Emma Clancy.

Q32 The Chair: Good morning and welcome to the committee’s fourth evidence session for its inquiry into the work of Ofwat. For our first session this morning, I welcome Emma Clancy, chief executive of the Consumer Council for Water. Emma, good morning and welcome. I hope that your daughter’s graduation last week went well.

Emma Clancy: It did. Thank you for your flexibility.

The Chair: It is a pleasure. I will open with the first question. We have heard that Ofwat has traditionally had a focus on keeping bills low, potentially at the expense of environmental investment. Do you accept that environmental improvements are needed in the sector and that bills may have to rise to pay for them?

Emma Clancy: Absolutely. The sector faces many serious and immediate challenges, such as addressing the problems associated with climate change and people’s changing expectations around the environment, all of which will cause upward pressure on bills. We absolutely understand and accept that position. However, we are also very conscious of the 1.5 million people who are currently struggling to pay their water bill at today’s rate, which is why we as an organisation are campaigning for the introduction of a water affordability scheme so that we can protect those who need help but at the same time make the investments that are needed for people today and in the future.

The Chair: You do a lot of work and research with customers, as your written submission makes clear. Is it your sense that customers would—or do—support increases in bills to pay for environmental investment, especially now, when they are facing the cost of living pressures?

Emma Clancy: Customers’ immediate priorities are focused on what impacts them and their families. They are concerned about securing supply for the future and matters such as making sure that their homes are not flooded with sewage. They also want to see environmental improvement, so it is very much an “and”. There is a basic level of service and supply that people expect, but they also want to see improvements in environmental measures. For example, our surveys show that around 64% of people want to see healthy habitats created for wildlife in and around rivers. They very much want both those things, but they also want to ensure that any bill rises offer good value and are sensibly executed, and that the money is well spent on the things that they care about, as opposed to on other matters or associated other costs.

Q33 Baroness Taylor of Bolton: Good morning. You mentioned that 1.5 million people are already struggling to pay their bills, and the need for a water affordability scheme. Different consumers in different parts of the country pay different rates for water. Some are able to take the benefit of a social tariff and get some kind of recognition of their payment problems. Can you say a little more about how you think a social tariff across the board could be effective? Would it be effective? Should Ofwat take some role in that; should it be considering these affordability issues, which are only going to increase over the next year or so?

Emma Clancy: Yes. The introduction of a water affordability scheme would need legislative change. It sits very clearly with Defra and the Welsh Government, which is of course not to say that Ofwat does not have a role in terms of affordability more generally. On a social tariff, you have highlighted one of the key reasons why we think its introduction is important. At the moment there is exactly that postcode lottery: two families with exactly the same set of circumstances but on different sides of the same street could get different help, depending on their water company. A family could get a 90% reduction on their bill, or they could get no help at all, depending on where they live. That is why we think that consistent support is important, particularly given the topic that we have already begun to touch on: the need for investment. Funding from a central pot, which is one of the premises for the introduction of the social tariff that we are proposing, means that the burden is spread evenly and therefore not disproportionately on the areas of the country that have the highest level of deprivation.

We also believe that the water affordability scheme would be more efficient. At the moment, you have multiple schemes with multiple brands and the different criteria that I have already referred to. It is simply not a very efficient model, which is where the water affordability scheme would also help. Plus, debt agencies have made it very clear to us that the current patchwork of support is incredibly complicated. A lot of people are not even aware what water company they belong to or are looked after by, and layering a different set of schemes with different sets of rules on top of that gives a significant challenge to debt agencies to provide help and advice.

Baroness Taylor of Bolton: I assume that your organisation has made these points to Ministers and, indeed, to Ofwat. Have you sensed any movement and real interest in going down that path?

Emma Clancy: The original recommendation was in our independent review, which was concluded a year ago. Since then, we have received really positive support from both the sector and the English and Welsh Governments. Working groups have been established looking at the viability of the scheme, what its rules could look like and transition arrangements. All the signs at the moment are very encouraging. However, obviously we want to keep the momentum up and the matter is urgent. We would really like to see Ofwat signalling the need for such a scheme in relation to the next price review, subject to the legislation being in place by then, and making sure that that is the goal we are all working towards. We believe that it is entirely doable; we just have to have the will.

Baroness Taylor of Bolton: Your organisation would obviously want to be at the centre of trying to clarify what the system should be, and what would work.

Emma Clancy: Absolutely, with the voice of the people and based on research. We know, for example, that 75% of people support the introduction of a water affordability scheme.

Lord Blackwell: You talked about the need for legislation. Is there any constraint at the moment on the ability of individual water companies to run a subsidised tariff scheme to offer low tariffs to low-income households and higher tariffs to higher-income households?

Emma Clancy: No. In terms of the water affordability schemes, at the moment each company makes up its own scheme. They are therefore different and varied, as I have highlighted. That is essentially how it works. Some companies put their own profits in and some schemes are very generous. The sector does a great deal now, it is just that it is inconsistent and not enough to serve the needs, which are obviously growing with the cost of living crisis.

Q34 Lord Cromwell: Good morning. I would like to talk about Ofwat and its statutory objectives, which need balancing because they are potentially conflicted. There is long-term investment; there are customer bills—I was yearning to ask you how much people would pay for the environmental benefit, but that is perhaps for another time; and there is environmental protection, which is breathtakingly expensive and hard to define. How well does Ofwat manage to balance these objectives, in your opinion?

Emma Clancy: We would certainly acknowledge that it is a difficult task. It is certainly not helped by the timeframes by which the price review process rolls out. Essentially now, seven years in advance of any kind of execution, we are trying to predict the needs of people and all the other factors that you have described. That is a significant challenge. In the past we would have observed that the pendulum had perhaps swung too far in the favour of companies, if we go back to previous price reviews, but we note and applaud Ofwat for swinging it back the other way for recent price reviews. If you look at the number of companies posting profits and so on, it is a much better position than previously. Overall, we think that that balance is about right, but it is difficult and it is changing as the needs and expectations of people are changing. That is almost a problem with the system, I guess.

Lord Cromwell: That leads me neatly into my second question, which concerns the strategic guidance Ofwat gets from government. Does it get enough of it? For example, does the strategic policy statement give enough actual prioritisation between these difficult objectives for it to work with? If not, what should happen?

Emma Clancy: Again, it is a question of people’s expectations and perhaps the political agenda going faster than even the SPS process, which is aligned to the price review, outlines. We are supportive of the SPS in its current form and are glad to see the focus on the environment. We think that some of the language could be tightened up. It might be quite difficult to assess performance against some of the words associated with that. There are probably a few tricky issues that need greater direction from the elected body—that is, the Government—to make some of these balances more clearly understood. It could look like a big shopping list and be very difficult to know where to start.

However, that should not get in the way of the sector being responsible and showing leadership and making proposals about the sorts of things that we would like to see happen. CCW is part of that infrastructure, but, in my view, we as a sector should have every voice coming together and having a big conversation about what our priorities should be, given that long shopping list.

Lord Cromwell: If you are going to engage with the environmental objectives, doing what is really necessary upstream is a massive cost, and perhaps palliative stuff downstream after it has had its effect is easier to go to, but this is all very hard to measure. Thank you for your answers.

Emma Clancy: The other point is perhaps about timing. What do we need to do first? If you take storm overflows, which are the ones causing the most significant environmental harm and need to be addressed super-quickly, we need to look at what we can do over a series of price reviews that makes a managed and sensible plan, both from the perspective of bills but also simply for execution.

Q35 Lord Burns: In your written evidence, you mentioned that consumers themselves might have a role to play in addressing some of these environmental challenges. Could you say a bit more about that? What would you like to see Ofwat do to encourage better behaviour?

Emma Clancy: We would definitely like to see Ofwat place far greater emphasis on reducing consumption and encouraging behavioural change as part of the price review. Currently, 41% of people who live in a water-stressed area think that water is plentiful in their area. That is not surprising. It is certainly not their fault or responsibility, but nevertheless that is the situation in which we find ourselves.

In addition, by 2050 we will need another 4 billion litres of water every day. The current plan to address that comes from three areas. One-third of it comes from behaviour change and reducing consumption, and in the sector we can see very clear plans around supply, and organisations, such as RAPID, which have been very effective in bringing people together to expedite decisions, making good progress on that side. However, it is less clear how the behavioural change and the demand side is to be addressed, and we would like to see much greater emphasis on that. Perhaps a body such as RAPID or a similar group could address that side of things to help people make good decisions and begin to value water. We have a role to play in that too and have a campaign in that area.

Lord Burns: Does it also not come back to price and whether that has any role to play in encouraging people on the demand side? What proportion of people have water meters?

Emma Clancy: About 60% of people have water meters.

Lord Burns: So for the other 40%, the margin of cost is zero?

Emma Clancy: Well, yes. But we find that the argument about cost works for some people but not everyone. People are becoming more aware of their own responsibility in relation to the environment, and if we make it easy for people to have a water butt or inspire them to take a shorter shower, et cetera, they are up for that and engage with it. We can travel a long way by doing some simple things. But obviously your point is also correct. So there is an “and”, again.

Lord Burns: How far can you really go just by encouraging people? What kinds of things will make a significant difference?

Emma Clancy: In water consumption?

Lord Burns: Yes.

Emma Clancy: The bigger levers to pull would be things like the building regs, which obviously affect only future building, but that should be looked at. We could do more work on, and the Government have already committed to, water-efficient devices so that you take away the choice so that all these things become a habit. But people have a part to play, and without engaging them we will get only so far. It is about addressing both those issues in tandem.

Lord Burns: What proportion of the challenge that you outlined—how much we are going to need by 2050—could possibly be achieved by then?

Emma Clancy: The third that needs to come from personal behaviour change?

Lord Burns: Yes. Do you think you can get a third of it from behavioural change?

Emma Clancy: It is a huge job, and we are way away from that as a sector right now, which is why we are calling for more action—and urgent action.

Q36 Lord Blackwell: You also say in your written evidence that you would like to see changes in the company licences. Could you just explain what you would like to see and the reasons for that?

Emma Clancy: This is an active area of work for us now with Ofwat, and we are very pleased that Ofwat has taken up consideration of the introduction of a customer licence—one that is focused solely on the customer. We would like that licence to fill some of the gaps that exist, creating a greater focus on vulnerable customers, and creating a level playing field in terms of things such as compensation that customers can get for redress. We would like to see the introduction of a licence condition associated clearly with customers.

Another thing that we would like to see, which is not a licence condition but is relevant, is adjustments to C-MeX, the incentive reward that focuses on the water companies’ customer performance. At the moment, the amount of reward that companies can gain from that is significantly smaller than other areas of the reward. Obviously, you would expect the consumer body to say this, but we do not think that is right: we think there should be as much emphasis on driving good customer service in a water company, dealing with complaints, et cetera—basic service level provision—as on some of the other incentives that exist.

Lord Blackwell: Does there also need to be more focus on environmental issues, or is that already adequately covered?

Emma Clancy: There are steps in place to strengthen that. All the changes that are happening in the sector at the moment should make it more robust, but obviously we will keep a watchful eye on it because people want to see those changes as well.

Lord Blackwell: You also talk about the regulators giving more consideration to culture. Can you explain what you want to see in the culture and how you want it to change?

Emma Clancy: Obviously, the sector needs strong, robust business plans, but also good companies, and company culture plays a massive part in how a company is run and the decisions it takes, et cetera. It is well established that there is a clear link between company culture and good outcomes for customers. However, at the moment, culture does not really feature at all in the price review. Some companies do some very active work in this area, so there is a template that exists, but it is not measured or rewarded, and we think that that is a missed opportunity. One practical way of doing that would be with employee engagement surveys. As I said, high levels of employee engagement lead to good customer outcomes, so we could ask Ofwat to require employee engagement surveys from all water companies and to publish them with an action plan. We believe that that would be an important step forward in terms of company culture.

Another aspect of that could be the role that companies play in communities. Again, there are established accreditation schemes that encourage companies and, indeed, allow them that kind of accreditation if they are good citizens within the communities they serve. That would be another important part of driving company culture, as would a greater focus on leadership, which, again, perhaps Ofwat could look at through its activities with water company remuneration committees. How is the leader being rewarded? Is that driving the right company culture? Again, Ofwat has stepped forward into that remuneration committee space more strongly over the last period, which we welcome.

Our fear is that without creating the right company culture, all the changes that we want to see, whether they are customer-facing or environmental, will be compromised.

Lord Blackwell: Good culture is obviously important in any company but, in focusing on this, is your concern that the culture in some of the companies is inappropriate, too internal or too engineering-dominated, for example?

Emma Clancy: We do not know, because it is hidden, but we see a mixed approach to resolving customer complaints. One of the core functions of CCW is helping individual customers with their complaints against their water company. We helped 12,000 people last year to get £1.9 million-worth of redress. It is certainly fair to say that some companies are easier to deal with than others in relation to that, but these are monopoly utilities and therefore I, and, I think, the public, would perhaps set the benchmark higher for those companies than for others. Therefore, that culture point is even more valid.

Lord Blackwell: Make them more customer focused.

Emma Clancy: Yes, because customers have no choice, and there is no contract, so the companies need to meet the highest standard in their activities.

Q37 Baroness Donaghy: Good morning. What is the customer experience of the water sector? How well do water companies perform in relation to their obligations to customers?

Emma Clancy: The water sector enjoys relatively high levels of customer satisfaction. In our submission, there is some data from our Water Matters survey, which has tracked this picture for a significant period of time. There has been a dip, and our research shows that that is not uncommon. It points to the very difficult circumstances with Covid and other factors that everybody has lived through over this last period. The sector enjoys relatively high levels of satisfaction, but that is not to say that we can afford to be complacent. There were still 94,000 written complaints last year in the water sector as a whole, which was up 11% on previous years. Satisfaction levels with matters such as affordability are on the decline, so there is still work to do.

Baroness Donaghy: Do you think the water companies have an easy ride? It seems to me that although it is relatively cheap, customers will not be focused on issues such as underinvestment or excess profit. Do you think there is something to be said for assessing the value of the water and sewerage service to get a more accurate level of payment, irrespective of helping those who are vulnerable and cannot afford it?

Emma Clancy: Yes. Helping those who are vulnerable and cannot afford it needs to be the safety net that is there for everyone. There would be value in assessing the value of water and looking at it through a different lens, as you describe. I do not know that it is fair to say that people are not concerned. For some people, the bill is still material. We know that many people make very difficult choices in order to pay their water bill, even though it is the smallest bill. Certainly, the complaints we get and the discussions we have show that people are concerned about the areas that you describe, and they do not necessarily link that to the amount they are paying. Again, that is part of how people perceive that a monopoly utility should behave, and the fact that it is water, which is clearly essential for life.

Baroness Donaghy: Have initiatives such as customer challenge groups helped Ofwat in this regard, and what more would you like to see from the regulator in relation to consumers?

Emma Clancy: The customer challenge groups have certainly been helpful in bringing the people’s voice into a complex process. For the next price review period we are planning to create a customer oversight group for the chairs of the CCGs so that we can help them to do company challenge better by sharing with them our research, data and information, and by helping them to provide an even more robust challenge. We would like Ofwat to continue to ensure that the people’s voice is heard throughout the price review process. I guess the watch-out for us all is that that starts out with good intentions but as some of the trade-offs that we have discussed come into play that voice becomes slightly lost. That is definitely on our radar, and we will encourage all parties to ensure that the customer’s voice is heard throughout the process.

Another observation is that companies are able to go to the CMA if they are unhappy with the outcome. Customers do not have that option, but often end up paying for the process, so it might also be worth considering whether customers should ultimately have some form of, say, redress or consideration at the end, as companies enjoy.

Baroness Donaghy: Your organisation is the champion of consumers, yet it seems to be an implicit part of the infrastructure. From your answers so far, I have not quite grasped what the particular role of the water council is in teasing out some of these issues, which perhaps even customers have not yet identified as real issues.

Emma Clancy: We are the only body in the water sector that is entirely focused on people. Obviously, we have to work in partnership to get things done because we, like people, are interested in achieving change. We will work with whoever across the sector enables us to deliver our campaign objectives, but our governance is independent, and our activities are rooted in research.

We have three key functions. As I mentioned earlier, we deal with individual customer complaints: customers ring us up to say that they are upset with their water company, and it is our job to mediate with that company to get the matter solved and, if appropriate, get them some compensation. In that field we are entirely about the customer.

Our other area of activity is policy and research: we publish data that you will have seen in our submission, such as Water Matters, where we track the performance of the sector through the eyes of the customers, looking at the things they care about, and we report on that performance. We use that data to challenge underperformers and to celebrate the successes of those that have done well, because we believe that both those things are appropriate.

Then we have a perhaps slightly unseen role in influencing through the price review. The price review goes on for years and has many phases and factors—my team make it clear to me that it takes up a great deal of their time, and I can see that it does. That stuff is unseen, but we are the ones in the room saying, “Have you tested this with customers? What are people’s views? How are you responding to them?” Sometimes, we are the only voice that is entirely focused on that process. I am confident that we are very much there for customers and people, and that is the role that we play.

Q38 Lord Cromwell: Thank you. That is a really helpful outline of the no doubt extremely important role of your organisation. Going back to the question asked by Lord Burns, in a way, through the other end of the telescope about consumer behaviour, I have lived in the desert, and to see people clean their cars and water their gardens with pure drinking water every weekend is beyond decadent, in my humble opinion. Very few consumers, however, have alternatives; they do not have a water butt or just do not have space for one, or any alternative to use to fulfil those functions, including washing themselves. What role does your organisation have in trying to adjust consumer behaviour, and what alternatives are there if they do not have access to another source of water?

Emma Clancy: All those points are valid. We are very lucky, but the other side of that is that it will not hold for the future. By 2050, there will be areas of the UK that are running short of water. One of our roles is to be clear to people about that, and we certainly encourage people to engage in water-saving activities, while of course acknowledging the limitations associated with those.

In March, we launched a campaign on valuing water, because we think that what underpins a lot of behaviour issues is that people—again, completely understandably—do not value water particularly, partly due to pricing, which has been alluded to, and partly because we just do not think about it a great deal. People have incredibly busy lives, and this has been a really stressful period for everybody, so the idea that water saving will be at the top of anyone’s list is not likely to drive the change that we all want to see.

So we have launched our campaign to look at ways to help people value water more effectively, and there are various initiatives associated with that. They will sound quite light and fluffy, but we think that this is a good way to start some of these topics. There is water taste testing, for example. Walking with water is another of our campaigns, where we encourage people, by the provision of information, to follow their water supply, find things along the way, post pictures and that kind of thing.

I am happy to share more details with the committee, but that is the approach that we are taking, because we think that is the unique role that we can play while at the same time acknowledging that it will only ever be part of the jigsaw, and questions about tariffs, water transfer and other matters are obviously also a significant part of that.

Lord Cromwell: I think you acknowledge that this is a massive uphill struggle. Look at seatbelts: until there was a fine for not having one, nobody bothered.

Emma Clancy: I completely agree, and we need legislation to support that. That is not where we are at the moment, so we are trying to make changes today that can, I hope, provide some benefit for the future. This is an area where we are increasingly active and it is incredibly important.

Q39 Lord Burns: You have mentioned that generally the level of consumer satisfaction in this industry is very high compared with many others. What are the top five complaints that find their way to you?

Emma Clancy: Some 67% of our complaints are about billing.

Lord Burns: What aspect of it? Is it because people think they have been incorrectly billed or they just do not like the size of the bill?

Emma Clancy: A bit of both. A lot of it is about incorrect billing and people not understanding. As a sector, we do not really help. As we have already talked about, some people are on a meter and therefore pay directly for usage; others are related to rateable value. As soon as you start having that conversation with someone—“It’s about rateable value”. “Oh, what’s rateable value?”—it is not a very easy or transparent system to explain. Sometimes our role is just to explain that and give people reassurance that the bill they are facing is correct. Obviously, increasingly a lot of the calls that come under the area of billing are because people are struggling to pay, and we are able to signpost them to the places they can go for help.

Lord Burns: What about numbers two, three, four and five?

Emma Clancy: Sewer flooding comes in at around number four. We get very small levels of sewer flooding complaints. Obviously, it peaks when there is an incident: as London and other areas have suffered, we will see an increase in those sorts of complaints. Some of the sewer flooding complaints are the hardest to deal with when they are related to properties that are perhaps built somewhere that will always attract flooding, and then they can take longer to resolve than anyone would want because the matters might require an infrastructure solution.

Lord Burns: And bursts?

Emma Clancy: Again, relatively low, coming in around six or seven on that list. It is much more the transactional side of things—“My bill is wrong”, “I can’t get anyone to speak to me”, “Someone has parked their van over my manhole”—that kind of level.

Lord Burns: Then there are social issues, of course, to do with leakage and some of these environmental things, which, as you say, do not really directly affect individual customers. Presumably they do not figure highly at all.

Emma Clancy: No, but we know that high levels of leakage, when witnessed, have a significant detrimental impact on people's willingness to change. They will not have a three-minute shower if they can see evidence of water companies having big leaks. That is an area that we try to work with, to ensure that if there is a leak the companies explain why and address it quickly, because it is not just the damage of the leak; it is the damage it has on people’s—

The Chair: It is not an efficient mechanism for reducing demand.

Emma Clancy: Indeed. You put it so much better than I could.

The Chair: Can I just take up some of the points you made earlier: the shortage of 4 million litres of water per day by 2050 and one-third of that gap to be plugged by a reduction in consumer demand? Is that in any way achievable without invoking or using the price mechanism?

Emma Clancy: It is incredibly tough. Where we are at the moment—again, there is a massive Covid context for this, because obviously we have all been at home and therefore using more water—current consumption is targeted at around 110 litres, whereas we are all using 150 litres a day. We are not where we need to be, so that target is even more stretching, and it certainly points to the fact that we need to make decisions now, because if some of that has to come more from infrastructure, et cetera, those decisions need to be made today to mitigate that impact for the future.

Q40 Lord Reay: Clearly, a considerable amount of investment will be required in the sector to get to grips with the water pollution problems and other issues the sector faces, and investors are looking for returns. My question is: could Ofwat be doing more to ensure that more money in the sector flows into investment, rather than out into dividends? Would recouping flows out of the sector in this way help to increase investment without having to increase bills?

Emma Clancy: We would certainly welcome more investment in the sector and its staying in the sector. Obviously, there are those three aspects of it. The profitability and the rewards enjoyed by shareholders are one of those aspects that could very much help with all the problems.

We know that what customers really want is a level of transparency, which I do not think exists at the moment, about what companies are being rewarded for and how those rewards line up with what customers want. No one should be rewarded for failure. If customers are focused on certain sets of issues, whether that be service or improvements to rivers, rewards for shareholders should be aligned with that and the mechanism for reviewing those and for reporting against those should be more transparent than it is.

Lord Reay: Presumably in years with bad water performance, accompanied by high dividends and bonuses, that does not go down very well in your community of customers.

Emma Clancy: Again, it is that lack of transparency. If a company has not performed very well and there are rewards or bonuses, et cetera, people say, understandably, “Why? How? Is there something I don’t understand?” That is where we think that greater transparency would be helpful.

Lord Reay: Are there lessons to be learned from Welsh Water, which is run as a not-for-profit company, with profits reinvested for the benefit of consumers?

Emma Clancy: Welsh Water is undoubtedly an attractive model. Customers instinctively like and value that kind of set-up. However, performance suggests that it is not a silver bullet. There are well-performing companies that are valued by their customers which operate in a business model with shareholders, and you see mixed performance.

Take the matter of leakage, which we talked about earlier. If we look at Scottish Water and Northern Ireland Water and then look at performance in England and Wales—although obviously Scotland Water and Northern Ireland Water are different models again—we see differences in performance, with companies in England and Wales doing significantly better, including those that have shareholders. So it is an attractive model and people instinctively like it, but it is certainly not a silver bullet for performance, which is ultimately what customers value.

Lord Reay: Do you think the fact that it is run as a not-for-profit, and does not have such a large balance sheet as the others, affects performance? If so, where specifically?

Emma Clancy: I do not think we see it necessarily impacting performance. Looking at Welsh Water’s performance, for example, it tends to sit around mid-table in many of our performance metrics, so it would be difficult to point specifically to such a linkage. As I said, people like the model and feel that it serves the community well, but—and this is not a criticism of Welsh Water—I could not particularly link that to performance.

Q41 Baroness Bowles of Berkhamsted: I would like to turn to regulatory fines and what you think of them. In the first place, are they effective, and then what should be done with the money? There have been some models where it goes back to the Treasury and somewhere it is distributed among consumers. Some people have suggested that it would be better if it were put to investment purposes because the amount per consumer is trivial on already smallish bills. What would you do with the money? If it is going to be returned for investment, how would you stop that looking like the water companies getting their money back?

Emma Clancy: Indeed. Essentially, we support restorative justice. We would prefer any fines to be returned to the communities that have been impacted rather than going to the Treasury. There is a kind of case-by-case basis for this issue. The fines for Southern Water resulted in a rebate of around £60 back to people’s bills. That was something material that people would have appreciated, but you are right: on other occasions, where the return to customers would be relatively small, the beneficial impact of investing that in a different way for local communities, putting something right, would be much more positive. So it is on a case-by-case basis. However, we need to guard against that money being used to fix the problem that was created in the first place. That is where the regulator has a very clear role. Customers should not pay twice.

Baroness Bowles of Berkhamsted: Could it be given to a different company, or something like that?

Emma Clancy: Maybe it could be given to a different group. It is a sector that has lots of fantastic NGOs working really hard on different areas. With customer engagement on where it was going and what it was being spent on, I am sure there could be a process that allowed, say, the Rivers Trust to do something fantastic with the money.

Baroness Bowles of Berkhamsted: Would you have to preselect NGOs, or would it be up to Ofwat to determine which NGO should get it?

Emma Clancy: I honestly do not know and I would have to give that a bit more thought. I just intuitively think that where there is a will there could be a way of doing it. I do not think it could be given to another company. I was thinking “Okay, where could it go that would be useful and practical?”, hence my reaching for NGOs. Ofwat has an innovation fund at the moment, which is essentially a competition where people can bid for projects for extra funding, and that may be one model. We would like to see it help affordability in a region. Perhaps that could be another way of reinvesting any kind of fine.

Baroness Bowles of Berkhamsted: Do you think the size of fines is right?

Emma Clancy: Some of the recent fines have been significant. Again, you can look at the correlation between the companies that have been fined and their inability to declare a profit or take a dividend, and that is clearly correct.

Baroness Bowles of Berkhamsted: Do you think it will work?

Emma Clancy: I see companies rightly troubled by the fines that they are getting, and caring about that. Yes, I hope and think it would work, and it should.

Baroness Bowles of Berkhamsted: But perhaps they have been a bit slow in getting to the “hurt” point.

Emma Clancy: Possibly, yes. But then the process is quite long, which is another challenge; the incident happens but then the fine comes years later because it is going through a formal process. Fines have stepped up, and when they are implemented now, I see companies responding appropriately.

Baroness Bowles of Berkhamsted: If the fines could be implemented more quickly, do you think the restorative steps by the water companies would happen faster, or do they recognise that something is going to happen down the track so they had better pull their socks up now before they get the fine?

Emma Clancy: Probably a bit of both, but speed would be better—then you are ultimately holding to account the people who made the error in the first place; otherwise, everyone can just move on. It would feel more like justice to people if it were quicker.

Q42 Lord Burns: I declare an interest in that I was chairman of Welsh Water for 10 years, starting in 2001. I was interested in the comments you made about Scotland and Ireland and the comparison with the English companies. I would like to ask a general question: is it not actually very difficult to compare performance between water companies? Do the challenges that they face in relation to geography and topography and whether they have large numbers of holiday visitors, for example, not make it difficult to see how one is performing relative to another? If you have an awful lot of hills and very steep pipes piping water at great pressure, life is going to be more difficult than if you are in more straightforward terrain.

Emma Clancy: On the operational side, that is absolutely right. I guess the argument would be that some degree that is reflected in the cost to serve.

Lord Burns: The CSO problem also makes it difficult to make comparisons between companies.

Emma Clancy: It does. Our part of the jigsaw is focused very much on the customer. It is valid and completely justified to measure on customer service, trust, vulnerability and affordability because those things are not impacted by the very real criteria that you highlight. In our world, if I can be a bit selfish for a moment, that comparison is appropriate and right, and that is where the customer focus part comes in. Operationally, though, the companies are of course very different.

Lord Cromwell: I have a quick question on the fine sizes. Do you accept that it is a lot cheaper to pay palliatively post incident, dealing with the symptoms, rather than undertaking the serious investment needed, which is the cause of the problem in the first place? Are the fines really big enough to be hypothecated into investing in the infrastructure?

Emma Clancy: As I said, some of the fines have got larger. Whether they are large enough is another question again. That approach would have to be underpinned by some fairly shady behaviours, would it not? If that is happening, it is completely wrong and utterly unacceptable. It is not something I have witnessed. I see companies caring about the fines that they get and taking steps to address that. It is right that they should be fined when their behaviour is not acceptable, but I do not see them behaving quite in the way you suggest.

Lord Cromwell: My question is simply whether the fines are big enough to be diverted usefully into infrastructure building. They are probably not.

Emma Clancy: I think they are getting bigger, but whether they are big enough I am not sure.

The Chair: I should have asked you this at the beginning, so apologies, but how is CCW funded?

Emma Clancy: We are funded off your water bill, and we cost you 26p a year.

The Chair: That is 26p per household per year.

Emma Clancy: Correct.

Q43 The Chair: We have not yet touched in this session on the business retail market. What percentage of your organisation’s time, or focus, is on that market.

Emma Clancy: It is a significant focus. As the committee might be aware, CCW covers charities, businesses and households. The business market has been open in England for five years, and during that time we have seen an uptick in complaints. Generally speaking, prior to market opening, complaint levels were around 800 a year. We are now up at a steady 2,200 complaints, and the number has been up to 400% higher than at market opening. So we get a huge number of complaints from customers.

They are also complaints that are really difficult to handle. In the non-household market, the business market, you have a retailer and wholesaler, and quite often the responsibility for fixing things for customers can need both parties to act, but both parties may not be compelled to act and their responsibilities may not be entirely clear, so the complaint gets stuck very quickly.

If we look more broadly at the non-household market, there were a number of desires for the market, one of which was that people would be able to switch—a baseline requirement for a market. Again, our research shows that that does not happen and that people are not switching. There were also a number of environmental targets associated with the launch of the non-household market, because it was felt that information could be provided and so on, but again we are not seeing the outcome of that at the moment. It is a very difficult space for customers.

There is a lot of activity in Ofwat and in the market operator to try to fix it, lots of working groups and so on, but we really need to see significant improvement in that area, and quickly.

The Chair: Following Lord Burns’s question, what is the most frequent complaint made by customers?

Emma Clancy: Again, it is about billing, and sometimes about billing associated with metering and inaccurate meter reading, as well as long-unread meters—meters that have not been read for many years that may be in difficult places. Quite often, they affect fantastic community groups. We recently helped save a football club from closure, because it was facing a £15,000 water bill, which would have finished it off. A lot of local community groups are impacted by these sorts of issues.

Lord Burns: Would you regard the opening of the market as a success?

Emma Clancy: That would be a very hard case to run now. There are opportunities to change and they need to be seized on quickly.

The Chair: Unless there are any other questions, I will bring this session to an end. Thank you very much indeed for your evidence today and for your patience with the questions.