13 September 2004
MINISTER ANNOUNCES NEW HOUSEHOLD WATER CHARGES AND PROTECTION FOR LOW INCOME HOUSEHOLDS
Minister of State, John Spellar, MP, today announced the basis on which household water charges will be set. He indicated the likely level of charges and also outlined arrangements for phasing in the charges and for protecting low-income households.
The Minister said: "We estimate the average household charge is likely to be in the region of £315 - 415 per year in 2008-09."
The Minister explained that this is based on current assessments of the asset valuation of the GoCo, when established. Household water and sewerage charges will consist of a standing charge of around £55 each for water and for sewerage, plus an element based on property value. The standing charge will broadly reflect costs associated with maintaining connections to the public water and sewerage networks. Charges will be phased in with customers paying one-third of the annual charge in the first year, and two-thirds of the annual charge in the second year following their introduction.
The Minister explained: "Bills to householders will vary depending on the value of their property. For example, a property with a value of £60,000 will have an annual water and sewerage charge of around £235, or 65 pence per day. A property valued at £250,000 will have an annual charge of around £615, or £1.70 per day."
The Minister added that, once the charges were fully phased in, the lowest household charge would be around £150 per year, and the maximum charge payable would be capped at around £750 per year. Charges will apply to all domestic properties, whether owner-occupied or rented, with the costs for water supply and sewerage services indicated separately in bills.
The Minister also outlined proposals for the protection of low-income households when charges are introduced. He said: "Water and sewerage charges must be fair and affordable. So I intend to introduce a number of measures to help low-income households cope with the introduction of water and sewerage charges.
"I have decided that customers who are in receipt of Housing Benefit, Rate Rebate, or the proposed new Rate Relief will be eligible for a 25% discount on the annual water and sewerage charge.
"I have also decided to establish a special hardship relief scheme, to provide temporary assistance for those householders who find themselves unable to meet the cost of their water or sewerage charges as a result of exceptional circumstances."
The Minister explained that the level of charges reflects the Treasury’s agreement to write down the value of Water Service’s assets. This will depend critically on the value of the new company when it is established.
The Minister said: "This is a significant write-down in asset values, which will ensure that the opening capital structure of the GoCo reflects the current state of the water and sewerage infrastructure and thus put the new Government-owned company on a sustainable basis. It will also significantly reduce the cost of delivering Northern Ireland’s water and sewerage services, and in turn, reduce the level of charges to be borne by customers."
The Minister referred to the significant interest expressed in the option of household water metering during the 2003 public consultation on Water Reform.
He said: "In the 2003 consultation many people expressed a strong preference for metering. In light of this, I have decided to make provision for household metering once charges are fully phased in. We will need to look carefully at the best way to do this and consider the implications of metering for all consumers before any scheme is finalised."
The Minister stressed the important contribution that the introduction of water and sewerage charges will make to public services in Northern Ireland.
He said: "I accept there is considerable opposition to the introduction of household charges. But they are essential if we are to keep up the high levels of investment we are now putting into Northern Ireland’s water and sewerage services without holding back funding from other vital public services."
He added that this was good news for public services: "The new charges will provide the people of Northern Ireland with wholesome drinking water and effective sewerage services, cleaner beaches and rivers and will contribute to a vibrant and sustainable economy. And let’s not forget that every pound paid in water charges will release a pound for other services, such as health, education, roads and public transport."
An Integrated Impact Assessment of the Water Reform proposals, addressing matters such as equality and regulatory impacts, will be published for consultation in the Autumn.
NOTES TO EDITORS:
Estimated Indicative Household Charges (shown at 2006-07 prices)
Property Capital Value (£) - 1st Q 2004
No. of Properties
Estimated Bills (£)
Water
Sewerage
Combined
20,000 - 60,000
70,000
75 -115
75-125
150-235
60,001 - 80,000
150,000
115-130
125-145
235-275
80,001 - 100,000
160,000
130-150
145-170
275-315
100,001 - 150,000
150,000
150-200
170-220
315-415
150,001 - 200,000
64,000
200-245
220-275
415-515
200,001 - 250,000
18,000
245-290
275-330
515-615
250,001 - 340,000
12,000
290-375
330-375
615-750
Over 340,000
6,000
375
375
750
Household Charges
Household water charges will be phased in from 2006/07, or as soon as practicable thereafter, and will be based on the value of properties, whether owner-occupied or rented.
In the longer term, water and sewerage pricing policies will be determined by an economic regulator. However, it may take several years before a regulator would be in a position to set charges, based on a thorough and comprehensive analysis of the industry including, in particular, future capital investment needs and the means of financing these.
Initially, and until the regulatory mechanism is fully established, it will be necessary for the Department for Regional Development to set charges. As it will not have the benefit of the detailed analysis that the regulator would enjoy, these charges may require some adjustment by the regulator. A prudent and conservative approach has been taken to the estimation of charges to minimise the need for major adjustments in the future.
Metering
Domestic meters could cost up to £200 each to install. There are 630,000 domestic properties in Northern Ireland connected to the water mains. Total costs could be in the region of £120 million.
Valuation of Properties
Valuation and Lands Agency (VLA) will assess the capital value of each property. These assessments will be based on sales evidence from the housing market. A Valuation Tribunal Service will provide an open and accessible way of settling valuation disputes.
The Rationale for Charges
Significant investment must be undertaken in Northern Ireland’s water and sewerage services over the next 20 years. This investment will ensure compliance with European Directives on water quality, protect public health and the environment, respond to increasing demand for water and sewerage services, and upgrade ageing water and sewerage infrastructure.
To ensure that this investment can be delivered by an efficient, modern water industry for Northern Ireland, and investment in other key public services can continue to grow, Ministers have decided that water and sewerage services will become self-financing by 2008/09, and that the current arrangements for delivering these services will be reformed.
Northern Ireland households contribute significantly less toward the cost of public services than their counterparts in GB, as the following table illustrates:
Average level of household taxation in UK 2004 –05
Region
Average Property Charge per Household
£
Average direct water charge
£
Total Household charge
£
England and Wales
Scotland
Northern Ireland
967
886
509
249
272
-
1216
1158
509
Protection for those on Low Incomes
The low-income households discount and special hardship relief scheme will be funded from within the charging arrangements. The total cost of these measures amounts to between 5% and 6% of the total revenue raised by annual charges.
In England and Wales, under current arrangements, certain low-income households with water meters who need to use a great deal of water can apply to have their bills capped at the average for their water company area. To qualify, a household must be in receipt of an income-related benefit, and contain either a large family (three or more children under 16 years), or a person who has special water needs because of a medical condition. Government consulted last year on some amendments to the scheme and legislation will be brought forward in due course.
In Scotland, the Scottish Executive approved a transitional scheme to assist households to adapt to the increases in domestic water and sewerage charges. The scheme is intended to address the affordability of charges for those on lower incomes. It provides a reduction in the water charge payable by households in receipt of Council Tax Benefit whose charges are above a specified threshold level. The threshold level has been set at £240 for 2004/05. The Scottish Executive has recently launched a consultation exercise on paying for water services (which amongst other things addresses the issue of discounts for low-income households).
Impact Assessment
In developing policy, Government must consider the wider impacts of its proposals. For example, there are statutory obligations to assess impacts in respect of equality of opportunity, and human rights. Other assessments are performed in respect of the impact in rural areas ("rural proofing") and on businesses ("regulatory impact assessment"). An Integrated Impact Assessment, which will summarise the findings of each of these reviews, will be made available for public consideration and comment during the Autumn.
Asset Write Down
The asset write-down, referred to by the Minister, reflects a revaluation of the newly created company’s assets. This is likely to be an amount in excess of £4 billion. This figure will be refined as details on the future cost structure become clearer.
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