Consultation outcome

Water resources charge proposals from April 2022: summary of consultation responses

Updated 1 April 2022

1. Introduction

In August 2021 the Environment Agency published its consultation ‘Water resources charge proposals from April 2022.’ We asked for your views on our proposals to change the water resources charging framework to make it fairer, work better for business and the environment, and be financially sustainable.

In this document, we outline how the consultation took place, summarise the responses we received and provide our reply to the main findings. We also confirm our final proposal and the overall outcome of the consultation.

1.1. Background

As the climate changes and the population grows, the way we manage water as a valuable resource must change to make sure that we do not run out of water. This will require investment to make sure the economy can continue to grow, while at the same time, our precious water environment is protected and enhanced.

With pressure on water resources set to continue, we need strong and effective water management to secure future water supplies, protect users’ access and manage drought. It will require greater co-ordinated effort between regulators and the businesses that use water.

1.2. Overview

We set out in the consultation how the combined pressures of abstraction, navigation, drainage and water storage can impact adversely on the resilience of the water environment and often leaves little room for potential increases in demand. There are considerable pressures on water resources throughout the country, not just in the drier south-east and eastern areas of England but increasingly across the Midlands and the northern areas of England.

Climate change and population growth will compound these issues, affecting the amount and timing of rainfall that supports river flows and replenishes groundwater. It will also influence the demand for water and its quality, as well as the way land is used. Summers are likely to get hotter, significantly increasing demand for water. Winters are likely to get warmer and wetter. Although average summer rainfall is not predicted to change, more rainfall may come in big downpours. Increasing frequency of both drought and summer heatwaves could lead to a much higher likelihood of these extreme events occurring at the same time.

The majority of respondents recognised these issues and supported the underlying principles of securing additional income to meet these current and future challenges. There have been challenges around timing and requests for more detail around how the Environment Agency allocates income on activities to protect the water environment. We seek to address these through this response document and its annexes.

We have listened to feedback around application charges and have made changes where consultation responses demonstrated there would be a barrier to delivering government environmental objectives. Therefore, we have made changes to the way we will charge for hydropower schemes, heat pumps, environmental enhancement schemes and reductions to abstraction licence volumes. The changes will reduce the impact on customers making these types of applications.

The fundamental principles of the way we charge for water abstractions has not been reviewed for over 25 years. The introduction of a new charging scheme and the increased income will change what we can deliver for the environment and society. We will make further investment in maintaining and operating ageing infrastructure, modernising the licensing system through digital transformation, and protecting and enhancing the environment through a more sustainable approach to water abstraction with increased emphasis on rare and sensitive habitats.

1.3. How we ran the consultation

The consultation ran for 12 weeks, from 18 August 2021 to 10 November 2021. An addendum was published on 15 September 2021 to correct part of the draft charging scheme and the charge indicator tool. The consultation was hosted on GOV.UK and was open to anybody to take part. Those not able to respond online were able to request a print copy of the documents to enable them to respond by email or post.

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

It was important for us to give our customers the opportunity to understand the proposals and the impact they will have. We encouraged our customers to give us their views through the consultation and have publicised it openly.

We contacted approximately 12,500 customers and licence holders by post to inform them of the consultation.

Throughout the development of the proposals and in the run up to the consultation, our staff engaged with individual licence holders, trade associations, representative organisations and environmental groups to discuss our proposals and listen to views. This included setting out our case for change and allowing stakeholders to understand what it meant in the context of their own sector or organisation.

2. Overview of responses

In this document we cover the themes raised during the consultation and our response to each. We have provided responses under these grouped themes in section 3, rather than for each of the consultation questions individually. This is to focus on our final decisions and what has changed from the initial proposals. Information on the responses to each question are given in Annex 1. In total we received 187 responses, with 143 online and 44 written responses. Of these respondents were organisations and trade associations representing larger numbers of interested parties and charge payers.

The breakdown of responses by customer group were:

• 65 individuals
• 111 organisation or groups
• 11 others

Annex 2 provides a list of organisations and groups who declared their participation in the consultation.

We also received 8 emails containing feedback regarding the consultation that were not sent through the formal route. We did consider those comments alongside formal responses but they could not be included in the numerical summaries in the following section.

3. Summary of main themes and our response

3.1. Consultation

Summary of responses

The response to online consultation feedback suggests that 56 of the 187 consultees were satisfied or very satisfied with the consultation. The breakdown is as follows:

• very satisfied – 7
• satisfied – 49
• neither satisfied nor dissatisfied – 59
• dissatisfied – 16
• very dissatisfied – 9
• do not know – 2
• no answer – 45

Of those dissatisfied, customers expressed concern over how the consultation questions were written, suggesting they were written in a leading fashion. Other customers stated there was not enough information, while others commented there was too much information, with some of it being too complex.

Our response

The purpose of the consultation was to gain views and additional evidence on the Environment Agency’s proposals for a cost reflective charging scheme for water resources activities. We provided supporting information to help consultees understand the scheme design.

The questions were designed to draw out responses on the scheme design. We wanted clear feedback on our proposed design so that we could properly consider customer views. The free text sections of the consultation provided the opportunity for licence holders and representative organisations to make their views.

We acknowledge and thank customers for their views on how much information we provided to explain the proposed scheme, its implications for customers and how it differs to the previous one. We endeavoured to strike the right balance of information with the consultation documents. We are committed to taking these views into account in our communication and engagement going forward.

3.2. Charge framework

Summary of responses

Most consultees were in favour of introducing a cost reflective charging scheme that supported investment in water resources management. There was general support for the principles and cost reflectivity, for example, the need for various application charges to reflect the difference in applications and work involved.

There were concerns over the change to a banding structure and whether the current method could be continued. In particular, its impact on farmers and growers who are small or medium-sized businesses. One response challenged what activities were included in the loss factor lists.

There were also concerns that the proposals do not meet the aims in terms of investing in the security of future water supplies, drought resilience and having a cost reflective charging scheme.

Our response

We will implement a scheme that is cost reflective and allows us to:

• invest in maintaining and operating ageing infrastructure
• modernising the licensing system through digital transformation
• protect and enhance the environment through a more sustainable approach to water

We will introduce a cost reflective scheme from April 2022.

The current charging system is outdated and does not result in the same charge for a defined category of service. It is right to bring our charges in line with the ‘Managing Public Money’ guidance (MPM), as it reflects true cost to individual charge payers. Otherwise, the cost is borne by general taxpayers. The change to charge bandings fits in with the current charging scheme for the Environmental Permitting Regulation (EPR) regimes and the consolidation into the same scheme now aids the future integration of water resources into EPR.

Some comments referenced the impact on small or medium farms and growers. From our calculations the impact on agriculture shows that 52% of licences will see a decrease in their annual charge and 28% will see an increase of up to £100 per year.

Activities included in the loss factor groups were not considered as part of this review. We may look at these as part of future development and revision of the scheme.

3.3. Time and materials charging

Summary of responses

There was both support and some concern expressed about the time and materials element of our charging proposal. Concern was raised over the hourly rate, how we had arrived at that figure and potential escalating costs.

Our response

We will alert licence holders in all cases where they are entering time and materials charging and keep them informed of estimated costs of ongoing works. For pre-applications, this service already exists for EPR regimes (except flood risk activity permits) at a rate of £100 per hour. The charge covers our costs and is in line with MPM guidance. The hourly charge of £100 is the result of modelling using the division of work across staff grades and our various functions. Further information is available in Annex 3.

For applications at high public interest sites that incur time and materials charging, the definition of these is published in our public participation statement: Environmental permits: when and how we consult – GOV.UK.

3.4. Transparency and timing

Summary of responses

Consultees expressed concern that the charge proposals were complex and there was not enough time for us to take feedback to the consultation into account or for companies to adjust their budgeting by April 2022. Customers also felt that there could have been more transparency with the make-up of charges, demonstrating the evidence behind the charge amount and that they were proportionate. Further comments referred to the length of time some permit applications had taken to be finalised.

Our response

We acknowledge consultee comments on the wide scope of the consultation and the concerns regarding timing. We engaged early with representative bodies and at an individual organisation level where it was requested. This included seeking the views of other regulators and, amongst others, representative associations covering large proportions of our abstraction licence holder base such as the National Farmers’ Union (NFU), Water UK, Energy UK and Blueprint for Water. We believe that a broad range of views of abstraction licence holders have been received.

We received some requests through the consultation to delay the implementation. We are unable to delay implementing these charges because we need to cover the costs of our regulatory services and to make sure we carry out our role as an effective regulator. These costs would otherwise be borne by general taxpayers. Charges have not increased for the last 10 years, except for one change to an application fee. Within this period, the work and costs required to manage water resources have increased. We have increased efficiencies, however, there is a limit to how far this can go without an increase in charges.

The charge increases with the size of the abstraction, since the work the Environment Agency carries out on it also increases. As an abstraction volume increases, the potential for wider scale adverse impacts across the water environment increases, which requires management. Smaller abstractions only have a localised impact on the environment and require less intervention. The amount of effort increases as abstraction volumes increase. To manage larger volumes we need to:

• invest more time and effort in monitoring, assessing and reporting on the impacts of abstractions – the larger the abstraction, the greater the environmental ‘footprint’ of the abstraction that needs to be monitored and assessed

• seek to make sure they have the evidence needed to plan and manage the environment – larger abstractions require more time and investment to understand their ongoing impacts and how to manage them into the future

• monitor and assess larger areas to evaluate the changing impacts on the environment resulting from the abstraction as the climate changes or during periods of drier weather to avoid causing derogation of other abstractions

• make sure that ongoing operation of abstractions do not cause impact on protected habitats and environments that require particular water flows and levels

We have followed MPM guidance when calculating the costs of our regulatory services and setting our charges. We have based our approach on assessing full cost recovery, identifying efficiencies and exploring opportunities to improve the service we offer. Annex 3 provides further information to assist customers to understand the make-up of our charges.

3.5. Water undertaker charge

Summary of responses

There was support in charging water undertakers an additional charge. The response breakdown is below:

• yes – 84
• no – 34
• do not know – 52
• not answered – 17

Some water undertakers raised concern that the water undertaker charge would be cross-subsidising other sectors. In addition, some responses questioned whether double counting would occur under the water resources management plan (WRMP) strategic planning work or already included in the base charge under each charge category.

Our response

The water undertaker charge covers the specific costs of the additional statutory activities we carry out to regulate these licences and is not incorporated into the rest of the charges. The charges cover:

• our assessment and evaluation of statutory WRMPs with respect to their abstraction licences
• water company drought plans
• price review consultation.

We will recover this charge proportionally based on the impact the abstraction has on the water environment. The cost does not cross-subsidise any other work and is cost reflective of the service we provide.

3.6. Additional application charges

Summary of responses

Consultees supported the proposal that only customers requiring additional work are charged the relevant additional application activity charge. The specific response numbers for each additional charge are as follows:

Enhanced pre-app service:

• yes – 88
• no – 50
• do not know – 35
• not answered – 14

High public interest:

• yes – 86
• no – 58
• do not know – 29
• not answered – 14

External consultation:

• yes – 73
• no – 58
• do not know – 39
• not answered – 17

Conservation assessments:

• yes – 93
• no – 52
• do not know – 23
• not answered – 19

Advertising charge:

• yes – 77
• no – 63
• do not know – 28
• not answered – 19

Amending during determination:

• yes – 70
• no – 64
• do not know – 35
• not answered – 18

Competing schemes:

• yes – 62
• no – 67
• do not know – 41
• not answered – 17

Our response

The additional charges are to cover work over and above the set application cost and is specific to applications requiring these additional costs. There was widespread support for the additional charges related to pre-application, high public interest, external consultation and conservation assessments.

There was less support for the additional costs covering advertising, amending during determination and competing schemes.

The advertising charge is being kept the same (£100) as the previous water resources scheme and is cost reflective.

The charge for amending an application during determination is to cover the extra work needed such as reassessing the technical impact of an application, which would require further public consultation. The charge is stated to offer our customers surety of charge. We anticipate this to be a rare occurrence for water resources applications.

Where we receive applications to abstract the same water (known as competing schemes), we must complete extra work, particularly where the water is in high demand. The extra work involves working out which scheme, if any, is best in the public interest. Applicants will be informed before any work is carried out. Where this is the case, we will advise of the costs and keep applicants informed throughout.

We will proceed with this component of the charging scheme.

3.7. Hydroelectric power (HEP) schemes

Summary of responses

Several responses commented that the proposed application charges for HEP schemes would be a barrier to entry, particularly for charities, small-medium enterprises and community schemes. Responses also raised the conflict with net zero outcomes and the proposed bandings not being reflective of the hydropower sector or how much effort is required to permit them.

Our response

We have engaged with HEP stakeholders and done further analysis into the licence applications for hydropower schemes received at our permitting centre. We receive, on average, 11 new applications each year. Most applications are complex, requiring a large amount of permitting and area officer effort.

We have listened to our customers and revisited the charges to base them on power bands and risk level, whilst still reflecting our costs. Determining an HEP licence is complex and takes time due to considerable and wide-ranging risks to the environment. The Environment Agency needs to assess the impacts of the scheme on the hydrology of the river such as:

• the creation of depleted reaches
• geomorphological impacts to riverbeds and weir pools
• fisheries impacts including spawning and migration
• protected sites and species including habitats directive sites
• impacts to other abstractions and other lawful users

Unlike most other abstractors, HEP customers generating less than 5 megawatts will continue to be exempt from annual subsistence fees. Guidance and pre-application advice are available to make sure proposed schemes are viable for taking forward. We support sustainable growth and the contribution made by renewables, but this must be done in a way that continues to safeguard the environment.

3.8. Heat pumps

Summary of responses

Several responses commented that the proposed application charges for heat pump schemes would be a barrier to entry, particularly for domestic use. Responses also raised the conflict with net zero outcomes.

Our response

We have examined the data for water abstraction permit applications regarding heat pumps. From the period April 2018 to March 2021, we received 20 new permit applications, 6 variations and 11 same term renewals.

We have listened to our customers and propose to amend the charge scheme to have a specific table for heat pumps, which is still cost reflective. It is worth noting that 70% of applications will be made alongside a water discharge permit application where a 90% reduction of the lower cost application charge applies. We have also removed the water availability charge and factor due to the low loss nature of these schemes.

3.9. Variations to reduce authorised volumes

Summary of responses

Consultees told us that the cost of variations was too high where a reduction in volume was sought. The concern stated was that this would discourage opportunities for more innovation, improved efficiency and greater sustainability.

Our response

With the demand on water supplies expected to increase, coupled with the fact that this is part of effective licence management, we have responded to the feedback and decided that variations solely to reduce authorised volumes will be free of charge for such variations.

3.10. Environmental benefit schemes

Summary of responses

Several responses highlighted the potential impact of the charge proposals on works of environmental benefit carried out on a non-commercial basis. Respondents said that the proposed charges could make projects unfeasible. Many of these works are carried out by charities or other small organisations, sometimes with support from the Environment Agency.

Our response

In response to the feedback, we recognise the significant benefits that these works can contribute towards improving the environment; we do not want our charges to discourage this. We have changed our charge proposals so that charges are not increased for works that, in our view, are for the benefit of the environment and are carried out on a non-commercial basis.

We have introduced an application charge category for non-commercial activities undertaken for the purpose of environmental improvement. We have maintained current charges at £135 for abstraction permits and £1,500 for water transfer schemes.

3.11. Winter discount

Summary of responses

Consultees commented that an increase in winter discount will disincentivise the use of water at peak flow periods and could increase summer use of water. There were additional comments on making the winter discount a high flow discount, where abstractors only abstract when flows are high, and resources are available.

Others commented that the winter discount should remain at 90% not 50% or be reduced to no cost for the abstractor.

Another comment provided was that the decrease from 90% to 50% discount would disincentivise future reservoir development and capital investment – charges should account for costs to build reservoirs.

Our response

We recognise that a winter discount incentivises abstraction during the winter months when water is typically more available. Unfortunately, we cannot maintain a discount at the 90% rate alongside being cost reflective. We have maintained a discount feature as we recognise that abstraction during winter months poses a lower risk. The 50% discount is cost reflective and therefore we consider it necessary and appropriate to implement this element of the scheme.

With respect to changing the winter discount to a high flow discount, it is a development we are interested in examining in the future as our available live data improves and our information technology (IT) solutions develop further.

3.12. Level of service

Summary of responses

Some responses provided concern over the current levels of service, particularly the length of time to receive a licence. A few comments went further to suggest that there was no evidence provided to state the increase in fees will improve the quality and efficiency of service.

Our response

We acknowledge that there have been issues with licence determination timeframes, particularly in the last year. The effects of the coronavirus (COVID-19) pandemic and licensing of previously exempt abstractions have increased the normal volume of applications. We recognise the impacts of the current delays on our customers and are working hard to increase capacity through recruitment to deal with this increased workload. We will continue to communicate on our service level to set expectations for applicants. We have also set up an improvement programme to reduce timescales.

Over the past 12 years, our permitting service has achieved efficiencies to make sure we are keeping costs as low as possible by delivering an effective service. Examples include:

• streamlining existing processes
• improving the customer experience
• reviewing how we work with operational teams to sign-off licences and reduce bureaucracy
• reviewing our consultation process to target our process better and improve the quality of responses as well as making it more efficient for us and the consultees to make sure we get the best results
• improvements to how we manage vacancies and streamlining our recruitment approval process

3.13. Renewal fee

Summary of responses

There were concerns that the fee for renewal on different terms was too large. One response agreed that ‘renewal on different terms’ should attribute a higher charge.

Our response

The purpose of retaining the lower fee for renewal on same terms is to provide a level playing field to those who must renew their licence after the new charging scheme is introduced but before water resources becomes part of EPR.

The charges for renewal on different terms are higher because these renewals involve more resource to reassess the applications.

We have adopted this approach to balance the environmental impact against levels of effort as an organisation; this will be a transitional position before moving to EPR. We will periodically review the true costs of reviewing permits under new EPR legislation.

3.14. Charge indicator tool

Summary of responses

Some consultees found the charge indicator tool helpful while others reported the results were inconsistent. Further comments stated that the tool could benefit from more detail and could be made more user friendly, such as keeping the information on recalculation.

Our response

We appreciate the feedback received on the charge indicator tool and recognise the need for improvement. We did locate a few issues with the tool and re-published it during the consultation. The tool is simple and does not deal with complex licensing situations as these are unique. However, we will take on board the comments in future development of the tool.

3.15. Variations

Summary of responses

Consultees expressed a lack of clarity around definition of normal and substantial variation. Also, responses said that the costs were too high and much of the initial work carried out in granting the licence would not need to be undertaken again.

Our response

Licence holders may need to vary a licence for different reasons. Some of these variations are simple, needing lower levels of effort to assess. Others require a substantial change to the activities and the conditions we need to apply. We have derived variation charges based on a proportion of the new application charge that recovers the costs incurred.

The costs have been modelled based on evidence of previous applications and resource required to assess each variation type. A minor variation is one that does not need external consultation and requires less technical input than a normal variation. For example, apportioning a licence or removing a purpose (use) from a licence.

A normal variation is one that requires technical input from us. For example, adding an abstraction purpose (use) or adding an abstraction point or increasing the volume of water to be abstracted.

A substantial variation needs us to carry out significant assessment. We assess the level of work needed to determine each one of these types of applications. An example of a substantial variation is where an applicant makes multiple changes to an existing licence. These changes are so complex that our time spent determining the application is significant. We will improve our guidance document to provide more examples showing the difference between normal and substantial variations.

3.16. Supported sources

Summary of responses

There was overall support to extend the schedule of supported sources. One response commented that it was unfair to levy the supported source charge when it also supports navigation and public supply.

There was also a query why certain sources have been assessed to benefit from supported sources and why others have been omitted.

Our response

We incur costs to manage and operate assets supporting surface and groundwater resources that allow access to water at times. This makes sure water is available for abstraction. These are mainly costs of operating those assets and for staff to manage those schemes. The additional supported source charges are costs only for water resources and for water resources benefits.

The new scheme will include surface waters and groundwater where we carry out additional activities to make sure abstraction can take place. This is a more cost reflective approach where only those licence holders whose abstractions require this support pay for the service.

We have assessed licences on supported source reaches or in groundwater supported source areas. We have identified those that require the supported source actions to be able to abstract.

4. Next steps

We will use the responses from this consultation to inform the development of our abstraction and impounding charges. The new charging scheme will come into force on 1 April 2022 after approval by the Secretary of State, Department for the Environment, Food and Rural Affairs (Defra) and consent of HM Treasury. The changes will be implemented under existing legislation in Sections 41 to 43 of the Environment Act 1995.

The following documentation is published on GOV.UK:

• Environment Agency water resources charge proposals from April 2022: summary of consultation responses which includes Annexes 1 to 3
• the Economic Impact Assessment

Annex 1: Consultation responses

1.1. Introduction

This annex sets out the responses received to our consultation on ‘Water resources charge proposals from April 2022’ which ran from 18 August 2021 to 10 November 2021.

Within the consultation, the questions asked for a specific choice as well as providing free text boxes.

They were also split into several topics:

• about you and consultation feedback
• charge framework
• application charge proposals
• annual charge proposals

There were 187 responses to the consultation. This included 143 through the online tool and 44 using the consultation response form. We also received a further 8 emails with comments relating to the consultation. We have summarised these email comments in section 1.7 and have not included them in the data for the consultation questions.

We have considered all the responses we received and reflected the total number of responses and comments in this document.

1.2. About you

We included the ‘about you’ section to provide us with an understanding of who responded and to help us better analyse your response.

We asked if you were responding as an individual or on behalf of an organisation or group and you said:

• individual – 65
• organisation or group – 111
• other – 11

We asked you the number of employees within your business and you said:

• fewer than 10 – 89
• 10 to 49 – 26
• 50 to 249 – 15
• 250 or more – 31
• I am replying as an individual – 21
• not answered – 5

We asked if you had an abstraction or impounding licence and you said:

• yes – 155
• no – 28
• not answered – 4

We asked which primary purpose of abstraction best described the sector you represent and you said:

• agriculture – 74
• amenity – 18
• environmental – 15
• industrial, commercial and public services – 21
• production of energy – 25
• water supply – 20
• not directly affected – 5
• not answered – 8

We asked you to tell us the primary region you operated in and you said:

• Anglian – 48
• Midlands – 16
• Northumbria – 3
• North West – 15
• South West (including Wessex) – 41
• Thames – 13
• Yorkshire – 13
• Dee – 0
• Wye – 2
• National – 33
• not answered – 3

1.3. Consultation feedback

For the respondents who completed the consultation online, we asked how satisfied they were with the online tool. We received the following responses:

• very satisfied – 7
• satisfied – 49
• neither satisfied nor dissatisfied – 59
• dissatisfied – 16
• very dissatisfied – 9
• do not know – 2
• not answered – 45

We also received 40 free text comments to these questions.

Of the 187 responses, 147 did not answer or had no opinion.

On analysing the 40 comments made to these questions, we have listed the main themes, then grouped the themes based on the number of times they were identified.

Themes identified were:

• comments pertaining to water resources – 19
• questions are leading or biased or had limited choices – 15
• poor consultation design – 8
• question needs open text box after each question or general open text question (or both) – 7
• consultation design needs link to relevant guidance or supporting documents for each page (or both) – 7
• good questionnaire or tool – 5
• consultation design needs better links to consultation path or between consultation pages – 3
• use plain English and terminology – 3
• consultation design, some questions irrelevant to sectors – 2
• questions too broad – 2
• repetition within consultation pages –1

We asked you how you found out about this consultation and you said:

• from us – 134
• from another organisation – 13
• through an organisation or group or trade association you are a member of – 16
• press article – 1
• social media such as Facebook, Twitter – 1
• through a meeting you attended – 3
• other – 8
• not answered – 11

1.4. Charge framework

This included 3 questions with an ‘additional comments’ comments box.

Q1: Do you support investment in water resources management to increase future security of water supply and increase resilience to drought?

You said:

• yes – 156
• no – 15
• do not know – 6
• not applicable – 6
• not answered – 4

Q2: Do you agree with the proposal to introduce a cost reflective charging scheme where an abstractor’s charge relates to the service received?

You said:

• yes – 124
• no – 40
• do not know – 13
• not applicable – 5
• not answered – 5

Q3: Is there any further evidence that you can supply now, or has already been published, that you think will inform the impact assessment, particularly in relation to small and medium-sized enterprises?

You said:

• yes – 62
• no – 64
• do not know – 38
• not applicable – 13
• not answered – 10

Q3A: Additional comments – charge framework

Of the 187 responses, 71 did not answer or had no opinion.

On analysing the 116 comments made to these questions, we have listed the main themes, then grouped the remaining based on the number of times the theme was identified.

Themes identified more than 15 times were:

• lack of evidence to support the proposal or be more transparent (or both) – 37
• support for principles and cost reflectivity – 36
• the impact on business – 35
• the application charges being a barrier to entry – 30
• some of the charges being too high – 29
• references to the level of service – 29
• consumptiveness – 28
• the charges being a barrier to environmental progress – 26
• impact on renewables – 23
• other comments – 19
• charge for activity not volume – 19

Themes identified between 14 and 7 times were:

• support investment for water resource management
• abstract water sustainably
• consultation feedback
• government should cover costs
• abstracting less, decrease in charge (charge for what I take)
• challenge on in period increases during asset management plan (AMP) cycle
• exemptions for environmental or flood benefit (or both)
• challenge on proportion paying to overall charges
• do not change (charges or scheme)
• charge tool and some charges are a disincentive

Themes identified 6 or less times were:

• winter discount
• why should I pay for an abstraction licence
• time and materials (additional charges)
• recognise investment for future water use
• additional information
• why pay a charge when use own water
• definitions
• no charge for renewals and increase licence period

1.5. Application charge proposals

This section had 7 questions and an ‘additional comments’ comment box.

Q4: Do you agree with the proposal to introduce an application charge that is cost reflective of the service received?

This will be dependent on the type of application being made.

You said:

• yes – 113
• no – 45
• do not know – 21
• not applicable – 3
• not answered – 5

Q5: Do you agree with our proposal that only customers requiring additional work are charged the relevant additional application activity charge?

You said:

• yes – 129
• no – 32
• do not know – 17
• not applicable – 4
• not answered – 5

Q6: Do you agree with the activities included in the additional charge factors?

Advertising charge

• yes – 62
• no – 57
• do not know – 28
• not answered – 40

Amending application during determination

• yes – 62
• no – 54
• do not know – 34
• not answered – 37

Competing schemes

• yes – 56
• no – 54
• do not know – 40
• not answered – 37

Conservation assessments

• yes – 80
• no – 46
• do not know – 22
• not answered – 39

Enhanced pre-app services

• yes – 78
• no – 42
• do not know – 32
• not answered – 35

External consultations

• yes – 59
• no – 55
• do not know – 36
• not answered – 37

High public interest

• yes – 74
• no – 51
• do not know – 27
• not answered – 35

Water undertakers (as regulated by the Water Services Regulation Authority (Ofwat))

• yes – 73
• no – 27
• do not know – 49
• not answered – 38

Q7: Do you agree with our proposal to charge time and materials for specific application activities?

You said:

• yes – 88
• no – 54
• do not know – 30
• not applicable – 7
• not answered – 8

Q8: Do you agree with our proposal to apply a discount to the application charge where an application is being made for more than one activity and those activities are reasonably considered to be part of the same operation?

You said:

• yes – 142
• no – 14
• do not know – 13
• not applicable – 9
• not answered – 9

Q9: Do you agree with the proposed approach for application charges on renewal of a time limited abstraction licence?

You said:

• yes – 79
• no – 60
• do not know – 30
• not applicable – 10
• not answered – 8

Q10: Do you agree with the proposed approach of charging for variations, so that the charge is proportionate to the amount of work we carry out?

You said:

• yes – 111
• no – 48
• do not know – 16
• not applicable – 6
• not answered – 6

Q10A: Additional comments – application charge

Of the 187 responses, 84 did not answer or had no opinion.

On analysing the 103 comments made to these questions, we have listed the main themes, then grouped the remaining based on the number of times the theme was identified.

Themes identified more than 15 times were:

• all or some charges too high – 57
• lack of evidence to support proposal or be more transparent (or both) – 37
• application charges would be a barrier to entry – 33
• Environment Agency level of service – 29
• charges would be a barrier to environmental progress – 25
• some charges are a disincentive – 24
• renewables – 19
• support for principles and cost reflectivity – 19
• cost of variations – 18

Themes identified between 14 and 5 times were:

• business versus environmental benefit
• do not agree with additional fixed charges for some sectors
• consumptiveness
• consultation feedback
• exemptions for environmental or flood benefit (or both)
• no charge for renewals
• business impacts
• abstract water sustainably
• remove bands and have volumetric rate and water company charge

Themes identified 4 or less times were:

• other comments
• recognise investment for future water use
• challenge on proportion paying to overall charges
• abstracting less, decrease in charge (charge for what I take)
• £100 per hour too high
• incorrect interpretation of the scheme
• challenge on in period; increases during AMP cycle
• government cover costs
• why pay a charge when use own water
• increase licence period
• do not understand it so cannot comment and support investment for water resource management

1.6. Annual charge proposals

This section had 11 questions and one ‘additional comments’ box.

Q11: Do you agree with our proposal to introduce an annual charge that will be applied to all customers, based on the source of supply, amount of water a licence authorises and the use for that water (loss to the environment)?

You said:

• yes – 82
• no – 65
• do not know – 15
• not applicable – 7
• not answered – 8

Q12: Do you agree with our proposal that only customers that require additional work are charged for the relevant additional charge factors through their annual charge?

You said:

• yes – 125
• no – 28
• do not know – 15
• not applicable – 7
• not answered – 12

Q13: Do you agree that the additional costs incurred by us in regulating water undertakers are recovered through a separate additional charge?

You said:

• yes – 88
• no – 42
• do not know – 34
• not applicable – 11
• not answered – 12

Q14: Do you agree with our proposal to extend the schedule of supported sources?

You said:

• yes – 72
• no – 21
• do not know – 70
• not applicable – 11
• not answered – 13

Q15: Do you agree with our proposal to retain the mechanism to raise the compensation charge in the new charging approach?

You said:

• yes – 61
• no – 40
• do not know – 62
• not applicable – 10
• not answered – 14

Q16: Do you agree with our proposals to charge for specific activities on a time and materials basis?

You said:

• yes – 94
• no – 49
• do not know – 26
• not applicable – 5
• not answered – 13

Q17: Do you agree that we continue to offer an abatement of annual charges under the new charging scheme to abstractions that meet the criteria set out?

This would mean that when all criteria are met, all or part of the annual charge is removed.

You said:

• yes – 120
• no – 11
• do not know – 33
• not applicable – 11
• not answered – 12

Q18: Do you agree with the criteria for the other special charges we propose to retain and introduce?

Two-part tariff

• yes – 77
• no – 21
• do not know – 51
• not answered – 38

Winter only abstraction

• yes – 79
• no – 24
• do not know – 46
• not answered – 38

Q19: Do you agree with the principles proposed to calculate the charge for licences with more than one point, purpose, or aggregate quantities?

You said:

• yes – 87
• no – 25
• do not know – 43
• not applicable – 20
• not answered – 12

Q20: Is the charge indicator tool helpful in working out your charge?

You said:

• yes – 76
• no – 32
• do not know – 51
• not applicable – 17
• not answered – 11

Q21: Would you like this tool available once the scheme is in place?

You said:

• yes – 120
• no – 6
• do not know – 36
• not applicable – 15
• not answered – 10

Q21A: Additional comments – annual charge

Of the 187 responses, 82 did not answer or had no opinion.

On analysing the 105 comments made to these questions, we have listed the main themes, then grouped the remaining based on the number of times the theme was identified.

Themes identified more than 10 times were:

• lack of evidence to support proposal or be more transparent (or both) – 35
• renewables – 23
• support for principles and cost reflectivity – 22
• other comments –18
• exemptions for environmental or flood benefit (or both) – 17
• charge tool – 17
• all or some charges too high – 14
• business impacts – 14
• some charges are a disincentive – 13
• charge for activity not volume – 12
• level of service – 12
• winter discount – 10

Themes identified 8 times or less were:

• challenge on proportion paying to overall charges
• consumptiveness
• charges, a barrier to environmental progress
• abstract water sustainably
• abstracting less, decrease in charge (charge for what I take)
• time and materials (fixed costs)
• challenge on in period increases during asset management plan (AMP) cycle
• application charges barrier to entry
• consultation feedback
• recognise investment for future water use
• do not change (charges or scheme)
• support investment for water resource management
• no charge for renewals and business versus environmental benefit

1.7. Email responses to the consultation

We received 8 email responses to the consultation. These did not answer all the consultation questions as given in the consultation document but did give comments that fitted with the 3 open text questions in the consultation. We have considered the comments from these respondents and summarised them here.

Comments about the framework

Of the 8 emails received, 4 made no comment in relation to the framework. On analysing the 4 comments made we have listed the main themes, then grouped the remaining based on the number of times the theme was identified.

The main themes identified were:

• support for principles and cost reflectivity – 2
• renewables – 2
• application charges were a barrier to entry – 2
• charges were a barrier to environmental progress – 2

Themes identified once were:

• challenge on in period increases during AMP cycle
• business impact
• challenge on proportion paying to overall charges
• all or some charges too high
• recognise investment for future water use
• time and materials (additional charges)
• some charges are a disincentive
• lack of evidence to support proposal or be more transparent (or both)
• level of service
• abstract water sustainably and exemptions for environmental or flood benefit (or both)

Comments about the application charge

Of the 8 emails received, 2 made no comment in relation to the application charge. On analysing the 6 comments made we have listed the main themes, then grouped the remaining based on the number of times the theme was identified.

The main themes identified were:

• all or some charges too high – 3
• business impact – 3
• application charges were a barrier to entry – 2
• do not agree with additional fixed charges for high public interest – 2
• exemptions for environmental or flood benefit (or both) – 2
• charges were a barrier to environmental progress – 2
• consultation feedback – 2
• lack of evidence to support proposal or be more transparent (or both) – 2

Themes identified once were:

• level of service
• no charge for renewals
• business versus environmental benefit and cost of variations

Comments about the annual charge

Of the 8 emails received, 4 made no comment in relation to the annual charge.

On analysing the 4 comments made the themes identified were:

• winter discount – 2
• other comments – 1
• charges, a barrier to environmental progress – 1
• level of Environment Agency service – 1
• consultation feedback – 1
• renewables – 1
• government should cover costs – 1
• impact on business – 1
• lack of evidence to support proposal or be transparent (or both) – 1

Annex 2: List of consultation participants

The number of respondents in the consultation who said they were an organisation or business will differ from the number in the list as respondents stated they were a business but did not include the business or organisation name.

List of organisations or businesses that gave a name

• ABP
• ADA (Association of Drainage Authorities)
• Affinity Water Limited
• Aggregate Industries UK Limited (AIUK)
• Anglian Water Services Limited
• Bairds Malt
• Bath and North East Somerset Council Parks Department
• Beacroft Farms Limited
• Blueprint for Water
• Brett Group
• Bristol Water plc
• British Trout Association
• Brockwood Park School
• Carr House Farm Limited
• Chambers Farming Group Limited
• Chambers Waste Management
• Confederation of Paper Industries
• Corhampton Golf Club
• Country Land and Business Association (CLA)
• Daws Hall Trust
• Derwent Hydroelectric Power Limited
• Dore and Totley Golf Club
• Dwr Cymru Welsh Water
• East Suffolk Water Abstractors Limited (also known as ESWAG)
• Eden Rivers Trust
• EDF
• Energy UK
• Envireau Water
• Eskdale Mill & Heritage Trust
• Essity UK Prudhoe Mill
• Field Barn Farm
• Formby Ladies Golf Club
• G W England and Son
• Godalming Angling Society
• Goring & Streatley Golf Club Limited
• Ground Source Heat Pump Association
• H2O Power Limited
• Hampshire Carp Hatcheries
• Hapsford Hydro Generation Company Limited
• Harper Adams University
• Heat Pump Association
• Heathcoat Fabrics Limited
• Irritech Limited
• J & W Collins
• John Jeffery (Auctioneers) Limited
• L F Papworth Limited
• Lincoln Water Transfer Limited
• Linton Tweeds Limited
• Liphook Golf Club
• Melmerby Water Trust Limited
• Mendip Power Group
• Midland Wind and Water Mills Group
• National Farmers’ Union (NFU)
• National Trust (Renewable Energy)
• NFU (National Farmers Union) Watercress Association
• Northumbrian Water Limited
• Okehampton Town Council
• On Stream Energy
• Portsmouth Water Limited
• Racecourse Association
• Ribble Catchment Conservation Trust Limited (Ribble Rivers Trust)
• River Thet Catchment Water Resources Group
• Sutton and East Surrey Water
• Severn Trent Water
• Sherwood Forest Golf Club
• Shoreham Port Authority
• South Cumbria Rivers Trust
• South East Water
• South Staffs Water & Cambridge Water
• South West Water Limited
• Southern Water Services Limited
• Specialist Ground Source Energy Consultant
• SS Great Britain Trust
• SSE
• St Annes Old Links Golf Club
• Sudbury Common Lands Charity
• Thames Water Utilities
• The Coal Authority
• The hydropower industry in England
• The Mineral Products Association (MPA)
• Torre Trout Farms Limited
• Ullswater Catchment Management CIC,
• United Utilities Water Limited
• Vitacress Salads Limited
• W H White Limited
• Waltham Windmill Golf Club
• Waterway and Wellbeing Charity
• West Cumbria Rivers Trust
• Whitethorn Farm,
• Wilsons & Company (Sharrow) Limited
• Wyresdale Anglers
• Yorkshire Water

Responses received as emails

These respondents did not answer all the questions within Citizen Space:

• Association for Decentralised Energy
• Food and Drink Federation
• Natural England
• Radipole Lake

Annex 3: Additional information

1.1. Scheme of abstraction charges

Since 1993, we have been using income generated under our Scheme of Abstraction charges to fund water resources activities.

The scheme was created based on charging abstractors relative to the potential effect of their licences on the water environment rather than in relation to the services we provide.

The scheme currently brings in approximately £147 million a year for water resource management. This provides £97 million for water resource activities, £8 million to Natural Resources Wales for licences in catchments managed from Wales for which we raise charges, and £42 million for reservoir operating arrangements.

Charges have not been increased across the scheme for licence holders for the last 10 years, except one small change on a singular application fee. Within this period the water resource business has absorbed approximately £23 million of inflationary pressure. As well as inflationary pressure, the work required by us to manage water resources has increased. This has resulted in the current levels of funding not being sufficient to maintain a current or future sustainable abstraction service.

To secure future water supplies, protect users’ access and manage drought, we need strong and effective water management. This requires investment.

1.2. Strategic review of charges

We implemented significant changes to our charges under EPR in April 2018. These changes introduced a common regulatory and charging framework as part of its commitment to aim to reach full cost recovery for all existing and new regulatory regimes. It has completed and implemented a strategic review of charges for all the permitting regimes that sit under EPR:

• water quality
• waste and installations
• radioactive substances regulation
• flood defence

The current water resources charging scheme was not initially included in the last review of charging schemes for EPR. We are now proposing to change the charging regime for water resources abstraction licences to bring it in line with the other regimes. This complements the work being carried out to transition water resources legislation into EPR in the future.

This review of the charging scheme for water resources is part of modernising the abstraction service. It will introduce consistency for charging across all the permitting regimes. The aim is to reform the water resources charging scheme, so it is fairer, works better for business and the environment and is financially sustainable. The principles we are applying are to:

• promote in others actions that will develop an even better environment for people, wildlife and growth
• deliver the most effective and targeted regulatory service we can
• promote value for money, fairness, transparency and simplicity under a single national charge account
• make sure the charging regime aligns with Treasury’s MPM requirements
• seek cost recovery for legitimate costs of water resource management and regulation

Our approach is described in 4 elements:

• charge framework – this is the structure of the proposed charging scheme for water resources
• cost model – this brings together the analysis of current and future levels of activity and the costs of managing water resources
• charge modelling – this uses the direct activity as well as indirect asset and corporate costs to capture the full costs in the new WR charge framework
• impact – this is the assessment of the range of impacts of proposed changes to the application and subsistence charges on customers

1.3. Why we need to update the scheme

The proposed changes to the charging scheme and the increased income will change what we can deliver for the environment and society.

We are currently not fully recovering our costs for water resources work. Without the additional money, our ability to deliver these key outcomes will be severely compromised:

• meeting the Defra 25 Year Environment Plan delivering clean and plentiful water
• ensuring our actions contribute to the long-term goals in meeting the nation’s future demands for water
• developing our service at the same rate as customer expectations so we can provide the service that customers expect to the benefit of the environment
• supporting abstractors to operate in an effective way, which results in an even better environment for people and wildlife – we want to support and enable development and help businesses to take their environmental performance to the next level

Through increased investment, we can improve the service to customers and deliver more outcomes for the public, business and the environment, including:

• access to water and water security for the public and business
• a level playing field for our customers
• future certainty to the public, business and the environment on water being available by investing in infrastructure, to make sure assets are safe to operate, cost efficient, effective and resilient, allowing water to be monitored and made available for our customers
• a clear efficient service through modernising the regulatory regime and fully embedding digital services in the business, changing the way abstraction licensing is managed.
• protection and enhancement of the environment through a more sustainable approach to water abstraction with increased emphasis on rare and sensitive habitats
• better prepared to protect businesses and the public during periods of prolonged dry weather

1.4. Water resources investment

The consultation focused on 3 specific investment areas and a new cost recovery-based charging scheme. The investment areas are set out in this section.

Maintaining and operating ageing infrastructure (this includes water transfer schemes, weirs and sluices, gauging stations)

The investment areas are as follows.

The replacement cost of current assets is over £1bn. Because of limited investment we are currently maintaining these assets on a failure only basis. This is very inefficient and is costing us 4 times more than a proactive approach to maintenance.

Optimising assets and monitoring when water is available to meet increasing demands at lower overall costs. For example:

• moving water to water scarce areas
• allowing farmers to abstract high summer flows
• delaying or avoiding water companies needing to develop new sources of water supply

Modernising the licensing system through digital transformation

The investment areas are as follows.

Transferring 17,500 paper licences into a digital format allows customers to access and interrogate online data to better plan and manage abstractions.

Providing data and information on flows and levels will improve access to water for licence holders. For example, we will issue water abstraction alerts to up to 3,500 licence holders. These are mainly from the agricultural sector and this will give them a potential £11m per year benefit.

Improved access and allocation of water rights through enhancing water rights trading which will help improve local management of water resources. This will result in a £100m benefit to the economy and society.

Protecting water stressed catchments, particularly chalk rivers

The investment areas are as follows.

Delivering the ambitions of the 25 Year Environment Plan by changing licences to protect and improve water stressed catchments. In particular chalk rivers, to sustain their high conservation value while providing sustainable access to water.

Working with water companies and licence holders on long-term solutions which reduce their reliance on chalk abstraction and address current damage. For example, barrier removal, fish pass installation and alternative supplies.

1.5. Cost model

We have reviewed and prioritised the activities:

• carried out across the organisation that are needed to deliver the current water resources management services
• required to deliver water resources management services now and over the next 5 years

This has involved a number of approaches:

Required service

Mapping of the current and future demands and pressures on water resources, and the corresponding work required to provide a resilient service to customers over the next 5 years.

Business management information

Use of time recording data and indicator metrics to understand the amount of work we do for water resources. The business has provided future figures on the number of applications received and current licences, and the resource required to complete different elements of work. The data is based on the last 3 years of evidence.

Data collection

To establish and understand what the future needs of the business are, we asked our business teams to complete a comprehensive baseline data collection exercise. The data collection exercise asked the teams to consider the activities, tools and workforce that will be needed in the future. This business data has enabled it to refine the understanding of our current costs for water resource management, as well as fully assess future needs and priorities.

Areas we are unable to charge for

As part of the review, we identified a small number of areas that we cannot legally charge for. In line with a no cross-subsidy principle we have assessed the related work and the risk of not undertaking this work. The work has been viewed as low risk or we have made provisions to mitigate risk at the application stage. Where we do not receive charges, we do not provide a service at a cost to other customers.

Areas deemed a lower priority

These areas will not be taken forward, to manage impact on customers while ensuring the highest priority activities are delivered.

1.6. Charge model methodology

We use a charge model to calculate the costs of our regulatory services in line with MPM to be able to propose charge rates. We have 2 models, one for our charge categories and one for hourly rate charging.

1.6.1. Direct delivery costs

We are modelling our charges based on our knowledge of the time to be spent on our regulatory tasks and activities for each charge category in the charge scheme. We have input this to our charge models, including the grade mix of the teams that will carry out the tasks. The average cost is then calculated based on our standard chargeable days, our employee related costs (National Insurance, pensions, and so on) and direct costs identified in MPM as recoverable such as travel and equipment. We use actual data from past years to inform, but not determine, the future level of these costs in our models. These costs are attributed directly to the customer, either as a cost for each charge category or as an hourly rate.

Our direct costs comprise of direct people costs, direct non-people costs and operations management and support. The vast majority of the costs are direct people costs.

The direct people cost comprise primarily of the staff costs of our people who are engaged in carrying out our regulatory activities. The majority of the staff costs are their salary, employers’ national insurance, employers’ pension contribution and also include some ancillary costs such as travel and subsistence.

The direct non-people costs are made up of administration, local building costs, fees and commissions, variable consumption IT, insurance, transport and plant, and utilities. The following gives more detail.

Administration costs

• stationary
• publications
• paper

Local building costs

• cleaning
• maintenance and repairs
• catering
• security
• office waste

Fees and commissions

• contract payments
• solicitor fees
• agents’ fees
• professional fees

IT

• electronic consumables
• data communications
• voice communications

Insurance

• premiums
• accident and theft repairs
• uninsured liabilities

Transport and plant

• hire and repair

Utilities

• telephone
• mobiles
• electricity
• gas
• water
• rates

Other costs

• postage
• printing
• fuel
• protective clothing
• laboratory services
• local equipment.

Operations management and support costs are the costs of the people who line manage and supervise the people engaged in carrying out regulatory activities. We seek to achieve a balance between not having too many layers of management, with ensuring staff doing regulation have sufficient leadership and support, including access to professional judgment in doing their regulation.

To deliver our water resources service, we group activities into categories. We use these categories to structure and plan our work through our business planning processes. They allow us to effectively set the direction and allocate resources to make sure we use the available funding in the most efficient and effective way.

The categories are as follows.

Asset management and operation

The creation, management and operation of assets for water level and flow monitoring, such as structures to manage flow, gauging stations and groundwater boreholes. These activities include work on supported sources where it operates assets to support or augment surface water and groundwater sources to protect and facilitate abstractions from those supported sources and strategic transfers.

Monitoring and assessment

We collect, monitor, record, assess and analyse monitoring data to provide evidence about the water environment to help us understand how the environment is responding to current and future pressures such as the abstraction, climate change and increased demand. We record information from groundwater, surface water level and flow, ecology, fish and chemistry activities.

Modelling

Surface water, groundwater, fish and ecology modelling uses the monitoring information we gather about the environment and existing abstractions. This enables us to understand and assess the water available in the environment for use by abstractors and the environment. This information helps us to balance the needs of abstractors with those of the water environment.

Planning

Water resource planning and management activities allow us to:

• understand what actions we need to put in place

• address short-term, seasonal and longer-term imbalances in water availability

• manage and protect the water for business, society and the environment at a local, regional and national level

At a local level, we publish our abstraction licensing strategies, which state the current condition of the catchments and the approach to licensing abstractions.

We use this information to engage with communities to encourage greater local participation with the abstraction plan objectives to achieve more for communities and the water environment. We advise Defra on the adequacy of water company water resources management plans (WRMP) which set out how water companies intend to provide a secure supply of water to people and businesses over a 25-year period whilst protecting the environment.

Permitting and licensing

This includes all of our activities to assess applications to use or abstract water from the environment. We manage abstraction and impoundment licences to make sure they are appropriate and that they continue to protect the environment. We also run the restoring sustainable abstraction (RSA) programme to identify, investigate and potentially change licences which pose environmental risks or cause problems from unsustainable abstraction.

RSA work is done in partnership with water companies, local authorities, conservation bodies and site owners. We regularly review time limited licences (TLL) as they approach their expiry date. TLL were established on the basis that they would be periodically reviewed to make sure that abstractions they permit continue to be environmentally sustainable. The opportunity to review TLL licences enables us to better manage water resources in response to a changing environment.

Around 7,300 out of the 17,500 chargeable licences currently in force are either partly or wholly time-limited. When a time limited licence expires, the abstractor must apply for a replacement licence to carry on abstracting. Over the last 6 years the majority of TLL holders have had to apply to replace all or part of their licence. Most licences have now been renewed on the same terms but some, principally in East Anglia, have had to be changed or not renewed to meet environmental obligations.

These changes have been challenged by abstractors both locally and nationally. Further peaks in TLL related permitting work are expected from 2025 to 2030. Further changes to licences cannot be ruled out.

Compliance

We provide an outcome-focused service for water resources compliance, which allows us more flexibility to target compliance activity to abstractions with highest risk. Our area teams take an evidence based and risk-based approach when determining which inspections to carry out. This makes sure the many licensing activities and processes we regulate cause minimal damage to the environment and that existing users remain protected.

Compliance activities involve checking that:

• abstractors have permission to take water from the environment
• licence holders are operating within their licence conditions

We do this through site visits or with the abstraction returns information licence holders give us. We assess this information to determine compliance.

Incident management

We plan and prepare for managing water resources during periods of prolonged dry weather or drought which may impact on the availability of water use by business, society and the environment. We also provide a warning service to licensed abstractors where there are reported incidents of pollution.

1.6.2. Cost drivers

Source of supply

We propose a lower annual charge for an abstraction from a tidal source of water. As water availability is not an issue, we do less monitoring and regulatory work in tidal waters. The requirement to analyse data and create environmental reports is also reduced.

Authorised volume

Annual charges are categorised based on the volume of water authorised to be taken on each licence in megalitres a year. The more water a licence authorises for abstraction, the greater the environmental risk it poses. This means an increased level of monitoring and assessment and therefore an increase in our annual charges. We have therefore based the proposed charges on volume categories.

Purpose of abstraction

The work we carry out is scalable to the amount of water lost to the environment. The higher the loss of water to the environment, the more monitoring, assessment, and compliance activity we need to carry out. This reflects the higher potential for causing adverse environmental impacts. We therefore propose to also base annual charges on loss categories. The purpose of abstraction indicates the loss of water to the environment. The new legal charging scheme sets out the loss category for each purpose of abstraction.

Water availability

In catchments with ‘restricted water available’ or ‘no water available’ as set out in the ALSs at low flows (Q95) we carry out additional assessment work. This charge will account for additional work to monitor, assess, and manage water in these catchments.

Supported sources

We incur costs to monitor, manage and operate assets which augment and support surface water and groundwater resources. The cost of some of these activities are included in the current charges scheme under the supported sources schedule. However, we are seeking to increase the number of supported sources in the charging scheme to recover the cost of our work. Under our proposed charging approach, the cost of these additional services is recovered only from those licences that require the support to operate.

Specialised modelling

We propose that the cost to carry out specialised modelling be applied to those licences in areas where modelling is required. These models are used to improve our understanding and management of the water resources in the areas covered by the model. They are used to support regulatory decisions on managing water resources.

Additional water undertaker charge

We propose to levy an additional charge to licences held by water undertakers (as regulated by Ofwat) that authorise water abstraction for public water supply, or which supports the provision of public water supply.

The charge covers our assessment and evaluation of statutory WRMPs with respect to their:

• abstraction licences
• water company drought plans
• price review consultation

We will recover this charge proportionally based on the impact the abstraction has on the water environment.

1.6.3. Indirect costs

Nationally delivered support

Our nationally delivered costs are made up of:

• direct delivery of regulation from centralised teams
• teams whose work underpins the direct delivery of regulation
• functions that enable the direct delivery of the regulation

Approximately half of the nationally delivered support is through our Environment and Business directorate, which includes both the direct delivery of regulation and the teams whose work underpins the delivery. The other half is made up of functions enabling delivery, such as:

• evidence teams which make sure high quality scientific and other information is available to regulate effectively
• legal services which make sure we regulate in line with the law
• fleet operations which enable our people to have the vehicles they need to conduct their regulation
• learning and development costs which are an investment to keep our people technically qualified
• health, safety and wellbeing which makes sure our people carry out their work in a manner that keeps them and the public safe
• internal audit
• projects to enhance the effectiveness of our operations

Corporate services

Corporate services form the backbone of any organisation. As of November 2017, our corporate services are procured from Defra. This was part of a transformation programme to deliver greater efficiency for the Defra group from 2015 to 2021. The corporate services enable us to operate by providing:

• critical IT systems
• human resources (HR) and finance support
• facilities management
• procurement
• communications

Information technology (IT)

We employ approximately 10,000 staff located in 143 depots and offices throughout England. All of our people, irrespective of where they are based, require access to modern and fast IT systems and services. They need this to do their jobs effectively and to deliver great environmental outcomes. Real time access to information in the field is critical. Our staff have modern mobile devices, access to fast and reliable telecommunications systems and geospatial mapping technology to present information in a way that can be immediately understood, acted upon and shared with others.

We generate and consume huge amounts of data in the course of our work. With our suppliers, we’ve developed and operate a large number of IT applications to store, retrieve, analyse, model and report on data that we turn into valuable information to underpin our operational decisions.

Many of our IT systems are accessed directly by the public from the GOV.UK website and we have an ongoing programme to develop systems that will help share information and make doing business with us simpler.

Cyber Security is more important now than ever before, not just for us, but for the economy as a whole. We have an ongoing and extensive programme of investment in our IT infrastructure, computer application systems and cyber security controls to minimise our risk. Some of our IT systems are critical to help protect people and communities from harm. We have extensive IT contracts and business continuity arrangements in place for these. They require our contractors to meet some of the highest service levels in the industry in terms of system reliability and performance.

The organisation relies on its information communications technology (ICT) systems and services to deliver its outcomes. These include the technology staff use daily as well as external services such as licencing and permitting. The IT function is made up as follows.

Service operations

Responsible for the end-to-end integration and management of our IT services, managing suppliers and maintaining our IT security.

Digital services

Transforming systems, platforms, ways of working and skill sets so that we meet the needs of citizens. This includes defining our digital strategy, and designing, developing and supporting our digital services.

Data services

Responsible for managing, sharing and getting the most from our data, including the platforms and tools. This includes:

• setting our data strategy
• introducing appropriate policies and governance
• enabling an open data culture
• maximising how we use data to work in a coordinated manner with customers

Architecture and standards

Responsible for the technological architecture within which all of the systems, platforms and networks operate. This includes:

• ensuring compliance with relevant legislation
• setting policies
• keeping pace with new technologies
• managing the technical aspects of our ICT security

Change and governance

Responsible for professional management of IT people and delivery of services. This includes:

• assuring the broad portfolio of programmes and projects that keep our IT current and supported
• managing the demand and pipeline of initiatives that lead to future portfolios
• overseeing our internal governance (including risk management)

Knowledge and information management

Responsible for keeping the organisation compliant and efficient in how it creates, stores, shares and exploits information internally and externally. This includes compliance with the Data Protection Act, Freedom of Information Act and the Environmental Information Regulations, including casework, policy leadership and regulator relations. Also managing record keeping, a knowledge sharing IT platform and ensuring compliance with the Public Records Act

Estates

The facilities management team makes sure our property portfolio of offices, depots and laboratories are safe, well-maintained, legally compliant and productive workplaces for our staff and business operations. We group our offices through 27 geographic hubs with each hub having a small team of operational staff. Within the team there is a range of grades dependant on the number and complexity of offices or depots in the hub and how many customers are based in those offices.

The primary role is to provide direct soft service support, to act as intelligent client for bought in service lines and to make sure all aspects of security, business continuity, safety and legal compliance are delivered. The operational teams also deliver a sizeable project portfolio either as part of maintenance programmes or strategic project activity. A technical team provides support to the operational teams in 5 main areas which are:

• property standards and energy management
• legal compliance
• contract support
• business management
• project and programme support

Finance

Finance provides professional advice, financial strategy and integrated business planning. Finance has a significant role in decision making. It provides focus on priority outcomes and value for money, through financial controls, setting budgets, making forecasts, and managing the year end. It:

• produces the annual report and accounts
• makes sure the National Audit Office’s audit is successful
• makes sure we comply with rules set by HM Treasury
• makes sure that costs are properly allocated against the appropriate charging scheme

Shared Services

Our transactional processing of finance, HR and procurement activities is outsourced to Shared Services Connected Limited (SSCL). SSCL carry out tasks like processing new joiners, payroll, paying suppliers and chasing customers for payment.

Communications

Communications help us to:

• deliver our regulatory policy and delivery priorities
• build a positive relationship with partners
• lead an engaged and motivated workforce

Communications give essential staff engagement advice and support for the leadership as the organisation goes through a period of unprecedented change. It has a role to drive and embed changes to ways of working and to shift culture to improve performance. This team work makes sure all staff are aligned to our goals and change agenda.

Human resources (HR)

HR undertake the following.

Our regulatory work depends on our people and the HR team help to make sure that they are properly prepared to do their work. The HR team:

• develop and maintain a best practice people policy
• manage trade union relationships and employee pay, benefits and pensions for all staff
• provide expert advice for learning and development, including leadership development, talent management and supporting a culture in which our people want to learn and develop professionally

They manage the workforce strategy and related risks by:

• supporting the organisation to identify how current and future resourcing needs can be met and supports leaders to achieve this
• providing the people information and analysis to support leaders in making sound risk-based decisions on all people matters

HR provide organisation design (ensuring efficient operating models and organisational structures).

They deliver business partnering to develop integrated solutions with the organisation and provide strategic professional support that aids our people leaders to deliver the right outcomes. During periods of change (including EU exit activity) business partners act as change agents.

Commercial

The Defra group commercial function provide a range of expert commercial and procurement advice and support to delivery. It enables us to set up and foster supplier relationships, manage commercial risk and get value from the substantial procurement through our supply chain. The function leads on:

• tendering and commercial negotiations
• supplier management and development to leverage more value
• commercial contract and project assurance

It sets up overarching frameworks and contracts for the common goods and services our people need every day. This includes:

• contracts enabling capital works and maintenance
• facilities management
• advisory services
• fleet provision and management
• permanent and temporary staff
• training and development
• communications and office supplies

Fixed costs

We have some regime specific fixed costs that do not vary with changes in staff levels or volume of work increasing or decreasing. They can be contracts that have to be paid regardless of our activity levels. These are included in our modelling by apportioning the costs across expected levels of charges and charge types.

Capital financing costs

Following MPM guidance, we include the depreciation and cost of capital related to the fixed assets used by each regulatory regime. This includes financing costs for specific assets used exclusively by the regimes and also a proportion of corporate assets (IT systems, buildings). We have calculated the annual depreciation charge on a current cost basis. The cost of capital is calculated as a percentage of the average net book value throughout the year.

Bad debt

MPM guidance also requires that we include provision for bad debts as a recoverable cost.

Cost pressures

We set our charges to be effective from the following billing year (normally from 1 April) and we have included an assumption for the impact of forecast inflation on our current costs.

Should our assumptions for inflation and efficiency programmes’ delivery prove to be materially out of line with actual results, the Environment Agency could incur a significant financial impact. Therefore, we would propose to review our charges regularly to adjust for any material changes in either inflation or efficiency programmes.

1.7. Cost model output

The output from this work is the total cost to us to deliver the activity associated with each element of the water resource charge framework.

The proposed increase in income is in line with MPM and the principles of the review. Efficiencies are incorporated.

Summary of Environment Agency application costs:

Category	Amount
Direct costs	£2,204,669
Indirect costs	£1,344,695
Capital financing costs	£156,226
Total	£3,705,590

Summary of Environment Agency annual subsistence costs:

Category	Amount
Direct costs	£67,445,610
Indirect costs	£33,334,432
Capital financing costs	£18,430,942
Bad debt provision	£442,719
Total	£119,653,702
Kielder operating agreement costs	£32,348,620
Section 20 arrangements	£3,555,516
Total income raised	£155,557,838

1.8. Efficiencies

1.8.1. Reducing the regulatory burden on business

We are an effective regulator. As an organisation we must continue to work closely with businesses and the community to support economic growth. We must continue to move forwards with pace, seek efficiencies and challenge adverse behaviours. Ongoing developments in government requirements, technology and customer expectation mean we need to innovate and adapt to retain our reputation as a modern, effective and respected regulator.

We work alongside government, local authorities, developers and communities to make sure local plans and developments are environmentally sustainable. We provide support and guidance to customers to enable them to make clear and informed decisions about their water usage now and into the future. We actively support and promote the efficient use of water through regulation of the water industry and through abstraction licensing.

Our customers expect us to be fair and transparent, proportionate, efficient and easy to interact with. In return, we expect businesses to take action to reduce their impact on the environment and fully comply with their legal requirements. The primary focus is on the businesses we regulate, to allow and enable future access to water and help them to reduce overall environmental impacts from the way they use water resources.

1.8.2. Efficiencies across the organisation

We have made efficiencies and changes across the organisation to improve the way we operate and reduce costs.

The wider organisation has made significant efficiencies to offset the effect of cost increases such as pay rises, increased employer pension contributions, increased employer NI contributions and increased inflation of 22% since 2010. During this time water resources charges have remained relatively constant.

We have made efficiencies to accommodate increasing work. We have cut head office staff by 30% since 2010, reduced FTE head count by 7% since 2010; moved from a 3 layered organisation (National-Regional-Area) to a 2 level (National-Area); and consolidated services into national centres to save money.

We established a National Permitting Service (NPS) to achieve savings in the permitting process through economies of scale. Along with driving continuous improvement in processes to reduce time and effort, whilst maintaining quality. A £5 million saving was made to the cost of permitting when the service was set up.

We are driving and supporting improvements to our digital services as part of Defra Transformation. As part of this, we have, for example:

• made a financial contribution of £7.5 million to the Defra Transformation target savings in 2016 to 2017 (through efficiencies)
• rationalised corporate services
• worked in partnership with Defra to produce the first property strategy which has reduced the annual cost of running properties in the Defra Group from £170 million in 2010 to £106 million in 2015

We have also built efficiency into everything we do, including:

• establishing a National Customer Contact Centre
• publishing over 2,000 datasets as Open Data – making data available in a way that customers can self-serve
• continuous review of our policy and planning to make sure our process are the most and effective and streamlining services where possible

1.8.3. Efficiencies in water resources

Water resource abstraction charges have not risen for 10 years, absorbing £23.7m (17%) inflationary pressure.

Water resources has moved from water resources specific teams to integrated delivery. This has realised significant efficiencies in shared costs. For example:

• a regulatory officer will work on water resource and water quality compliance
• quantity and quality monitoring is optimised across the business
• all water resource assessments are completed by multifunctional teams

Where water resource activities can be delivered once nationally, they have been moved to a national operational service. For example, the creation of NPS meant that we moved the critical mass of skills for water resource permitting into one central team, allowing them to be more efficient using one approach.

As part of the abstraction plan, we are working alongside Defra to modernise the regulation of water abstraction and impoundment licensing and are proposing to move into the EPR in 2023. The move will provide a more efficient, modern and consistent legal framework for the day-to-day management of abstraction.

We are also transforming our abstraction licensing business onto a digital footing so the system will be more flexible, better able to meet the needs of customers whilst providing a modern yet simple service. The first stages of digital development are live and are accessible on GOV.UK. The current digital service allows:

• licence holders to view and manage water abstraction licences online
• some licence holders to view river flows or levels linked to the conditions in their licences
• our operations staff to send notifications to licence holders regarding ‘hands off flow’ conditions and licence expiry reminders.