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The affordability of water and sewerage charges in Scotland

Water and sewerage charges are an expense for Scottish consumers. The average annual combined household charge was just under £350 in 2015/16.

Water and sewerage bills are determined by council tax band, with higher banded properties paying progressively more than lower banded properties. The responsibility for billing and collecting water charges rests with local authorities, which collect water and sewerage charges alongside council tax and return to Scottish Water a share of the amount collected.

The Scottish Government has established a Long-Term Charging Group (LTCG) to review charging policy for the (publicly owned) water industry.

The purpose of this report is to identify the characteristics of households in Scotland that pay the most for water and sewerage charges as a proportion of income, and to consider options for targeting support at those households. It is anticipated that the report will inform the deliberations of the LTCG.

Key Findings

  • The composition of households spending more than 3% of net after housing costs income on water and sewerage is diverse. The group includes working age and pensioner households, those in receipt of means tested benefits and those not in receipt of such benefits, households across all council tax bands, and across all tenure types.
  • The main reason why the group of households spending more than 3% (or 5%) of net after housing costs income on water and sewerage is so diverse relates to the way in which charges are billed. Charges are related to council tax band, with those in Band D paying one and a half times as much as those in Band A, whilst those in Band G pay two thirds more than those in Band D.
  • Whilst the scale of this increase in charge with council tax band is broadly proportionate with median income by band (Band D median income is almost twice as much as Band A median income, whilst Band G median income is 80% higher than Band D), the variance of income within each council tax band is large. Thus there are households in lower banded properties with relatively high incomes, and households in higher banded properties with relatively low incomes.
  • The main factor determining whether or not a household faces water and sewerage affordability issues is income: the lower the income, the more likely the property is to be spending more than 3% of income on water and sewerage.
  • From an administrative perspective, basing the water and sewerage billing system on the council tax billing system makes sense. Local authorities have access to all the information they require to set each household’s bill (council tax band, status discount eligibility and council tax reduction eligibility), and a well-established system in place for collecting liabilities.
  • But by basing bills on council tax band, it is not clear what the principle is behind the billing structure, other than continuing to follow a legacy charging structure. In designing a billing system, policy makers should be more explicit about whether the principle for charging for water and sewerage is that bills should be proportionate to use (with some relief for those with limited ability to pay); or proportionate to income; or indeed to something else.

Authors

The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.