Section 20: Water and Sewerage Charges
Background
1. Responsibility for water and sewerage services across Scotland lies with Scottish Water. Responsibility used to lie with local government (at regional and island council level) until the Local Government (Scotland) Act 1994 transferred this to three new public water authorities: the East of Scotland Water Authority, the North of Scotland Water Authority and the West of Scotland Water Authority. The three authorities were subsumed into Scottish Water in 2002.
2. Despite these changes, responsibility for collecting water and waste charges has continued to lie with local authorities. The 32 councils in Scotland are required by statutory instrument (currently the Water Services Charges (Billing and Collection) (Scotland) Order 2006) to collect un-metered water and waste (sewerage) charges on behalf of Scottish Water. Local authorities then pass to Scottish Water a payment for water service charges received, less a set amount as a collection fee. In 2006-07 this collection fee is £4.86 per property in that council's area for which a water services charge is payable. We understand from Scottish Water that in total they pay around £13 million per year in collection fees to local authorities.
3. A direct relationship exists between charges for water and waste charges and council tax liability. Charges for water and waste charges for Band D properties are set for each financial year, and these charges are revised for properties in other bands in accordance with the same structure as applies to council tax ( e.g. 6/9 for Band A; 18/9 for Band H) (see table X below). As with council tax, a discount applies to single person households with water and sewerage charges. Domestic properties which are not connected to the public sewer are not liable for the waste water charge.
Table X: Unmetered Household Charges 1 April 2006 to 31 March 2007278
Council Tax Band | A | B | C | D |
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Water | £111.00 | £129.50 | £148.00 | £166.50 |
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Waste | £125.40 | £146.30 | £167.20 | £188.10 |
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Combined | £236.40 | £275.80 | £315.20 | £354.60 |
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Council Tax Band | E | F | G | H |
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Water | £203.50 | £240.50 | £277.50 | £333.00 |
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Waste | £229.90 | £271.70 | £313.50 | £376.20 |
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Combined | £433.40 | £512.20 | £591.00 | £709.20 |
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4. Assistance with water services charges is available for households on low incomes. A permanent water services charges reduction scheme has operated since April 2006, replacing the previous transitional scheme. The scheme applies to households which are in receipt of Council Tax Benefit but who do not receive percentage reductions on their council tax (such as the single person's discount). Households in receipt of full Council Tax Benefit receive a 25% discount on their water services charge, while for other households the amount of reduction is proportionate to the amount of Council Tax Benefit received ( e.g. a household receiving Council Tax Benefit to cover 50% of their council tax bill is eligible for a 12 1/ 2% discount on their water services charge).
Issues Arising From Our Review
5. Our review has revealed several issues concerning the inter-relationship between local taxation and water and sewerage charges. These are:
- Failure to distinguish between council tax and water charge elements of "council tax bill";
- Rapid increase in water and sewerage rate bills;
- Limited assistance for those in need;
- "Council tax bills" only including water and sewerage charges;
- Enforcement of water and sewerage rate liabilities;
- Collection fees for local authorities; and
- Implications of our proposed local property tax.
6. We consider these in turn.
Failure to distinguish between council tax and water charge elements of "council tax bill"
7. Several local authorities argued in oral evidence that present billing arrangements, where council tax and water and sewerage charges appear on the one bill, causes confusion. In particular, they argued, many householders regard the amount they pay to their local authority as their council tax bill, and do not separately distinguish the water charge element from council tax itself.
8. In their submissions to us, several respondents to our consultation, who discussed their own council tax liability, either quoted or appeared to quote council tax bills in terms of both council tax and water and sewerage charge elements. Help the Aged in Scotland told us:
"...there is a link between council tax and water rates and we know that the two are often seen by pensioners as being one bill. They are linked in terms of the fact they are set by the bands and that water rates obviously goes up every year at a much higher rate again than council tax and it is collected together. It is seen as being one tax…"
9. Scottish Water argue that water and waste charges are clearly set out in council tax bills, which are also accompanied by a discrete leaflet from Scottish Water. However, evidence suggests that - at the very least - water and sewerage charges are capable of being confused with council tax bills.
Rapid increase in water and sewerage rate bills
10. Water and sewerage charges have increased at a much faster rate than council tax levels in recent years. A recently published research report, commissioned by the Scottish Executive, stated that while council tax had increased by 22% in real terms between 1996-97 and 2004-05, water and sewerage charges had increased by 110%. 279 Several local authorities argued that, because many people fail to distinguish between council tax and water charge elements of their council tax bill, they attribute the full extent of the increase to rises in council tax itself.
Limited assistance for those in need
11. As mentioned above, assistance with water and sewerage charges is available to households on low incomes. However, this scheme, which offers maximum relief of 25%, is less generous than Council Tax Benefit, which provides most eligible households with a 100% rebate in their council tax bills.
12. However, it is important to place the restricted nature of this discount in context. The Scottish Executive issued a statement in February 2005 which set out the principles behind the new water charging regime, and the reasons for these principles. 280 That statement included a discussion about the proposed discount for low income households, which revealed that even this limited proposed discount attracted significant disagreement. Public research commissioned by the Scottish Executive on its proposals for water services revealed that, while many participants agreed with the objective of the proposed discount, about half of those questioned had reservations about the justification for such a discount.
"Council tax bills" only including water and sewerage charges
13. The fact maximum relief for water and sewerage charges is 25% of the bill creates a situation where many households, who are in receipt of 100% Council Tax Benefit, receive "council tax bills" that comprise only water and sewerage charges. Glasgow City Council stated in their written submission to us that over 25% of the bills they issue are to collect only water and sewerage charges. Across Scotland, some 400,000 "council tax bills" apparently only include water and sewerage charges. These are charges that local authorities must collect even though the households are not liable for council tax.
14. It is unclear what percentage of the shortfall in councils' collection of council tax actually relates to water and sewerage charges rather than to council tax itself.
Enforcement of water and sewerage rate liabilities
15. Scottish Water have suggested that local authorities should apply more robust practices for collecting and recovering water and waste charges, working together with Scottish Water and the Scottish Executive. To quote their submission:
"Scottish Water works with all 32 councils across Scotland and this has highlighted to us different approaches to billing, collection and recovery. A Scottish Executive sponsored benchmarking exercise to identify and encourage best practice may prove beneficial to improved billing and collection processes and levels."
16. In contrast to this position, Citizens Advice Scotland ( CAS) are concerned about the powers that already apply to counter non-payment of water and waste charges. They argue that Scottish local authorities have stronger powers to recoup debts from the public than do utility companies, such as electricity and gas companies and Scottish Water itself. Because local authorities collect water and waste charges on behalf of Scottish Water, summary warrant procedures may be used against debtors of Scottish Water. CAS also claimed that local authorities, which are publicly accountable for the collection rates they achieve, tend to be more rigorous than private sector utilities in collecting debts, whose decisions about how far to pursue debts will tend to be strongly influenced by whether enforcement action is financially worthwhile.
Collection fees for local authorities
17. A large number of local authorities have argued in effect that the existing arrangements between Scottish Water and councils regarding the collection and remittance of water and waste charges are biased in favour of Scottish Water. In particular, COSLA and several local authorities have criticised the formula within secondary legislation 281 that determines the amount that councils are required to pass to Scottish Water as water and sewerage charges. This is calculated as total receipts received multiplied by the proportion of total payments due that are attributable to water and waste charges. So, for instance, if a local authority has an overall collection rate of 92% of council tax and water and waste charges due, then that council is required to pass to Scottish Water an amount representing 92% of the share of the total amount due that is attributable to water and waste charges, including where the council has collected less than 92% of the due amount. Where the local authority collects more than 92%, then it retains the surplus.
18. The criticism levelled by local authorities is that this formula inherently disadvantages them because, keeping to the example, it is more difficult to collect 92% of water and waste charges than 92% of council tax payments. Local authorities have to collect water and sewerage charges from all households, including those low income households in receipt of full Council Tax Benefit which are not liable for council tax and which may have the greatest difficulty in meeting the water charge liability. The formula takes no account of the additional costs associated in securing payment from such households, producing a cash-flow loss to the council which is required to pay Scottish Water for water and waste charges it has not yet received.
Implications of local property tax
19. We recognise that the introduction of the local property tax would give Scottish Water the option of levying water and sewerage charges on the basis of the value of domestic properties, with the added advantage of being more progressive than the current banding system.
Resolving These Issues
20. There is an inextricable link in our view between the issues set out above and the joint billing arrangements that apply to council tax and water charge bills. We believe these arrangements are inappropriate, as they provide scope for confusion as to how much households are expected to pay as a local tax for local services. In a period when water and charges have been increasing at a faster rate than council tax, this scope for confusion has resulted in local authorities being perceived to be responsible for rising bills which they collect but over which they have no control. Different support arrangements for low income households mean that households on full Council Tax Benefit are still liable for water charges, with ensuing collection cost implications for local authorities. Collection arrangements too cause scope for confusion, with collection powers reflecting the nature of the collector (local authorities) rather than the nature of the debt (a utility charge). In short, the existing arrangements do not make sufficiently clear that responsibility for water and sewerage services and charges rests with Scottish Water, and that the role of local authorities in relation to these charges is simply that of a collection agent for Scottish Water.
21. Perceived difficulties about water charge discounts for low income households have led to some local authorities arguing that water and sewerage charges should be brought within the scope of the Council Tax Benefit scheme. The Department of Work and Pensions, which is responsible for Council Tax Benefit, would have to agree to this. The proposal calls for a benefit payable across Great Britain to be extended in a way that would only benefit households in Scotland, and in respect of costs that are not associated with the responsibilities of local government today.
22. The extent of support for low income households towards their water charge bills is a matter for the Scottish Executive to determine. As far as the other issues listed above are concerned, the only way to resolve these in our view is to separate arrangements for collecting water and sewerage charges from council tax bills. Separate collection of water and waste charges would clarify the cost of these services to the public and the role of Scottish Water in providing them. It would also remove an element that hinders the accuracy of public perceptions about the role and cost of local government.
23. At a time when the Scottish Executive is encouraging the use of shared services, our conclusion may at first sight appear surprising. However, it is also questionable whether the existing system, in which the collection process is spelt out in secondary legislation, is itself conducive to efficiency. Removing the statutory obligation upon water charges to be collected alongside council tax bills would allow Scottish Water to investigate alternative collection methods that might be just as efficient, and possibly even more so.
24. Scottish Water already has a billing and collection function for, for example, business customers and domestic customers with a metered water supply. Alternatively, Scottish Water could commission an outside body or bodies to act as their billing and collection agents. There may be a role for local authorities to act as billing and collection agents for Scottish Water in future. As COSLA argued to us, this measure "would lead to an open process where local authorities and other organisations could tender for the contract to bill and collect for Scottish Water".
25. However, any future role for local authorities should be subject to a series of conditions. The first condition is that they should only undertake this role under a commercial arrangement and not as a statutory duty. Second, bills for water and sewerage charges should be issued entirely separately from council tax bills - in separate envelopes and preferably some time apart with separate payments being required. Finally, enforcement powers for water charge liabilities should reflect the nature of the debt and should not include the option of summary warrant procedures on the basis that the power is being used by a local authority. Even with all of these conditions, we have reservations about whether local authorities should have any continuing role in relation to the billing and collection of water charges in future, given the scope that would exist for continued confusion between water charges and council tax.
26. Scottish Water stated that the current annual cost of collecting water and sewerage charges is approximately £41 million (this includes provision for bad debt and the collection fees of around £13 million to local authorities). They have estimated that the annual cost of an alternative collection system that was either operated in-house or outsourced could ultimately be in the range of £32 million - £52 million. 282 They would have to undertake more detailed consideration to establish how collection rates and costs might change under different systems.
Conclusions
27. The present system, where local authorities are under a statutory responsibility to collect water and sewerage charges alongside council tax bills, is not transparent.
28. In keeping with principles of local accountability and good government, we believe it is appropriate that Scottish Water should assume responsibility for billing and collection of these charges, either directly or through another body or bodies under commercial arrangements. This work could be undertaken by local authorities, but subject to safeguards to make clear to households that responsibility for water and sewerage services lies with Scottish Water.
29. For as long as council tax and water charge bills remain coupled, and local authorities remain under a statutory duty to collect water and waste charges, we consider:
- first that the payment formula should be revised in order to give greater allowance to councils in collecting water and sewerage charges from households that are on 100% or partial Council Tax Benefit; and
- second that local authorities should consider how they present billing information to their residents. Councils must distinguish more clearly in their literature the difference between council tax liability and water and sewerage charges.
Recommendation 18: We recommend that the statutory requirement upon local authorities to collect water and sewerage charges alongside council tax bills should be removed.
Recommendation 19: For as long as local authorities remain under a statutory duty to collect water and sewerage charges, action is required to improve the current system. We recommend that the formula for calculating collection payments to local authorities should be reviewed, to give greater allowance for the collection of charges from households in receipt of Council Tax Benefit. We also recommend that the council tax and water charge elements of the bill be distinguished more clearly.