Water affordability: evidence and issues George Day
Water affordability: evidence and issues George Day, Head of Future Water Charging Georgia Klein, Head of Affordability and Social Impacts Andy Duff, Charges Policy Development Manager 15 March 2011 1 Water today, water tomorrow
Introduction George Day, Director of Future Water Charging
2 Water today, water tomorrow
Agenda 12.30 pm
Introduction
12.45 pm
Who is at risk of affordability problems?
2.00 pm
Break
2.15 pm
Issues in designing social tariffs
3.30 pm
Conclusions and next steps
3.45 pm
End
3 Water today, water tomorrow
Vision Sustainable water “A sustainable water cycle in which we are able to meet our needs for water and sewerage while allowing future generations to meet their own needs” Sustainable water charging A framework for water charging which supports: Economically sustainable behaviour Environmentally sustainable behaviour Socially sustainable charges for customers (and vulnerable groups) 4 Water today, water tomorrow
Why is affordability important? To ensure sustainable supplies of water, it is critical that customers pay their bills To achieve this, household customers must be: Willing to pay Able to pay Enabled to pay
5 Water today, water tomorrow
Ofwat’s role Ofwat advises and implements but does not make social policy Water Industry Act 1991 and 1999
6 Water today, water tomorrow
Walker review, 2009
Ofwat should track the affordability problems and take action and/or provide advice to government to ensure that water and sewerage services remain affordable
In particular Annual report Advise government Encourage ‘win-win’ tariffs South West 7 Water today, water tomorrow
Policy context Flood and Water Management Act 2010 Defra will consult on Walker recommendations White Paper
8 Water today, water tomorrow
Our work on affordability Expert adviser, analysis of impacts For this we need a way of measuring affordability We have: Understanding Water Affordability Advisory Group New evidence base New analytical tools Briefed Defra and Welsh Assembly Government Produced South West analysis and advice 9 Water today, water tomorrow
Who is at risk of affordability problems? Andy Duff, Charges Policy Development Manager
10 Water today, water tomorrow
Objectives Approach to developing indicators of affordability Key findings from our forthcoming report, ‘Current evidence on affordability and debt: 2009-10’ Who may be at risk in the future
11 Water today, water tomorrow
Our approach to developing the evidence base Understanding Water Affordability Advisory Group Reviewed previous approaches to defining water affordability and fuel poverty Reviewed current evidence and suitable data sets Agreed next steps
12 Water today, water tomorrow
Income-based indicator Proportion of households that spend more than 3% or more than 5% of their disposable income on water and sewerage bills Measures affordability risk Compares well with other measures
13 Water today, water tomorrow
Headline findings England and Wales
Explanatory factors
23% spend >3% (5.4 million households) 11% spend >5% (2.6 million households)
Household type Low income
South West How customers pay 33% of households spend >3% 16% of households spend >5%
Where customers live – High bill areas – Company metering levels
14 Water today, water tomorrow
Household type Affordability by household type (England and Wales) – percentage of households spending more than 3% and 5% of income on water Household type
Spending more than 3% of income
Spending more than 5% of income
Lone parents
42%
18%
Working-age adults living alone
36%
22%
Single pensioners
36%
14%
Pensioner couples
16%
5%
Couple with children
14%
7%
Couple without children
13%
6%
Multi-unit and other
10%
5%
Total
23%
11%
15 Water today, water tomorrow
Low income Main explanatory factor 90% spending, more than 5% have incomes lower than £8,300 a year (after housing costs) Benefits are not a good estimator of households spending more than 3% or 5% of their income Benefit claimants are more likely to be spending more than 3% and 5% than non-claimants (57% and 17%) But 60% of households spending more than 3% or 5% of income did not receive benefits
16 Water today, water tomorrow
How customers pay Metering can reduce affordability problems for single/low occupancy households, but does not eliminate. Families are unlikely to benefit from metering Household type
Households spending more than 3%
Households spending more than 5%
Metered
Unmetered
Metered
Unmetered
Lone parent
38%
43%
20%
17%
Working age adult living alone
27%
40%
17%
24%
Single pensioner
21%
47%
9%
17%
Couple with children
15%
13%
8%
6%
Other
11%
10%
7%
4%
Couple without children
11%
14%
6%
7%
Pensioner couple
10%
20%
3%
6%
17 Water today, water tomorrow
Where customers live – high bill areas Average bills for each service, by water and sewerage company 2011-12 £600 £517
£500 £428
£411
£398
£397
Average bill
£400
£376 £339
£336
£319
£311
£300 £200 £100 £0 South West
Wessex
Dŵr Cymru
Anglian Southern United Yorkshire Northum Thames Severn Utilities brian Trent Water
Sewerage
Source: Ofwat’s customer charges information, 2011-12
18 Water today, water tomorrow
Affordability by bill area Proportion and number of households who spend more than 3% and 5% of income on water and sewerage bills, by sewerage company area 1,200
Percentage of households
30%
1,000
25%
800
20% 600 15% 400
10%
200
5% 0%
Number of households (thousands)
35%
0
South West Dŵr Cymru United Utilities
Anglian
Southern
Wessex
Thames
Yorkshire Northumbrian Severn Trent
Percentage spending >5% (left axis)
Percentage spending >3% (left axis)
Number of households spending >5% (right axis)
Number of households spending >3% (right axis)
Source: Ofwat analysis of Family Resources Survey, 2008-09. Unequivalised income after housing costs
Water today, water tomorrow
19
Where customers live – company metering levels As metering levels increase, so too do unmetered bills Year
South West Water
Wessex Water
England and Wales
Typical metered bill
Typical unmetered bill
Typical metered bill
Typical unmetered bill
Typical metered bill
Typical unmetered bill
2009-10
401
723
358
469
314
370
2014-15
407
935
369
565
313
390
Change
1%
29%
3%
20%
0%
5%
Source: ’Future water and sewerage charges 2010-15: final determinations’, Ofwat (November 2009)
20 Water today, water tomorrow
Questions Have we taken the right approach to measuring who is at risk of affordability issues? What other evidence or information might improve our understanding of water affordability? How do you think we should develop this work in future?
21 Water today, water tomorrow
Issues in designing social tariffs Georgia Klein, Head of Affordability and Social Impacts
22 Water today, water tomorrow
Objectives of session Review of current levels of assistance Future possibilities Overview of Ofwat’s work on social tariffs Explore issues involved in developing and designing company social tariffs
23 Water today, water tomorrow
Current protection Tax and benefits Rateable value charging WaterSure Charitable trusts and other company schemes Company specific ‘win-win’ tariffs
24 Water today, water tomorrow
General tariff options Achieving ‘affordable water efficiency’ through general tariff options is not considered achievable High volumetric charge and low standing charge Rising block tariffs
Source: ‘The independent review of charging for household water and sewerage services’, Walker, December 2009; ‘Vulnerability to heat waves and droughts’, Joseph Rowntree Foundation, February 2011
25 Water today, water tomorrow
Future possibilities Potential modifications to WaterSure Company-led social tariffs Flood and Water Management Act, Section 44: Permits companies to develop social tariffs designed to reduce charges for individuals who would have difficulty paying in full Includes tariffs requiring cross-subsidies from other consumers, including business Minister must issue guidance
26 Water today, water tomorrow
Social tariffs – our work so far As part of our work on affordability, we have: Developed a modelling approach Explored some criteria which could be used to guide the design of social tariffs Used Walker’s recommendations as a starting point Taken advice Modelled nationally and regionally funded social tariffs Set out impacts and results in advice on affordability on the South West to Government 27 Water today, water tomorrow
Social tariff assessment criteria Criteria
Questions
How efficiently is the option targeted?
What proportion of the target group is at risk of having affordability issues?
Cost
How much will the option cost ineligible customers at full take-up? How costly is the option likely to be to administer? Does it deliver good value for money?
Impact on affordability risk
Does it reduce risk of affordability issues for eligible households? What is the impact on non-eligible households? Does it require some households at risk of having affordability issues to support others?
Impact on water conservation
Does the tariff affect price signals for water conservation or incentives for the uptake of metering?
Practicality
How easy is it to administer the tariffs based on the information currently available to companies? Does the tariff put in place obstacles to take-up?
Acceptability
Evidence on acceptability to customers
Transparency
Does it deliver a clear benefit to customers to enable planning and budgeting? Are the contributions made by those funding the scheme clear?
28 Water today, water tomorrow
Social tariff options – Walker as a starting point Cap bills at national/regional/actual metered bill for low-income metered customers with high essential use for medical reasons 20% discounted bill for low-income metered/ assessed households Discounted volumetric tariff for low-income metered/assessed households with children (50 litres per child per day) Nationally or regionally funded BUT unacceptable for low income in low-cost areas to subsidise low income elsewhere
29 Water today, water tomorrow
Our approach to considering social tariffs Evidence base
Walker
Eligibility Assumptions
Assessment criteria
Design Modelling
Methodology
Implementation
30 Water today, water tomorrow
Issues in company social tariff development
Benefits/tax credits or low income? Mandated tariff
Welfare reform
Household types?
Eligibility
Metered only? Safety net or affordability?
Application and renewal process?
Take-up rates? Metering levels
Type of concession – % discount? Free block? Flat or banded discount
Level of concession Combinations?
Acceptability Impact on water conservation?
Design
How much money?
Charges to non-eligible? Proportion of bill or flat rate levy?
Affordability indicator
Assumptions
Survey error Affordability indicator
Methodology
Modelling bills
Data limitations
31 Water today, water tomorrow
Metered only? It makes sense to restrict bill caps to metered customers if they have high essential demand for water and are at risk of affordability problems Our evidence shows unmeasured families are at risk of affordability problems Example – Welsh Water Assist
32 Water today, water tomorrow
Welfare reform £11 billion welfare savings by 2014-15 Means-tested ‘universal credit’ for working age adults WaterSure eligibility must change Social tariffs will need to reflect changes
33 Water today, water tomorrow
Concessions Free blocks can enhance price signals if paid for through volumetric charges Discounts offer weaker price signal Caps remove price signal Standard size rebates offer clarity of benefit and ease of administration but unfair? All can be used for unmetered
34 Water today, water tomorrow
What take-up levels? Changes cost and affordability impacts Actual take-up rate for WaterSure unknown Variations will occur
35 Water today, water tomorrow
Acceptability Almost universal support for helping low income Most prepared to pay a few £ Companies also to contribute ‘Win-win’ tariffs more acceptable £ needs to go towards paying water bills Transparency Fairness
Sources: Charging research 2007, Ofwat and CCWater; Cross-subsidies and social tariffs, CCWater 2010
Water today, water tomorrow
36
Further challenges Affordability is dynamic Increases in household bills and threats to household income puts new and/or more households at risk The transition to metering changes the profile of who is vulnerable Market and wider charging reform may impact on those at risk of affordability problems
37 Water today, water tomorrow
Discussion Are there any other issues that need to be considered in designing company social tariffs? What principles should companies apply in designing social tariffs? How should companies demonstrate they have designed social tariffs soundly?
38 Water today, water tomorrow
Conclusions and next steps Publications Making our water affordable – identifying and helping those who need support Current evidence on affordability and debt: 2009-10 Company specific data Event report Further dialogues Supporting Defra and WAG with impact assessments Understanding Water Affordability Advisory Group Stakeholder engagement on evidence, best practice, social tariffs
39 Water today, water tomorrow
Introduction George Day, Director of Future Water Charging
2 Water today, water tomorrow
Agenda 12.30 pm
Introduction
12.45 pm
Who is at risk of affordability problems?
2.00 pm
Break
2.15 pm
Issues in designing social tariffs
3.30 pm
Conclusions and next steps
3.45 pm
End
3 Water today, water tomorrow
Vision Sustainable water “A sustainable water cycle in which we are able to meet our needs for water and sewerage while allowing future generations to meet their own needs” Sustainable water charging A framework for water charging which supports: Economically sustainable behaviour Environmentally sustainable behaviour Socially sustainable charges for customers (and vulnerable groups) 4 Water today, water tomorrow
Why is affordability important? To ensure sustainable supplies of water, it is critical that customers pay their bills To achieve this, household customers must be: Willing to pay Able to pay Enabled to pay
5 Water today, water tomorrow
Ofwat’s role Ofwat advises and implements but does not make social policy Water Industry Act 1991 and 1999
6 Water today, water tomorrow
Walker review, 2009
Ofwat should track the affordability problems and take action and/or provide advice to government to ensure that water and sewerage services remain affordable
In particular Annual report Advise government Encourage ‘win-win’ tariffs South West 7 Water today, water tomorrow
Policy context Flood and Water Management Act 2010 Defra will consult on Walker recommendations White Paper
8 Water today, water tomorrow
Our work on affordability Expert adviser, analysis of impacts For this we need a way of measuring affordability We have: Understanding Water Affordability Advisory Group New evidence base New analytical tools Briefed Defra and Welsh Assembly Government Produced South West analysis and advice 9 Water today, water tomorrow
Who is at risk of affordability problems? Andy Duff, Charges Policy Development Manager
10 Water today, water tomorrow
Objectives Approach to developing indicators of affordability Key findings from our forthcoming report, ‘Current evidence on affordability and debt: 2009-10’ Who may be at risk in the future
11 Water today, water tomorrow
Our approach to developing the evidence base Understanding Water Affordability Advisory Group Reviewed previous approaches to defining water affordability and fuel poverty Reviewed current evidence and suitable data sets Agreed next steps
12 Water today, water tomorrow
Income-based indicator Proportion of households that spend more than 3% or more than 5% of their disposable income on water and sewerage bills Measures affordability risk Compares well with other measures
13 Water today, water tomorrow
Headline findings England and Wales
Explanatory factors
23% spend >3% (5.4 million households) 11% spend >5% (2.6 million households)
Household type Low income
South West How customers pay 33% of households spend >3% 16% of households spend >5%
Where customers live – High bill areas – Company metering levels
14 Water today, water tomorrow
Household type Affordability by household type (England and Wales) – percentage of households spending more than 3% and 5% of income on water Household type
Spending more than 3% of income
Spending more than 5% of income
Lone parents
42%
18%
Working-age adults living alone
36%
22%
Single pensioners
36%
14%
Pensioner couples
16%
5%
Couple with children
14%
7%
Couple without children
13%
6%
Multi-unit and other
10%
5%
Total
23%
11%
15 Water today, water tomorrow
Low income Main explanatory factor 90% spending, more than 5% have incomes lower than £8,300 a year (after housing costs) Benefits are not a good estimator of households spending more than 3% or 5% of their income Benefit claimants are more likely to be spending more than 3% and 5% than non-claimants (57% and 17%) But 60% of households spending more than 3% or 5% of income did not receive benefits
16 Water today, water tomorrow
How customers pay Metering can reduce affordability problems for single/low occupancy households, but does not eliminate. Families are unlikely to benefit from metering Household type
Households spending more than 3%
Households spending more than 5%
Metered
Unmetered
Metered
Unmetered
Lone parent
38%
43%
20%
17%
Working age adult living alone
27%
40%
17%
24%
Single pensioner
21%
47%
9%
17%
Couple with children
15%
13%
8%
6%
Other
11%
10%
7%
4%
Couple without children
11%
14%
6%
7%
Pensioner couple
10%
20%
3%
6%
17 Water today, water tomorrow
Where customers live – high bill areas Average bills for each service, by water and sewerage company 2011-12 £600 £517
£500 £428
£411
£398
£397
Average bill
£400
£376 £339
£336
£319
£311
£300 £200 £100 £0 South West
Wessex
Dŵr Cymru
Anglian Southern United Yorkshire Northum Thames Severn Utilities brian Trent Water
Sewerage
Source: Ofwat’s customer charges information, 2011-12
18 Water today, water tomorrow
Affordability by bill area Proportion and number of households who spend more than 3% and 5% of income on water and sewerage bills, by sewerage company area 1,200
Percentage of households
30%
1,000
25%
800
20% 600 15% 400
10%
200
5% 0%
Number of households (thousands)
35%
0
South West Dŵr Cymru United Utilities
Anglian
Southern
Wessex
Thames
Yorkshire Northumbrian Severn Trent
Percentage spending >5% (left axis)
Percentage spending >3% (left axis)
Number of households spending >5% (right axis)
Number of households spending >3% (right axis)
Source: Ofwat analysis of Family Resources Survey, 2008-09. Unequivalised income after housing costs
Water today, water tomorrow
19
Where customers live – company metering levels As metering levels increase, so too do unmetered bills Year
South West Water
Wessex Water
England and Wales
Typical metered bill
Typical unmetered bill
Typical metered bill
Typical unmetered bill
Typical metered bill
Typical unmetered bill
2009-10
401
723
358
469
314
370
2014-15
407
935
369
565
313
390
Change
1%
29%
3%
20%
0%
5%
Source: ’Future water and sewerage charges 2010-15: final determinations’, Ofwat (November 2009)
20 Water today, water tomorrow
Questions Have we taken the right approach to measuring who is at risk of affordability issues? What other evidence or information might improve our understanding of water affordability? How do you think we should develop this work in future?
21 Water today, water tomorrow
Issues in designing social tariffs Georgia Klein, Head of Affordability and Social Impacts
22 Water today, water tomorrow
Objectives of session Review of current levels of assistance Future possibilities Overview of Ofwat’s work on social tariffs Explore issues involved in developing and designing company social tariffs
23 Water today, water tomorrow
Current protection Tax and benefits Rateable value charging WaterSure Charitable trusts and other company schemes Company specific ‘win-win’ tariffs
24 Water today, water tomorrow
General tariff options Achieving ‘affordable water efficiency’ through general tariff options is not considered achievable High volumetric charge and low standing charge Rising block tariffs
Source: ‘The independent review of charging for household water and sewerage services’, Walker, December 2009; ‘Vulnerability to heat waves and droughts’, Joseph Rowntree Foundation, February 2011
25 Water today, water tomorrow
Future possibilities Potential modifications to WaterSure Company-led social tariffs Flood and Water Management Act, Section 44: Permits companies to develop social tariffs designed to reduce charges for individuals who would have difficulty paying in full Includes tariffs requiring cross-subsidies from other consumers, including business Minister must issue guidance
26 Water today, water tomorrow
Social tariffs – our work so far As part of our work on affordability, we have: Developed a modelling approach Explored some criteria which could be used to guide the design of social tariffs Used Walker’s recommendations as a starting point Taken advice Modelled nationally and regionally funded social tariffs Set out impacts and results in advice on affordability on the South West to Government 27 Water today, water tomorrow
Social tariff assessment criteria Criteria
Questions
How efficiently is the option targeted?
What proportion of the target group is at risk of having affordability issues?
Cost
How much will the option cost ineligible customers at full take-up? How costly is the option likely to be to administer? Does it deliver good value for money?
Impact on affordability risk
Does it reduce risk of affordability issues for eligible households? What is the impact on non-eligible households? Does it require some households at risk of having affordability issues to support others?
Impact on water conservation
Does the tariff affect price signals for water conservation or incentives for the uptake of metering?
Practicality
How easy is it to administer the tariffs based on the information currently available to companies? Does the tariff put in place obstacles to take-up?
Acceptability
Evidence on acceptability to customers
Transparency
Does it deliver a clear benefit to customers to enable planning and budgeting? Are the contributions made by those funding the scheme clear?
28 Water today, water tomorrow
Social tariff options – Walker as a starting point Cap bills at national/regional/actual metered bill for low-income metered customers with high essential use for medical reasons 20% discounted bill for low-income metered/ assessed households Discounted volumetric tariff for low-income metered/assessed households with children (50 litres per child per day) Nationally or regionally funded BUT unacceptable for low income in low-cost areas to subsidise low income elsewhere
29 Water today, water tomorrow
Our approach to considering social tariffs Evidence base
Walker
Eligibility Assumptions
Assessment criteria
Design Modelling
Methodology
Implementation
30 Water today, water tomorrow
Issues in company social tariff development
Benefits/tax credits or low income? Mandated tariff
Welfare reform
Household types?
Eligibility
Metered only? Safety net or affordability?
Application and renewal process?
Take-up rates? Metering levels
Type of concession – % discount? Free block? Flat or banded discount
Level of concession Combinations?
Acceptability Impact on water conservation?
Design
How much money?
Charges to non-eligible? Proportion of bill or flat rate levy?
Affordability indicator
Assumptions
Survey error Affordability indicator
Methodology
Modelling bills
Data limitations
31 Water today, water tomorrow
Metered only? It makes sense to restrict bill caps to metered customers if they have high essential demand for water and are at risk of affordability problems Our evidence shows unmeasured families are at risk of affordability problems Example – Welsh Water Assist
32 Water today, water tomorrow
Welfare reform £11 billion welfare savings by 2014-15 Means-tested ‘universal credit’ for working age adults WaterSure eligibility must change Social tariffs will need to reflect changes
33 Water today, water tomorrow
Concessions Free blocks can enhance price signals if paid for through volumetric charges Discounts offer weaker price signal Caps remove price signal Standard size rebates offer clarity of benefit and ease of administration but unfair? All can be used for unmetered
34 Water today, water tomorrow
What take-up levels? Changes cost and affordability impacts Actual take-up rate for WaterSure unknown Variations will occur
35 Water today, water tomorrow
Acceptability Almost universal support for helping low income Most prepared to pay a few £ Companies also to contribute ‘Win-win’ tariffs more acceptable £ needs to go towards paying water bills Transparency Fairness
Sources: Charging research 2007, Ofwat and CCWater; Cross-subsidies and social tariffs, CCWater 2010
Water today, water tomorrow
36
Further challenges Affordability is dynamic Increases in household bills and threats to household income puts new and/or more households at risk The transition to metering changes the profile of who is vulnerable Market and wider charging reform may impact on those at risk of affordability problems
37 Water today, water tomorrow
Discussion Are there any other issues that need to be considered in designing company social tariffs? What principles should companies apply in designing social tariffs? How should companies demonstrate they have designed social tariffs soundly?
38 Water today, water tomorrow
Conclusions and next steps Publications Making our water affordable – identifying and helping those who need support Current evidence on affordability and debt: 2009-10 Company specific data Event report Further dialogues Supporting Defra and WAG with impact assessments Understanding Water Affordability Advisory Group Stakeholder engagement on evidence, best practice, social tariffs
39 Water today, water tomorrow
