Paying for Water Services 2006-2010
ANALYSIS OF RESPONSES TO THE SCOTTISH EXECUTIVE CONSULTATION
Scotland's Water Services February 2005
Environmental Resources Management Ltd
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The Scottish Executive commissioned Environmental Resources Management (ERM) to collate and analyse all the responses received to its consultation paper ' Paying for Water Services 2006-2010'. The consultation sought views on how Scottish Water's customers should contribute fairly to the costs of the services that they receive, with the aim of informing Ministers' decisions about how different types of customer are to be charged in the period 2006-2010. This summary outlines the findings of the consultation.
Main Findings
Principles of Charging - The majority of respondents were clearly in favour of four of the five principles of charging proposed in the consultation paper: that charges should be made affordable; that charges for the same service should be the same all over Scotland; that charges should cover the cost of providing services to specific customer groups; and that any changes to charging should be introduced gradually. The principle which did not receive a clear supporting response was that of full cost recovery, i.e. that all Scottish Water's costs should be met through charges made to customers.
Cross-subsidies - The majority of respondents supported the proposal to remove existing cross-subsidies between customer groups over time.
Affordability and Discounts - In relation to the current discount system, the majority of respondents supported
the proposal to change the system. However, over two-thirds of respondents wanted the single adult discount to remain, preferring the new discount system to be funded by removing only the 50% discount currently granted to second homes.
Surface and Highway Drainage - The majority of respondents were in favour of removing the current charging system for non-household premises, which is based on rateable value, and introducing a new system based on the surface area of premises that drain to the public sewers.
Charging Unmetered Non-domestic Customers - The majority of respondents were in favour of removing the current system of paying by reference to rateable value. However, although the proposal for placing these customers into charge bands met with a good level of support, most respondents who commented on the issue preferred the idea of full metering as being a fairer and more transparent option.
Borrowing Provision - There was general support expressed for the proposal that Scottish Water's borrowing levels should be kept at sustainable levels.
Paying for Increased Local Capacity - There was general support for the proposal that funding for increased local capacity should be provided by developers.
Background
The Water Services etc. (Scotland) Bill includes provisions for the creation of a Water Industry Commission for Scotland. Subject to enactment of the Bill, the Commission will succeed the Water Industry Commissioner for Scotland in 2005 and assume a range of functions in connection with the economic regulation of Scottish Water.
As part of these arrangements, Scottish Ministers will set out the standards and objectives that Scottish Water has to meet in the period 2006-2010 and the principles that the Commission has to apply in setting charge limits
and in approving charging schemes put forward by Scottish Water.
The principles of charging will govern the basis upon which costs will be allocated among different customer groups, including the extent, if any, to which one group of customers should subsidise, or be subsidised by, another group of customers; and the rate at which such cross-subsidies should be introduced, or withdrawn. The Executive will set out these principles early in 2005, to enable the Commissioner to publish his proposed charge limits in June of that year.
Objectives
The aim of the analysis project was to collate and analyse all responses received to the 'Paying for Water Services' consultation paper. The analysis was required to report on the full range of views expressed by consultees, identifying trends and highlighting majority and significant minority views in such a way as to inform the Executive's development of policy on charging.
Methods
A total of 5,500 'Paying for Water Services' consultation papers were distributed to a range of individuals and organisations, including local authorities, professional bodies, industry and community groups. The paper was also issued to approximately 600 individuals/organisations registered with the Scottish Executive's consultation email alert system.
Each response received by the Executive was logged and entered into a custom-designed database. The responses were then analysed in respect of each consultation point, in both quantitative and qualitative terms.
Level of Response
A total of 321 responses were received by the Scottish Executive within the timescale provided representing a return rate of approximately 5%.
Distribution of Response
Of the 321 responses, the largest number was received from Individuals (31%), more than double the number from any other consultee group. The second highest number of responses came from Community Councils (14%), closely followed by Local Authorities (13%) and Businesses and Trade Bodies (12%). This distribution of the top four respondent groups was observed across many of the individual questions.
Not all respondents answered all the questions within the paper. The majority of respondents provided feedback on those issues which were directly relevant to their own interests or organisations. The highest response rates were received for points 1 (proposed principles), 4 (discounts) and 3 (cross-subsidies), while the lowest number of responses were in response to consultation point 2 (alternatives to proposed principles).
Findings - More Detail
The paper 'Paying for Water Services 2006-2010' was divided into two main sections:
Consultation Point 1 - Principles of Charging
Respondents are invited to comment on the principles that the Executive proposes should underpin charge limits and charges schemes in the period 2006-2010. In particular it asks whether respondents agree that:
1a Charges should be set to recover the full costs incurred by Scottish Water in providing public water and sewerage services;
44% of the 149 responses to this point agreed with the proposed principle. The issue raised most often by those who did not clearly agree was that of the affordability of recovering full costs given the level of historical under-investment in the water industry. If full costs were to be recovered, it was considered that this would be prohibitively expensive given the likely level of Scottish Water's investment required. Although a number of respondents agreed in principle that full costs should be recovered, many considered that central government funding should be provided (i.e. from the Scottish Executive) for strategic infrastructure projects and to address the balance of historical under-funding.
1b Charges for households should be set with a view to ensuring that they are as affordable as possible for low-income households;
64% of the 130 responses to this point agreed with the proposed principle. The issue raised most often by those who did not agree clearly was that although, in principle, charges should be made as affordable as possible for low-income households, any benefits provided should be funded from the government benefits system and should not be paid for by higher charges through cross-subsidies.
1c All charges should be set on a harmonised basis, so that customers in the same group and using the same services should pay for these services at the same rate, irrespective of where they are in the country;
79% of the 138 responses to this point agreed with the proposed principle, with no one issue dominating the views expressed by those who did not express clear agreement.
1d Subject to making charges affordable for low-income households, harmonised charges to a particular group should be set to recover as closely as possible the fixed and variable costs of serving that group;
62% of the 105 responses to this point agreed with the proposed principle. Those that did not agree clearly with the proposal often commented that charges should be based on actual usage and that the balance between fixed and variable costs for metered customers should be altered.
1e All significant changes in charge levels arising out of the application of these principles should be introduced gradually during the period 2006-2010, and beyond in the most significant of cases.
85% of the 135 responses to this point agreed with the proposed principle. Of the small proportion which did not clearly agree, there was a view that changes should be phased in over a shorter time period than that suggested in the paper.
Consultation Point 2 - Suggested Alternatives to Proposed Principles
If you do not agree that the principles outlined above provide an appropriate basis for setting charges, which principles would be appropriate and why?
Of the 34 responses to this question, there were several recurring themes, of which the most frequently raised are as follows, in descending order of frequency. Part of the costs of provision of water and sewerage services should be paid via general taxation. Charges should be based on actual usage and meters should be fitted to premises, and any benefits for low-income customers should be provided via the social benefits system. Benefits should be provided as an incentive to those who promote sustainable measures. Charges should be based on affordability and fairness to all customers, whether household or business. More information should be provided in the consultation documents to enable appropriately based responses. Charges for domestic users and charitable organisations should be abolished. Any new system should be transparent and be clearly understandable to all customer groups. Charges should be collected directly by Scottish Water and not attached to Council Tax.
Consultation Point 3 - Cross-subsidies
If it is established that there are significant cross-subsidies between customer groups, should these be retained, or withdrawn gradually over time?
74% of 81 responses supported the removal of cross-subsidies over time. Views expressed frequently in relation to this proposal were that any removal of cross-subsidies should not disadvantage low-income groups, charitable organisations, single adult occupants or pensioners and that if so, some alternative form of support should be provided. Respondents commented often that the timescale for removal should be shorter than that proposed in the paper.
Consultation Point 4 - Affordability and Discounts
Should a new system of better targeted discounts for low-income households be funded from the savings that would be generated by abolishing the discounts currently granted to single adult households and in respect of second homes, or should the current system of discounts be retained?
Most respondents supported changing the discount system, and the great majority supported the proposal to abolish the 50% discount currently given to second homes. However, 69% of 101 responses wanted the current 25% single adult discount to be retained. Particularly strong views were expressed on this matter: respondents felt that the removal of this discount would result in considerable hardship to many individuals, particularly those who require assistance the most, i.e. pensioners and those on low incomes. Respondents considered that it would be inherently unfair for a single occupant, using less water, to have to pay the same level of charges as a family.
Consultation Point 5 - Surface and Highway Drainage
Should the current arrangements for charging non-household customers for surface and highway drainage be retained, or should preparations be made to establish by 2010 banded charges in respect of these charges?
72% of 103 responses supported the proposal to change charging arrangements for surface and drainage to one based on the surface area of the property. Those who did not expressly agree tended to want to know more about how the bands would be constructed, whether particularly large surface areas would lose out, and where the costs of establishing the new system would fall. Similarly, 60% of 91 responses supported the proposal for bandings to apply to highway drainage charges. Those not in clear agreement frequently said that they thought other parties - such as highway authorities, local authorities and the Scottish Executive - should cover the costs of highway drainage, or that such costs should be covered by road users through vehicle or fuel taxes.
Consultation Point 6 - Charging Unmetered Non-domestic Customers
Should unmetered non-household premises continue to pay by reference to rateable value, or should they become metered, or should preparations be made to enable these premises to be charged by reference to a system of bandings to reflect broad consumption levels?
Of 62 respondents who directly commented on the proposal to introduce bandings based on broad usage, 60% were in clear support. Those who expressed differing views often said that any banding system should be an interim solution only, until all non-households could be fitted with meters. Respondents frequently said that they thought customers should have a choice of either a banded charge or a meter. Similarly, of 88 respondents who commented directly on metering, 79% said that they thought metering should be extended to cover all non-households, with many respondents commenting that premises should have the option of choosing between a meter and a banded charge.
Consultation Point 7 - Borrowing Provision
Do you agree that the Executive has identified the main factors that should have a bearing on the amount of borrowing provision made available to Scottish Water? If not, which other relevant factors should be taken into account? Do you agree with the Executive's analysis that to fund all enhancements from borrowing is unsustainable, but that to fund none would not strike the right balance between today's charge payers and tomorrow's? If so, do you consider that allowing Scottish Water's debt to remain broadly constant in real terms would strike the right balance? If not, which level would strike the right balance and what implications would that balance have for wider public expenditure considerations?
78% of 68 responses agreed that the Executive had identified the main factors which should have a bearing on Scottish Water's borrowing provision, and a further 72% of 50 respondents who commented directly agreed on the appropriateness of keeping Scottish Water's debt broadly constant in real terms. A number of comments were made in association with this consultation point, including comparisons with the funding of English and Welsh companies and the issue of whether general taxation should be excluded from these considerations. Respondents generally agreed that it was appropriate to share the costs of assets over the lifetime of those assets.
Consultation Point 8 - Paying for Increased Local Capacity
Do you agree that developers should be expected to meet the cost of providing increased local capacity where this is necessary to take forward their proposed developments? If not, should all customer groups meet the cost of removing development constraints equally, or should particular customer groups be required to bear the cost? If the latter, which customer groups should bear the costs and why?
Of 152 responses on the specific issue of developers meeting the cost of providing increased local capacity, 44% expressed clear support, with 8% being against and a further 48% expressing views qualified in various ways. Respondents often commented that the appropriateness of developers contributing depended on the type and location of the developments in question. Where development was purely commercial, developers should fund the local capacity. However, if the development brought social benefits, was within a rural area with expensive connection costs, was a strategic development in terms of social regeneration or contributed to council housing stock, it was generally considered that the costs should be shared between the developer, the Scottish Executive and Scottish Water.
Obervations on the Consultation Process
Within the general comments received on the consultation exercise there was a mixed response. Some respondents expressed approval of the process and appreciated the opportunity to comment while others expressed concern that the consultation was a costly exercise and questioned whether the responses would be considered appropriately.
A number of respondents considered that the consultation paper was too 'high level' and the appropriate level of detail was not provided in order for considered judgements to be made, particularly in relation to complex issues such as cross-subsidies and funding.
Although the majority of responses were from respondents who had received a copy of the full consultation document, correspondence was also received from those who had seen reports in newspapers on the potential changes to policy, in particular in relation to the removal of discounts.
If you would like further copies of this summary please contact:
Scottish Executive Water Services Division
Area 1-H (north)
Victoria Quay
Edinburgh
EH6 6QQ
Email: waterservices@scotland.gsi.gov.uk
Telephone: 0131 244 5099
Further information is also available on the Scottish Executive website at: www.scotland.gov.uk/Topics/Environment/Water
The views expressed in this summary are those of the researchers and do not necessarily represent those of the Department or Scottish Ministers
©Crown copyright 2005
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