Policy paper

2010 to 2015 government policy: water industry

Updated 8 May 2015

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

This is a copy of a document that stated a policy of the 2010 to 2015 Conservative and Liberal Democrat coalition government. The previous URL of this page was https://www.gov.uk/government/policies/reforming-the-water-industry-to-increase-competition-and-protect-the-environment. Current policies can be found at the GOV.UK policies list.

Issue

The water industry supplies goods and services which are essential to health, wellbeing and economic stability. These services are coming under increasing pressure as a result of a growing population and a changing climate.

To meet these challenges, we need to see changes in the way water is managed. Water companies will need to be more innovative, more efficient and more attentive to what their customers want.

Our ‘Water white paper’ and Water for life: market reform proposals sets out our plans. We intend to deal with the challenges facing the water industry, as well as encouraging better customer service and protection for the environment.

To implement some of the plans in the White Paper, the Water Act 2014 received Royal Assent on 14 May 2014.

Actions

Protecting our water sources

We’re planning changes in the law to protect our sources of water. We’re looking at how we’ll allow companies to abstract (remove) water from our rivers, lakes and other water bodies in the future. This should stop our sources of water being over-used.

A secure supply of water at a fair price

We’ve made changes so that water companies can reduce the bills of customers in financial difficulties who struggle to pay their bills.

Reform of the market

The Water Act 2014, aims to make it easier for business to change their water suppliers. It will also open up the water and sewerage market to new companies.

Background

Since privatisation in 1989, the regulatory framework for the water sector has enabled companies to attract over £108 billion in low-cost investment. This has meant they can upgrade water and sewerage networks and improve customer service and environmental standards.

The white paper ‘Water for life’ and Water for life: market reform proposals set out the case for change. We have to plan now to protect against challenges to our future water supplies. This means taking account of climate change, population growth and patterns of demand – as well as the challenges posed by natural hazards such as drought and floods.

Water and sewerage services in England and Wales are provided by private companies. These are regulated by Ofwat, to ensure that consumers receive high standards of service at a fair price.

Support for household and business consumers is also available from the Consumer Council for Water (CCWater). CCWater represents water and sewerage consumers in England and Wales and takes up unresolved complaints.

Bills and legislation

The Water Act 2014 received Royal Assent on 14 May 2014

The Water Industry (Financial Assistance) Act 2012 included two measures on financial assistance which met commitments made in the Autumn Statement 2011 and the Water White Paper:

• to reduce charges - enabling the government to fund South West Water to cut bills by £50 per year for its household customers from 2013
• for major works - enabling the government to cover exceptional risks in the construction of the Thames Tunnel in London

The Water Industry Act 1991 (as amended) sets out the regulatory, competition and consumer representation frameworks for the water sector in England and Wales.

Appendix 1: a secure supply of water at a fair price

This was a supporting detail page of the main policy document.

The government wants to make sure that everyone can have a secure supply of water at a fair price, now and in the future.

Price limits

Every 5 years Ofwat, the independent economic regulator for the water and sewerage sector, sets limits on the prices that the water and sewerage companies can charge their customers. This is known as a price review. The next price review will take place in 2014 and will set limits for 2015 to 2020.

Defra provides guidance to Ofwat setting out the policy priorities for regulation of the water industry.

Defra also publishes a ‘Statement of obligations’ setting out the statutory requirements on water and sewerage companies.

The government expects Ofwat’s price review decision making to be guided by these documents. The Environment Agency wishes to see investment from water companies through the price review to ensure:

• enough water for people and the environment
• no deterioration in the quality of the environment
• improved bathing and shellfish waters, groundwaters and protected habitats
• a resilient water industry that manages its infrastructure to reduce flood risk and meets the challenges of growth, development and climate change
• more partnership working to achieve the best results

One of the ways that the companies will do this is through the National Environment Programme. The programme forms part of a water company’s business plan and sets out the statutory requirements that ensure that water companies meet European and national environmental standards related to water.

Companies submitted their business plans for the 2015-2020 period to Ofwat on 2 December 2013. Ofwat is assessing these plans during 2014 in order to finalise new price controls in December. The new charges will then take effect from April 2015.

Please email pricereview2014@environment-agency.gov.uk for more information about the National Environment Programme.

Social Tariffs

Some households can struggle to pay their water bill. We have published ‘Social tariffs guidance’ so that water and sewerage companies can create social tariffs. These will reduce the bills of those customers who need support.

WaterSure

Low-income customers who need to use a lot of water (or sewerage services) may get financial support through the WaterSure tariff.

WaterSure limits the bills of metered households at the average bill for their company. Households qualify for the cap if they claim one of a list of means-tested benefits, and:

• they have 3 or more children under 19 living at home

or:

• someone in the household has a medical condition that means they use a lot of water, like weeping skin diseases (such as psoriasis), Crohn’s disease or ulcerative colitis

All water and sewerage companies have to offer WaterSure. If you think you’re eligible, you can apply through your water company.

Water metering and water stress

When a ‘serious water stress’ area is designated by the Secretary of State, water companies may roll out metering across that area. Customers in these areas will be charged for the volume of water that they use.

The water company water stress designations were updated in July 2013, using up-to-date evidence for determining the level of water stress for areas in England and Wales.

Concessionary schemes for surface water drainage charges

We have issued guidance to water and sewerage companies on concessionary schemes for community groups. This is to protect them from unaffordable surface water drainage charges. The guidance covers:

• the need for a concessionary scheme
• which community groups should be included in concessionary schemes
• what constitutes a fair and affordable charge
• the needs of other customers.

Appendix 2: protecting our water sources: the future of abstraction reform

This was a supporting detail page of the main policy document.

Defra and the Environment Agency’s responsibilities include the management of water resources. Among these responsibilities is the regulation of water abstraction. Water abstraction is the process of removing water from natural sources like rivers, lakes and aquifers.

Water abstraction is regulated through a system of licences. These are issued to anybody that wishes to abstract (remove) water from water-bodies (sources of water).

The abstraction regulations for rivers and groundwater that we have now aren’t flexible enough to cope with future challenges. Changing weather means some areas will have less water. Others will see increased demand as the population grows.

We need to reform the way we regulate abstraction. The system needs to be more adaptable and allow more effective sharing of water resources.

Defra set out its plans for long-term reform of the abstraction system in the Water White Paper. These plans are supported by the Environment Agency’s ‘Case for change’ which sets out the evidence for the reform.

We consulted on the abstraction reform proposals from December 2013 to March 2014 and published a summary of responses in July 2014. We will take account of the responses and continue to work closely with stakeholders as we develop the proposals further.

We aim to be ready early in the next Parliament to legislate for abstraction reform.

As well as developing these proposals for reform, we’re continuing our efforts to reduce water abstractions that could damage the environment.

You can find out more from our latest newsletter. You can contact us at abstraction_reform@defra.gsi.gov.uk.

Other ways we’re protecting our water sources

The Environment Agency’s Restoring Sustainable Abstraction Programme is used to review and investigate those sites in England and Wales where the habitat or ecology dependent on the water is at risk as a result of unsustainable abstraction.

The Environment Agency also has catchment abstraction management strategies. These strategies are designed to help look after water resources. They include an assessment of how much water is available for abstraction in a particular catchment. A catchment is an area of land where surface water and rain run down to a single point, usually a river or other water-body.

We also use River Basin Management Plans to protect and improve the water environment. They set out the main issues for a particular region, as well as the measures we’ll take to protect it.

In the longer term, Defra and the Welsh Government are working with the Environment Agency and Ofwat on a project to reform the water abstraction licensing system.

Appendix 3: reform of the water market, the Water Act 2014

This was a supporting detail page of the main policy document.

The Water Act 2014 received Royal Assent on 14 May 2014.

The purpose of the act is to:

• reform the water industry to make it more innovative and responsive to customers and to increase the resilience of water supplies to natural hazards such as drought and floods
• to bring forward measures to address the availability and affordability of insurance for those households at high flood risk and ensure a smooth transition to the free market over the longer term

Water provisions

The main measures for the water sector include:

• enabling all business, charity and public sector customers in England to switch their water and sewerage supplier
• establishing a cross-border arrangement with Scotland
• enabling businesses to provide new sources of water or sewerage treatment services
• developing a national water supply network by making it easier for water companies to buy and sell water from each other
• enabling owners of small-scale water storage to sell excess water into the public supply
• enabling ministers to set the level to which a water company needs to plan to cope with droughts
• enabling developers and new water or sewage companies to connect new building developments to the water mains and sewerage system
• improving the regulations relating to merger of water sewage undertakers
• providing Ofwat a new over-arching duty to take greater account of long-term resilience and changes to improve Ofwat’s regulation of the water industry

Other measures

The act also includes these additional measures:

• providing measures to restore the sustainable abstraction of water
• improving the way water resource management and drought planning are managed
• providing powers to streamline the environmental permitting framework which enables operators to apply for a single rather than multiple permits with the inclusion of licensing schemes for water abstraction and impounding, fish passes and flood defence consents
• encouraging the use of Sustainable Drainage Systems (SuDS) by clarifying that building and maintenance of SuDS can be a function of sewerage undertakers
• reducing the bureaucracy relating to the governance of Internal Drainage Boards
• transferring the responsibility for maintaining main river maps to the Environment Agency and the Natural Resources Body for Wales

Progress and key documents

The Parliament UK web site contains further information on the stages leading to the Water Act 2014 including links to the Hansard Reports of the debates on the bill.

• Act, Explanatory Notes and Impact Assessments
• Response to the Pre legislative Scrutiny by the Environment & Rural Affairs Select Committee.

Retail exits

The Water Act 2014 will enable the Secretary of State to introduce regulations that will allow undertakers to exit the competitive part of the retail. We are committed to ensuring that undertakers who wish to exit the market can do so when the retail market opens in April 2017. We are currently consulting on how we plan to implement new regulations for retail exits. Regular project updates, a fact sheet and a one-page summary of the timetable for and scope of the reform have been published.

Charging principles

The charging principles set out the high level principles that will inform the government’s approach to water charging following implementation of the reforms in the Water Act 2014. Once developed, charging guidance will be issued to Ofwat to establish the framework for future market reforms.

Water for life

The 2011 Water White Paper, Water for Life, set a vision for a resilient and sustainable water industry, which continues to attract long-term investment. The industry also needs to be innovative and efficient, to help it meet future demands, and to put customers at the heart of what it does.

The White paper supporting technical document Water for life: market reform proposals set out Government’s plans to address these challenges – including a Water Act.

Open Water Programme

The Open Water Programme will deliver the market reforms contained within the Water Act 2014.

Background documents

The following were considered in the development of the act, or provide background:

• Draft Water Bill (June 2012)
• Review of Ofwat and consumer representation in the water sector
• Cave Review: Competition and innovation in water markets
• The independent review of charging for household water and sewerage services (Walker review)

Contact details

• Email - waterwp@defra.gsi.gov.uk
• Twitter - https://twitter.com/Defrawater