Investing in and paying for water services: consultation

Principles of Charging - Final Draft

The charges that customers pay provide the finance required to sustain Scottish Water's operations and to deliver improvements to services through a large programme of capital investment in all parts of the country.

The level of charges is determined through the Strategic Review. The manner in which charges are calculated for individual customers is governed by a set of principles issued by Ministers in the Principles of Charging (PoC) Statement. The final draft statement for 2021-27 is included at Annex B.

Question 1 – Do you agree that the final draft Principles of Charging are appropriate for the next regulatory period?

The Government considers that for the most part, the Principles of Charging set for the present regulatory period are satisfactory and should continue. The draft statement therefore provides that charges should continue to:

• Be Stable.
• Cover the full costs of providing services to customers.
• Be Harmonised across Scotland.
• Be Cost-reflective.

For households, the structure of charges should continue to be set by reference to Council Tax bands (as at April 2015) and charges should be collected with Council Tax bills by local authorities.

Whilst these principles should continue, the Scottish Government considers there is a case for change in the following areas.

Support for Customers

The Government recognises that a number of customers face difficulty in paying their water bills. A range of support measures for customers has been part of the charging framework for many years and currently amounts to around £159m each year. This includes £92m of discounts to 965,000 households (based on the number of occupants in the dwelling liable for council tax), £56m of exemptions granted to 145,000 households, and £11m of reductions to 141,000 households (based on their financial situation). The Government has carefully considered how these arrangements could be improved.

The Government noted the concerns raised during the 2018 consultation regarding the proposal to reduce the 25% discount for households with only one adult liable for Council Tax, even though the additional revenues were to be used to improve support for customers facing affordability constraints. Ministers have therefore withdrawn that proposal, meaning the 25% single person discount will remain for the 2021-27 period.

The Government now proposes to increase the level of support provided through the Water Charges Reduction Scheme, from a 25% reduction to a 30% reduction, which will benefit around 141,000 households. The scheme will also be extended to include households that receive Council Tax Reduction and some other form of Council Tax discount, benefitting a further 291,000 households.

The revised proposal will mean that householders that receive 100% Council Tax Reduction will receive a 30% reduction against the full water and sewerage charge for their dwelling, while householders that receive 80% Council Tax Reduction will receive a 24% reduction against the full water and sewerage charge for their dwelling. Overall this change is expected to cost £7m per year, which WICS will take account of when setting the overall level of charges.

Questions

2 - Do you agree that the level of financial support provided for households that receive Council Tax Reduction should be increased?

3 - Do you agree that the eligibility criteria for this financial support should be extended to include all those in receipt of Council Tax Reduction and some other form of Council Tax discount?

Bringing Vacant Dwellings in to Charge

There are a range of circumstances which currently result in dwellings being exempted from water and sewerage charges. Some of these exemptions only apply when a dwelling is vacant. Respondents to the July 2018 consultation supported the proposal that vacant dwellings should be subject to charge, as they continue to impose costs on Scottish Water which have to be met by other customers. Applying charges at vacant dwellings would better align with the arrangements for non-household premises, where water and sewerage charges are already applied at vacant premises.

Therefore, in the 2021-27 period, the following three categories of currently exempt dwellings will be brought in to charge. This is expected to account for additional revenues of between £5-9m per year.

1. New dwellings - An unoccupied and unfurnished dwelling in respect of which—

(a) less than 6 months have elapsed since the effective date for the first entry in the valuation list; and

(b) there was no entry in the valuation roll immediately prior to that effective date.

2. Empty dwellings - A dwelling—

(a) which is both unoccupied and unfurnished; and

(b) in respect of which less than 6 months have elapsed since the end of the last period of 3 months or more throughout which it was continually occupied.

3. Dwellings under repair - An unoccupied dwelling–

(a) which–

(i) is undergoing or has undergone (since the last occupation day) major repair work to render it habitable; or

(ii) is undergoing or has undergone (since the last occupation day) structural alteration;

(b) in respect of which no more than 12 months have elapsed since the last occupation day; and

(c) in respect of which no more than 6 months have elapsed since the major repair work or structural alteration in question was substantially completed.

The Government also proposes that dwellings in the following circumstances will continue to be exempt from water and sewerage charges during the 2021-27 period, up to the maximum exemption period shown in the table below:

Exemption	Description	Period of Exemption
Dwellings last occupied by charitable bodies	An unoccupied dwelling - (a) in respect of which - (i) a body established for charitable purposes only is a qualifying person; and (ii) less than 6 months have elapsed since the last occupation day; and (b) which was on that day occupied in furtherance of the objects of the body in question.	Up to 6 months
Dwellings last occupied by persons living or detained elsewhere	An unoccupied dwelling which on the last occupation day was the sole or main residence of a person who - (a) is, and has throughout the period since that day been, a relevant person; and (b) is a qualifying person.	Unlimited
Deceased owners	A dwelling - (a) which is not the sole or main residence of any person; and (b) in respect of which any liability to pay council tax (but for the terms of The Council Tax (Exempt Dwellings) (Scotland) Order 1997 would fall to be met solely out of the estate of a deceased person and either - (i) no grant of confirmation to the estate of that person has been made; or (ii) no more than 6 months have passed since such a grant was made.	Unlimited up to grant of confirmation 6 months after grant of confirmation
Dwellings empty under statute	A dwelling - (a) the occupation of which is prohibited by law; or (b) which is kept unoccupied by reason of action taken under powers conferred by or under any Act of Parliament, with a view to prohibiting its occupation or to acquiring it.	Unlimited
Dwellings awaiting demolition	A dwelling which - (a) is owned by a local authority, a registered social landlord, or Scottish Homes; and (b) is kept unoccupied with a view to having it demolished.	Unlimited
Dwellings for occupation by ministers	A dwelling which - (a) is not the sole or main residence of any person; and (b) is held by on or behalf of a religious body for the purpose of being available for occupation by a minister of religion as a residence from which to perform the duties of his office.	Unlimited
Dwellings occupied by students, etc.	A dwelling which— (a) is occupied by at least one person who is— (i) a student; (ii) a student's spouse or dependent, being in either case a person who is not a British citizen and who is prevented by the terms of his leave to enter or remain in the United Kingdom from taking paid employment or from claiming benefits; (iii) a person disregarded for the purposes of discount in terms of paragraph 2 of Schedule 1 of the Local Government Finance Act 1992 or paragraph 3 or 6 of the Schedule to the Council Tax (Discounts) (Scotland) Regulations 1992; or (iv) a person under the age of 18 years; and (b) is not the sole or main residence of any person other than a person described in sub-paragraph (a)(i) to (iv) above.	Unlimited
	An unoccupied dwelling - (a) which is not the sole or main residence of any person other than a student or a person falling within paragraph 10(a)(ii) of Schedule 1 of the Council Tax (Exempt Dwellings) (Scotland) Order 1997; (b) which, when last occupied, was occupied by at least one student; and (c) in respect of which less than 4 months have passed since the last occupation day.	Up to 4 months
	A dwelling— (a) which is not the sole or main residence of any person; and (b) in respect of which each qualifying person is a student.	Unlimited
Repossessed dwellings	A dwelling— (a) which is not the sole or main residence of any person; (b) in respect of which the qualifying person (or, where there is more than one such person, one or more of them) is a debtor, or one of the joint debtors, in a heritable security secured over the dwelling; and (c) lawful possession of which has been entered into by the creditor in that heritable security.	Unlimited
Agricultural dwellings	An unoccupied and unfurnished dwelling which— (a) is situated on lands and heritages used for agricultural or pastoral purposes only, or as woodlands, market gardens, orchards, allotments or allotment gardens, or on lands exceeding one tenth of an hectare used for the purpose of poultry farming; and (b) when last occupied and used, was occupied together with and used in connection with the lands and heritages on which the dwelling is situated.	Unlimited
Dwellings for old or disabled persons	A dwelling which— (a) is not the sole or main residence of any person; (b) falls within the description mentioned in paragraph (a) of section 61(4) of the Housing (Scotland) Act 1987(7); (c) is held by a registered housing association for the purpose of being available for occupation by persons of pensionable age or disabled persons who are likely in future to have their sole or main residences in other dwellings falling within the same description which are provided by the association.	Unlimited
Halls of residence	A dwelling which is, or is part of, a hall of residence provided predominantly for the accommodation of students, and which— (a) is owned and managed by— (i) an institution within the meaning of paragraph 5(4) of Schedule 1 to the Local Government Finance Act 1992; or (ii) a body established for charitable purposes only; or (b) is the subject of an agreement allowing such an institution to nominate the majority of the persons who are to occupy the accommodation so provided.	Unlimited
Barracks, etc.	A dwelling— (a) of which the Secretary of State for Defence is the owner; and (b) which is held for the purposes of armed forces accommodation.	Unlimited
Dwellings occupied by young people	A dwelling which is the sole or main residence of one or more persons under the age of 18 years and of no other person.	Unlimited
Difficult to let dwellings	An unoccupied dwelling— (a) which either— (i) forms part of premises which include another dwelling; or (ii) is situated within the curtilage of another dwelling; (b) which is difficult to let separately from that other dwelling; and (c) in respect of which a qualifying person has his sole or main residence in that other dwelling.	Unlimited
Garages and storage premises	A dwelling which falls within either of the classes of lands and heritages specified in paragraphs (2) and (3) of regulation 2 of the Council Tax (Dwellings) (Scotland) Regulations 1992.	Unlimited
Dwellings of persons made bankrupt	A dwelling— (a) which is not the sole or main residence of any person; (b) an interest in which is vested in a permanent trustee by virtue of subsection (1) or (10) of section 31, or subsection (6) of section 32, of the Bankruptcy (Scotland) Act 1985; and (c) in respect of which that trustee is the only qualifying person.	Unlimited
Visiting forces	A dwelling in respect of which any of the qualifying persons is a person who has a relevant association, within the meaning of Part I of the Visiting Forces Act 1952, with a body, contingent or detachment of the forces of a country to which any provision in that Part applies.	Unlimited
Dwellings occupied by severely mentally impaired persons	A dwelling which is occupied only by one or more persons who are disregarded for the purposes of discount by virtue of paragraph 2 of Schedule 1 to the Act.	Unlimited
Prisons	A dwelling falling within the scope of regulation 2(1) of the Council Tax (Dwellings) (Scotland) Regulations 1997.	Unlimited
Prescribed housing support services accommodation	(1) A dwelling that meets all of the requirements in sub paragraph (2). (2) Those requirements are that the dwelling is – (a) the residence of one or more persons who are resident by virtue of a licence to occupy, or a tenancy of, or a sub-tenancy of the dwelling; (b) a dwelling in respect of which a registered prescribed housing support service is being provided to at least one licensee, tenant or sub-tenant of the dwelling; and (c) a dwelling in respect of which every licensee, tenant, and sub-tenant (as the case may be) has the right to share the use of a kitchen, bathroom, shower-room or toilet-room, and where such use is shared with at least one other person who is not resident in the dwelling. (3) A dwelling that meets the requirements of sub-paragraph (2) is not exempt where every licensee, tenant and sub-tenant (as the case may be) of that dwelling also has the exclusive right to use– (a) a kitchen; and (b) either a bathroom or shower-room, and where either the bathroom or shower-room contains a toilet, or there is a separate toilet-room which every such licensee, tenant or sub-tenant also has a right to use. (4) For the purposes of sub-paragraphs (2) and (3)– "prescribed housing support service" has the same meaning as in section 91(8) of the Housing (Scotland) Act 2001 (grants for housing support services); and "registered" means that Social Care and Social Work Improvement Scotland has granted an application for registration of a prescribed housing support service under section 60 of the Public Services Reform (Scotland) Act 2010 (grant or refusal of registration).	Unlimited

Question 4 – Do you agree with the proposals regarding charging at vacant dwellings?

Financing New Capacity

Respondents to the July 2018 consultation supported a review of how the costs of meeting the demands of growth on the water and wastewater infrastructure are met.

During 2019, Scottish Water and the Scottish Government assessed the current arrangements against concerns that have been previously raised by the developer community. This identified refinements that would simplify responsibilities, minimise the administration burden between developers and Scottish Water, reduce the financial and construction risks faced by developers, improve the viability of many development sites and, in a number of cases, is likely to reduce the costs faced by the developer.

The main proposal relates to the financing arrangements for situations where existing network assets require to be enhanced to provide additional capacity to support the needs of individual developments, or to meet the needs of expected background growth.

At present the costs of enhancing existing network assets to meet the needs of new housing development and the domestic requirements of commercial and industrial developments are financed in two ways.

Where additional capacity is required to meet the needs of specific developments, the costs are covered by reasonable cost arrangements. Where the additional capacity cannot be attributed to individual developments (i.e. background growth) the changes are financed from Infrastructure Charge revenues, which are paid by developers.

To simplify these arrangements, the Government proposes that the costs of enhancing existing network assets to meet the needs of new housing development and the domestic requirements of commercial and industrial developments should all be met through Infrastructure Charges, up to a maximum limit. Under these proposals individual developers would be required to meet additional costs above the maximum limit.

The proposals in detail

It is proposed that revenues from Infrastructure Charges, which are paid by developers based on their individual developments, would be used to enhance existing network assets to ensure there is adequate capacity to meet the needs of new housing development and the domestic requirements of commercial and industrial developments. An upper limit would be set on the use of Infrastructure Charges to finance these asset enhancements, with individual developers being required to meet additional costs above the upper limit.

Scottish Water and the WICS would be asked to agree the upper limit referred to above and the appropriate level of Infrastructure Charges, to ensure that the provision of additional capacity in existing network assets is financed by developers generally.

In relation to housing development, Infrastructure Charges would continue to be charged for each dwelling to be connected to Scottish Water's water services and for each dwelling to be connected to Scottish Water's sewerage services.

In relation to non-household development, it is proposed that Infrastructure Charges would be applied on an "equivalent dwelling" basis, rather than per connected premises. This would ensure that the costs of providing additional capacity to meet the needs of house building and the domestic requirements of commercial and industrial developments are proportionate and shared more appropriately by these sectors.

In line with the Infrastructure Charge proposals, the current reasonable cost arrangements would be modified, so that only the costs associated with new, development specific, water and sewerage assets (i.e. those that are provided by developers as part of their development) would be included in the reasonable cost assessment.

The timing of the reasonable cost payments from Scottish Water to developers has also been reviewed and it is believed to be appropriate that they continue to be made at the time of vesting. Scottish Water will be instructed to consider how it can optimise the vesting process, to facilitate the earliest practicable reasonable cost payments, whilst continuing to ensure customers' long term interests are protected.

Should these changes proceed, Scottish Water and the WICS will assess the effectiveness of the revised arrangements during the period and advise the Scottish Government should further changes be required.

Question 5 – Do the revised arrangements provide a suitable basis for financing the provision of additional capacity in existing network assets to meet the needs of development?