This independent review was jointly commissioned by Defra and the Welsh Assembly Government.
The aim of the review was to:
- Examine the current system of charging households for water and sewerage services; and assess the effectiveness and fairness of current and alternative methods of charging including the issue of affordability;
- Consider social, economic and environmental concerns; and
- Make recommendations on any action that should be taken to ensure that England and Wales have a sustainable and fair system of charging in place. This could include changes to current legislation and guidance.
The main conclusions of the report are:
- The charging system needs to incentivise the efficient use of water so as to ensure we have sustainable supplies for the future. Water also needs to be affordable for all, particularly those on low income.
- The way we currently charge for these services is creaking at the seams. For those still unmetered (most of us), there is no incentive to use water wisely. People are, however, opting for meters when they think they can personally benefit from doing so. This is an expensive way of making the transition to metered supplies. It also means the cross-subsidy in the current rateable value system is unwinding, so that those who remain unmetered (often those on low income) already have higher bills and will see their bills rise even if average bills are not changing (for example, in the South West, unmetered bills are predicted to rise by 29% over the next five years).
- Charging by volume of water used (which involves metering) is the most effective way of incentivising the efficient use of water. But meters incur additional costs. The transition to metering needs to be led to ensure that we keep the total costs down. The report recommends that Ofwat should provide this leadership, within an overall policy framework from government. It also recommends that there should be an agreed methodology for looking at the costs and benefits of metering; and that metering will generally be cost-effective where water is scarce or there are capacity constraints. There should also be systematic metering of properties on change of occupier and of customers with high discretionary consumption - who use more water than most, but under the rateable value system pay no more for that additional use.
- The support to low-income families through the rateable value charging system is very poorly targeted, as rateable value is so outdated. It is also unwinding as more customers opt for a metered supply. Some replacement is needed and the report makes recommendations for a package of help. This will be very important if the transition to metering is not to cause real problems of affordability to those on low incomes.