TO MANAGING DIRECTORS OF ALL

WATER AND SEWERAGE COMPANIES

AND WATER ONLY COMPANIES

11 March 1998

BUDGET PAYMENT UNITS: JUDICIAL REVIEW

I have carefully considered the Judgement in the Judicial Review of my decision not to take enforcement action against North West Water and Severn Trent Water in respect of their use of Budget Payment Units (BPUs). The purpose of this letter is to inform you of the decisions I have taken.

Mr Justice Harrison granted the declaration sought by the local authorities concerned that the cutting off of water supplied by North West Water's and Severn Trent Water's BPUs is in breach of those companies' duties under the Water Industry Act 1991 and their conditions of appointment, Licence Condition H, as a water undertaker. He, therefore, quashed my decision not to take enforcement action.

The Judge's decision applies to BPUs whether or not the customer concerned has a debt which is the subject of an outstanding county court judgement. I have considered carefully the question whether BPUs might be lawful, if used by companies for customers who are the subject of outstanding county court judgements and in a way which complies with every requirement of Licence Condition H (which none do at present). Although the Judge recognised that there might be circumstances in which there was a consistency between the Licence requirement and the operation of BPUs, he still made a declaration in blanket terms. I am, therefore, advised that any use of BPUs to cut off supplies would be inconsistent with the court's decision and that I would be obliged to take enforcement action.

The Judge said that BPUs were not envisaged when the legislation was originally enacted. He also noted that much of the affidavit evidence before him suggested that BPUs have been found to be beneficial to customers who have chosen to use them. He nevertheless concluded, in deciding not to refuse the relief sought by the local authorities, that it is for Parliament to decide whether the benefits of these units are such as to warrant amendment to the legislation. I share that view, and it is timely that the government's review of water charging, which will deal with disconnections generally and the use of BPUs in particular, is shortly to be published. Accordingly, I have decided not to appeal.

Unless and until the law is changed, I have a duty to see that the court's decision is applied. This can be achieved by companies reprogramming each of the units that have been installed so that the supply of water to the customer is never cut off. I recognise that for a few companies, who have a significant number of these units installed, this will take a little time. Accordingly I require companies who operate BPUs to tell me their programme for taking the steps necessary to comply with the court's decision. This should reach me by 9 April.

There is considerable evidence that customers have found BPUs to be helpful and do not wish to see the units removed altogether. I expect, therefore, that companies will allow existing customers with BPUs to continue to use them as a method of paying their bills.

A number of existing units installed by some companies are positioned within the customer's home such that there is only a partial disconnection if a customer fails to recharge the unit. In some cases only specific appliances such as dishwashers or washing machines are affected. While I can see that the operation of a BPU in this way meets many of the concerns expressed by those who have opposed the use of BPUs, I am advised that it would still be unlawful in the context of the Judgement. The merits, or otherwise, of such operation of BPUs need to be considered as part of the government's review of water charging. Also, I am aware that a number of companies are considering the development of BPUs incorporating a valve allowing a limited flow rather than complete disconnection. While this also may meet concerns about public health, and should be considered in the context of the government's review, its application would be inconsistent with the Judgement and would require amending legislation.

I C R Byatt