those sectors, to ensure they were briefed. This included organisations representing the ground source heat pump sector, cemeteries, agriculture and non-government organisations.

For water and sewerage companies, the customers that would be affected by the biggest changes, we arranged bespoke briefings and held meetings with individual companies. We also engaged directly with all water only companies, Water UK, the economic water regulator (Ofwat) and Consumer Council for Water.

During the consultation we responded to many questions and queries from a broad range of permit holders to support them in making their responses.

Summary of key findings and actions we will take

In this section we describe the key themes raised by consultees, and our response to each of these. The key themes are:

• better regulation – how the proposals help improve water quality
• transparency – how charges are calculated and when they are applied
• timing – how charge payers can adapt to new costs
• economic impacts – the affordability of new charges
• animal welfare – how the permitting costs for landspreading of used sheep dip might affect farming practices
• permitting – how our permitting service will change in response to increased charges

Annex 1 gives detailed information on the responses to each question. Annex 2 gives a list of organisations and groups that participated in the consultation. We would like to thank all those who participated in the consultation and value the feedback provided.

In total we received 178 responses. Of these, 152 were submitted using our Citizen Space consultation tool and 13 were sent using our consultation response form. We received 13 further responses by email and letter. We considered these emails and letters alongside the other responses but could not include them in the numerical summaries because they did not align with the format of our consultation questions.

The 178 responses were submitted by:

• 68 individuals
• 90 organisations or groups
• 5 others
• 15 who provided no information

We conducted a thorough review of all comments received and considered whether to make any changes to our original proposals. The responses we received were very helpful in understanding any concerns or issues. It was also valuable to hear from those who expressed their support for the changes we were proposing.

As a result of the consultation feedback, we are making one change to our original proposals. This relates to the disposal of sheep dip to land (sometimes referred to as landspreading of sheep dip). We will hold application charges for disposal of sheep dip to land at the current rate of £2,708 (see ‘Animal Welfare’ section for further explanation).

After careful consideration, for all other proposals, we will be progressing as outlined in the consultation document. A summary of comments received, and our responses to these are summarised below under each of the key themes identified.

Better regulation

Summary of responses

Respondents, including water and sewerage companies, were supportive of our charge proposals to fund improved regulation of the water industry sector and wanted to see better water quality. However, many companies wanted to better understand how charging relates to regulation in practice, particularly for water and sewerage companies. They wanted to:

• understand exactly what the charges will pay for
• understand when increased levels of regulation would begin
• see water and sewerage companies pay their fair share based on their performance

Consultees also raised concerns that proposed charges may be prohibitive to better regulation. Specifically, they said that:

• increased application and supplementary charges are likely to discourage applications, and may result in operators choosing to operate without a permit
• increased charges for non-profit making or public sector organisations will discourage environmental improvement schemes
• proposed charges are not supportive of renewable technology such as closed loop heat pumps, which could have an impact on government’s net zero policies

Our response

Water and sewerage company annual subsistence activities will see the most significant level of charge increases as this is where the biggest change in regulatory effort is happening. Increases in annual subsistence charges for other sectors will be smaller as these mainly cover inflation plus additional costs of the current service.

Activity the income will fund

We will use income from the water and sewerage companies to raise the number of site inspections and significantly increase audits of sites and management systems. Site inspections will rise from 1,000 per year at present to:

• 4,000 per year by April 2025
• 10,000 per year by April 2026

We will also use increased income to analyse millions of environmental data sets. This action is designed to:

• improve water and sewerage companies’ compliance with environmental permits
• reduce pollution incidents
• ultimately help to improve the quality of our rivers and seas

We will use the additional income from the water industry to fund around 400 new staff, including environment officers, data analysts, and regulatory specialists. We will also upgrade existing and develop new digital regulatory systems to analyse data for permit compliance at storm overflows, wastewater treatment works and pumping stations. We will do this to identify thousands of potential permit breaches and direct our compliance and enforcement activity to where it can have greatest impact.

The intelligence we gather from increased inspections and analysis of breaches and pollution incidents will inform more in-depth and targeted audits of water company operations. This will help us establish the root cause of non-compliance and expose underlying problems with management systems and infrastructure. We will use the evidence we gather from audits and increased regulation to inform annual performance assessments, investment plans and enforcement action. Collectively, these will drive better water company performance and help protect the environment.

Increased income from the water industry will also fund new increased regulatory duties required by the Environment Act 2021 which has additional implications for how we regulate water companies. This includes:

• supporting the development and implementation of continuous water quality environmental monitoring and responding to regulatory needs highlighted by the data
• implementing and achieving targets of the statutory storm overflows discharge reduction plan to reduce discharges and adverse impacts
• requiring the Environment Agency and water companies to publish data on storm overflow operation on an annual basis
• supporting development of near real-time reporting of storm overflow performance, and responding to operational needs highlighted by the data
• driving the achievement of the drainage and wastewater management plans
• increase funding to support asset management plans (AMPs)

We understand concerns expressed in consultation responses relating to risk of non-compliance due to affordability of obtaining permits. We give more explanation about this in the ‘Economic impacts’ section. Customers have a legal requirement to ensure they hold the correct permits for activities they operate. We must ensure activities are carried out according to conditions that protect the environment for people and wildlife.

Principles of the charging scheme

We have retained the existing charging scheme design using categories that are familiar to operators. We have improved elements to ensure customers only pay for the regulatory service they receive. Our permitting activities remain broadly the same and cost increases are to ensure we recover our costs. We follow HM Treasury’s managing public money rules that say we should pass the full cost on to all customers, including other public bodies and not-for-profit sector.

We recognise the economic pressures faced by many of our customers and are always seeking to ensure value for money.

We will continue to work with customers on innovative or environmentally beneficial approaches to their discharge activities. Our services support customers to develop new permitting methods and innovative approaches to operate more efficiently and effectively.

Our charges will help fund an efficient and sustainable service, providing advice to support our customers achieving better outcomes and delivering long-term savings. We have plans to improve our data and digital services. This will help us to better capture and use intelligence to target our monitoring and lower costs in the long-term. Where possible, we will work towards using automation to remove the need for officers to monitor and assess data manually.

Heat pumps

Through regulation, we support government and customers on the transition to net zero, whilst ensuring we still protect the environment for people and wildlife. 96% of closed loop heat pump systems in England are exempt from permitting requirements. We are currently developing further risk-based approaches to support access to heat pump technology for those systems falling within the remaining 4%. This will mean light-touch regulation at a much reduced or no charge where we are considering a permit is not appropriate. The cost of regulating closed loop heat pumps will only impact a small number of systems where permitting considerations are essential. We have worked with government to ensure our regulation is proportionate so that the cost of regulation does not impact environmental goals. Further explanation is given in the ‘Economic impacts’ section.

Transparency

Summary of responses 

Customers felt that we should have been more transparent about the costs included in our charges. They would have liked us to show the evidence behind our charge amounts and show that these were necessary and appropriate. There were further comments noting substantial differences in the scale of increases for application charges compared to most subsistence charges.

Customers also commented on the clarity of our scheme design. Some sought clarification as to:

• whether operator self-monitoring (OSM) would continue
• what charges would be applicable when varying water and sewerage company permits through the asset management plan (AMP) process

Further responses to the consultation highlighted a need to provide better definitions and clearer guidance. Customers wanted to see:

• better descriptions of the regulatory service we provide for different categories of activities
• clearer explanations of when different charges would apply

Our response

We followed HM Treasury’s managing public money and classification of receipts guidance when calculating the costs of our regulatory services and setting our charges. Our charging scheme design was also subject to scrutiny from the Department for Environment, Food and Rural Affairs (Defra), and HM Treasury. In line with HM Treasury guidance, we based our approach on seeking full cost recovery after identifying efficiencies and exploring opportunities to improve the service we offer.

How we calculate our charges

To aid transparency, we provided a guide explaining how we calculate our charges in the supplementary information accompanying the consultation. This guide included evidence about how the charge amount is calculated and how we modelled the charges. It also included a summary of the types of costs making up our charges.

As noted in this guide, a charge is made up of both direct and indirect costs. We may provide a direct function locally (for example an officer in the field checking a discharge) or nationally (for example a permitting officer determining an application).

The direct cost therefore varies depending on the type of service and how it is provided. The charge is attributable directly to the service received.

Indirect functions exist to support the whole Environment Agency business and cannot easily be allocated directly back to specific sources of income, for example our legal services. Their costs are distributed across all our charging schemes and government grants. Charge payers contribute a fair share of these costs.

We also incur ‘capital financing costs’ for specific assets used exclusively by the water quality regime, and a proportion of corporate assets, for example IT systems and buildings. Our subsistence charges also include our costs incurred where unpaid annual permit bills are no longer considered to be collectible, known as ‘bad debt’.

Estimated annual income

Based on the final proposed charges, the proportional split of our estimated income for applications and subsistence is given in the following tables. The estimated income is assumed over a 12-month period.

Table 1: Summary of Environment Agency’s estimated annual application income for water quality permits under environmental permitting regulations

Category	Amount (£million)
Direct costs	5.10
Indirect costs	2.47
Capital financing costs	0.19
Total	7.76

Table 2: Summary of Environment Agency’s estimated annual subsistence income for water quality permits under environmental permitting regulations

Category	Amount (£million)
Direct costs	78.19
Indirect costs	37.87
Capital financing costs	1.61
Bad debt provision	0.96
Total	118.63

The consultation set out proposals for both application and subsistence charges. We continually look for ways to make our services more efficient and better value for money. This helps us work within existing budgets and mitigate the need for charge increases. However, we cannot fund the transformation in water quality regulation that our customers and government now expect without raising our charges.

OSM and varying permits through AMP schemes

OSM was introduced in 2009 alongside revised guidance on our inspections. For non-sewerage undertakers, our charges will continue to be lower when discharges include OSM than when they do not. For sewerage undertakers, our activities to regulate and audit OSM have been incorporated within their new subsistence charges. For all other customers, our subsistence and application proposals aim to bring charges up to date with the current level of regulatory activities to determine permits and monitor permit compliance whilst keeping pace with inflation.

We have not proposed to increase the charge to vary a permit for event duration monitoring of combined sewer overflows or emergency overflows for AMP6 and AMP7 schemes. We will confirm details of the variation type for AMP8 schemes to water and sewerage companies through our usual technical and management liaison routes.

Environmental permits: when and how you are charged

We have identified supplementary charges (for example, specific substances assessment and habitats assessment) separately to make sure we only collect such fees in cases where these activities require us to spend additional time assessing applications. We have amended the charge activity definitions to specify application types that include supplementary charges within the application charge and clarify which charge activities are payable. We will update our environmental permits: when and how you are charged guidance on how and when new supplementary application charges apply for specific substances assessment. The updated guidance will better define when these charges apply, who they will apply to, and what the operator can expect from us.

If you are interested in a particular consultation question, sector or charge type, and the response we have made to that, please see Annex 1.

Timing

Summary of responses 

Customers from the water industry sector expressed concern about timescales with proposals being put forward shortly before the start of the next financial year. They said this did not give them enough time to adjust their budgeting and business plans. Further comments from the water industry sector, along with agricultural industry associations, suggested that increases to our application charges should be phased in over a longer timescale.

Our response

The timing of our consultation on charges for water discharges is a direct and reactive result of instruction given by the government for us to increase our regulation of the water industry to help improve water quality. For some time, water companies have been underperforming with regards to their environmental measures, as has been covered in the media and by environmental non-governmental organisations.

We acknowledge that consultees from all sectors have raised concerns regarding timing and we understand the pressure this will put on individuals and businesses. However, we need to recover full costs for regulation across water discharges and groundwater activities and we need to respond to demands for better regulation of the water industry. To allow us time to consider these points and the options available to us, we have delayed the introduction of our new charges until 1 June 2024 (rather than 1 April 2024 as indicated in the consultation).

We acknowledge there will be a short-term pressure for water and sewerage companies to react to charge increases for year 5 of AMP7 (2024/25). We carried out targeted early engagement in the lead up to this consultation to support water and sewerage companies, ensuring they were given as much notice as possible. We do understand this concern, but it is necessary for us to introduce these new charges as soon as possible to fund the achievement of regulatory transformation.

As set out in the ‘Better regulation’ section, we need to intervene now to drive better performance through increased regulatory activity. The Secretary of State for Environment Food and Rural Affairs has already set out target numbers for inspections through to 2026.

We are unable to phase in charge increases because:

• we need to recover the increased costs for existing services where our charges have not changed since 2018
• we cannot delay required increases in regulatory activity

We have made one exception for the commencement date for disposal of sheep dip to land (sometimes referred to as landspreading of sheep dip) application charges. Further explanation of our decision is given in the ‘Animal welfare’ section.

As noted in our consultation, to ensure our charges keep track of cost changes so we maintain full cost recovery, we will update all our charges annually on 1 April in line with inflation. This will be based upon the Office for National Statistics measure of consumer prices index (CPI) as of 30 September in the preceding year. Any increase to water discharge charges will be equal to or less than this measure. If we believe our charges need to increase by more than the CPI, we will start another review. We will continue to communicate with customers on future charge reviews to support planning and budgeting.

Economic impacts

Summary of responses 

Responses to the consultation included various comments about:

• the likely impacts of our proposed charge increases
• the assumptions drawn in our economic impact assessment

Some customers were supportive of the methodology we used and were pleased that we had provided an economic assessment. Others challenged how we reached conclusions for certain sectors or business structures.

Some said they would be unable to pay the proposed increases and cited affordability concerns for customers. Some suggested that our charge proposals might stifle innovation, prevent take up of renewable technology and create barriers to entry.

Our response

We recognise that economic circumstances are having a significant impact on many individuals and businesses across diverse sectors affected by our charge increases. We understand the pressure this puts on people. Before proposing any charge increase, we thoroughly consider alternative options to ensure we carry out our duties in the most effective and efficient way possible.

Inflation and rising costs impact our own services in much the same way as any other organisation. In accordance with requirements of HM Treasury’s managing public money rules, we aim to fully recover the costs of regulatory services provided to charge payers. Our activity requirements, efficiency savings and cost analysis are scrutinised internally, then by Defra and HM Treasury. The consultation provides a further opportunity for scrutiny of our proposals.

In our economic impact assessment, we considered how our proposed new subsistence charges would impact the water sectors we regulate under the environmental permitting regulations. We focussed on subsistence charges (paid annually) rather than application charges (one-off payments). This is because the impact of an ongoing charge gives better insight into the overall, long-term impact of our proposals. We concluded that most industrial sectors will only be marginally impacted by the proposed changes in water quality charges. The water industry sector, made up of the major sewerage undertakers, is likely to face the highest impacts. However, our analysis shows that the increases for the whole sector are acceptable.

We acknowledge that, at a typical firm level (or customer level), the impacts are more variable. We have been particularly keen to understand the impact of charge increases on small and medium sized enterprises and individuals or householders, for which we had limited data. Very little additional data was provided by consultees, other than in responses listing the cost of existing permits and what they can expect to pay under the new scheme.

Our economic impact assessment focused specifically on the likely impacts to business revenue and gross profit. It is not possible to know how individual businesses or other organisations may decide to absorb or pass on these charge changes to their customers or clients. Processes relating to changes in costs are internal business decisions that each company or organisation will perform differently depending on a complex range of other factors they must consider.

Consultation responses did not provide sufficient additional information in feedback from sectors to alter our analysis and the conclusions of our economic assessment. Our final economic impact assessment report will be publicly available. We respond here to some specific sectors identified in responses.

Water and sewerage companies

We received responses from water companies that explained increases to our charges would cause a downstream impact on their customers’ bills. It was highlighted that cost and revenue allowances are set by Ofwat through the periodic price review process which ultimately determines customer bills.

The proposed increase was not budgeted for in water company AMP7 business plans and companies would likely request that Ofwat includes the increased costs in its 2024 price review determinations for April 2025 to April 2030.

The impacts of increased charges have been calculated by Ofwat to result in an average charge uplift of around £1.90 per household annually, although the impact on customer bills will vary between companies. It is likely that water and sewerage companies’ customer bills will increase over the coming years to fund long-term environmental investment programmes. In comparison, the uplift for increased environmental scrutiny and regulation is small.

Heat pump sector

We considered the feedback suggesting proposed charges would be a barrier to the installation of heat pump systems. The charges will only affect a very small number of potential systems that are installed in England and we will not adjust these charges.

The heat pump sector was not considered as part of the economic impact assessment as there were too few of these types of businesses with available revenue and cost data. Furthermore, a significant majority of closed systems (covering approximately 96% of England’s land mass) benefit from free of charge exemptions from permitting. It would therefore be disproportionate for us to consider impacts to the whole sector as only a small fraction would require a permit.

We have reviewed the regulatory framework and activity and believe our charges will not create a significant impact on barriers to entry where they will apply in the highest risk locations. Further detail is available in Annex 1 (see questions 15 and 16).

Aquaculture sector

Aquaculture sectors were not considered as part of our economic impact assessment because there were too few of these types of businesses with available revenue and cost data.

We acknowledge that subsistence fees for aquaculture charge bands have increased more than for other sectors, but they continue to be set at a level that seeks full cost recovery for our regulatory activities. Modelling of these charges has been subject to Defra and HM Treasury scrutiny, and we have provided further detail in Annex 1 (see question 9).

Agricultural sector

We recognise that each farm is different, and it was a limitation of our economic impact assessment that we could not estimate the impacts of charge increases uniquely to each situation. Some consultation responses did make feasible suggestions on how to analyse the impact of charge increases on farms in combination with the impacts of wider sector challenges. However, this would require extensive time and data to undertake. Even with a more detailed study, because every farm business has its own individual characteristics, any form of aggregation would still result in nuanced impacts being lost.

To try and capture worst case scenarios, our analysis focused on revenue, profit and loss from solely agricultural income. However, it is not possible to capture every scenario that may affect individual farms.

Animal welfare

Summary of responses

Consultation responses highlighted a potential impact on animal health and welfare arising from increases to application charges for sheep dip disposal to land (sometimes referred to as landspreading of sheep dip). Respondents said sheep dipping is widely recognised as the most effective way to prevent ‘sheep scab’, which is caused by a parasite and presents serious health and welfare issues in the sheep farming sector.

Some respondents noted the Animal and Plant Health Agency recently confirmed resistance in this parasite to alternative injectable treatments. These respondents said that proposed charges would be prohibitive to farmers who wish to remain compliant with regulations whilst managing flock wellbeing.

Our response

We have listened to these concerns and fully considered the options. We will hold application charges for sheep dip disposal to land at the current rate (£2,708). This approach is to allow those that need to obtain permits to do so at the current cost and to reduce the risk of adverse impacts to animal health.

We need to make sure the right regulatory controls are in place for the disposal of sheep dip to land. Our decision to hold application charges for disposal of sheep dip to land will give us, Defra, the sheep sector, and other stakeholders the opportunity to develop a longer-term management strategy.

We will implement subsistence charges as outlined in the consultation (£267 for disposal of less than 5m³ of sheep dip and £938 for disposal of more than 5m³ of sheep dip) on 1 June 2024.

Permitting

Summary of responses

Some responses expressed concern over the current levels of service, particularly the length of time to receive a permit. A few respondents went further to suggest there had been a decrease in efficiency since the last charge review in 2018. Some commented that no evidence had been provided to indicate the proposed charge increases would improve the quality and efficiency of our service. 

Water and sewerage companies suggested that our current processes need to be assessed to drive efficiencies, particularly in relation to the upcoming AMP8 programme. One respondent suggested a partial refund of the permit application cost should be returned to the applicant if we do not meet the required levels of service. They said this would cover the additional costs to the water sector that arise from a delayed scheme. Water and sewerage companies also asked: for service level agreements to be reviewed and agreed, and to have key performance indicators reported on annually alongside environmental performance assessment reporting. 

Our response

We recognise that determination times for permit applications have not been at expected levels for some permit types over the last 3 years. Through a permitting improvement programme, we have been able to increase resource in our National Permitting Service. This has seen performance improve over the past 18 months. Our application charge increases seek to address cost pressures in providing permits since our last charge review in 2018.

The most complex applications were often impacted through shortages in key technical skills. We are in the process of increasing the technical resilience of both our permitting service and wider operational staff. This will increase performance further in the long term.

Alongside increases in resource we have also been focusing on continuous improvement of our processes. This varies from small administrative improvements to larger systems changes. Some of the most significant benefits may take some years to achieve. Examples include:

• streamlining existing processes
• reviewing how we work with operational teams to sign off permits and reduce bureaucracy
• reviewing our consultation process to improve the quality of responses and make it more efficient for us and the consultees to get the best results
• improvements to how we manage vacancies and streamlining our recruitment approval process

Our ambition for permitting is to have:

• smaller queues
• determination times aligned with complexity of application
• better communication with all customer groups
• as efficient a service as possible

We will be looking to engage with water and sewerage companies to discuss how we can improve the service we provide, both in terms of outstanding applications and for forthcoming AMP8 work.

Next steps

We have considered all consultation feedback and assessed whether we need to make changes to our proposals.

The Environment Agency (Environmental Permitting and Abstraction Licensing) (England) Charging Scheme 2022 version 1.3 will come into force on 1 June 2024. The charging scheme has been approved by the Secretary of State for Environment, Food and Rural Affairs, Defra and HM Treasury. The changes will be implemented under existing legislation in Section 41 to 43 of the Environment Act 1995.

We have now published the updated charging scheme on GOV.UK.

We have also published:

• the economic impact assessment
• a guide on how we calculate our charges