Draft Water Bill

We and our predecessor Committees have scrutinised subjects of water resource management and flooding over a number of years. During the course of this inquiry, the critical importance of managing water effectively was thrown into sharp relief. The country suffered first widespread drought and then several episodes of flooding during 2012.

Successive Governments commissioned detailed reviews of these issues to help inform policy development—principally Sir Michael Pitt’s review of the 2007 summer floods and the Cave and Walker reviews on competition in water supply and water efficiency.

Following those reports the Flood and Water Management Act, enacted in 2010, reflected the need for better management of scarce water resources and improved resilience in the face of more frequent and devastating flood events. Our views on the Draft Water Bill have been informed by our earlier work and, most recently, our scrutiny of the Water for Life White Paper.

The Water Bill that follows from the draft Bill is unlikely to become law before the end of 2013. It will provide a framework with much of the detail of how its provisions will work in practice left to guidance and secondary legislation. Whilst Governments argue that the limited Parliamentary time available means that it is reasonable to provide only the outline legislative framework necessary to implement a particular policy, we consider that primary legislation should provide enough detail and clarity of purpose in order to allow effective scrutiny. We consider that, as it stands, the Draft Water Bill relies too heavily on establishing the broad framework for future reforms whilst leaving the details to be set out in guidance with the likelihood that these will receive less scrutiny. We highlight parts of the draft legislation where amendment is necessary to provide greater clarity and, where appropriate, recommend that guidance be published at the same time as the Bill.

The water sector is heavily reliant on investment and this in turn has an impact on the industry’s costs and hence the charges it makes to customers. Uncertainty in the proposed legislation may have an impact on the way investors view the water industry, leading to increased financing costs. We consider that provision of greater clarity on the face of the Bill will not compromise the industry’s ability to attract investment, rather it will provide the certainty needed by those planning to invest. Nevertheless, where we have recommended amendments to the legislation, we have been conscious of the impact on investor confidence and any potential impact on the costs paid by household and business customers.

The majority of the Draft Bill’s provisions relate to increasing the opportunities for competition within the water sector which should provide improvements for customers.

Business customers have been pressing for greater competition for some years and are understandably keen that the reforms maintain momentum. We welcome the Government’s commitment to opening the retail market in 2017 but the Bill must make clear that householders will be protected from cross-subsidising the business market. We carefully considered the case for introducing reform in the upstream water market but conclude that further work is needed before the Government embarks on this stage of reform. An essential precondition of upstream reform is that customers are protected from any de-averaging of prices.