7 July 1998

THE QUALITY FRAMEWORK AND CUSTOMERS' VIEWS

Since I wrote to you and the Secretary of State for Wales on 30 April 1998, the results of a number of customer surveys have been published. This letter sets out my provisional assessment of what, at a national level, customers are saying. I believe this will be helpful to you in formulating the guidance I have sought on future quality obligations. A fuller assessment, taking into account the results of individual company consultation work, and the work of the CSCs, will be prepared and published in conjunction with Prospects for Prices.

The surveys, which have been carried out at a national level are listed in the annex to this letter, together with brief details of their objectives, scope and methodologies. There are important differences in these which may account for the differences in the results. This is a difficult area in which to research customers' views, not least because responses to questions are often based more on perceptions than a good understanding of the issues, especially those relating to the environment, which impact less directly on customers' day-to-day lives. We need, therefore, to be cautious in drawing firm conclusions, but I believe that there are some broad messages coming across.

Generally there are high levels of satisfaction with current services but there remains a number of dissatisfied customers. Key reasons for dissatisfaction are concerns about security of supply, leakage levels and high bills. Customers do not cite environmental performance as a reason for dissatisfaction, which may reflect a poorer understanding of the companies' environmental responsibilities.

In relation to other social issues (eg health care, education) protecting the environment is generally afforded a lower priority. When set against other environmental issues, then global warming and air pollution are as important as protecting the water environment.

When considering the range of water services there is consistent evidence that tackling leakage and maintaining reliability of supply are uppermost in customers' minds, together with minimising sewer flooding. Reducing pollution of rivers, coastal and bathing waters are important but are a slightly lower priority. This confirms the point I made in Setting the Quality Framework that the impact of future quality standards must be considered in the context of other pressures on bills.

The research commissioned by your department provides helpful insights into customers' priorities in relation to the possible enhancements covered by the Main Quality Costings. When asked, however, what standards customers would like to see achieved over the next 10 years, the aspirations of the majority of customers fall short of the full programmes that were considered in Setting the Quality Framework and in the Environment Agency's A Price Worth Paying. The conclusion I draw is that customers want to see steady progress, but no more. This is mirrored on the water quality side in respect of mains renewal where customers would not be prepared to pay more to increase the speed of renewal.

The critical question is, of course, whether customers are prepared to pay for their aspirations. One approach is simply to ask customers whether they are willing to pay more on their annual bill to fund improvements to services. The results so far are contradictory.

The Environment Agency survey found 69% of respondents were willing to pay extra to "help Britain to clean up the rivers, the waters around the coast and to ensure an adequate supply of water".

The DWI, on the other hand, found that only 29% of respondents would "definitely or probably consider" paying more to reduce river pollution; and only 25% would consider paying more to improve cleanliness and safety of their water.

The DETR survey found that 53% of respondents would be prepared to pay more for their preferred improvements; but there are significant regional differences and in three regions the majority of customers do not want to pay more.

Questions about willingness to pay tend to reveal more about customers' values than the decisions they would actually make when confronted with real choices. They also tell us little about customers' ability to pay. Moreover, when customers are asked who should pay for the improvements they have chosen, well over half indicate that householders should not have to pay. Customers consider that other bodies such as large industrial customers, businesses, farmers and the water companies themselves should pay for improvements.

Given such conflicting information around the issue of willingness to pay, it may be more useful to concentrate on customers' views on the overall balance between services and bills. The picture here is clearer. The Water UK survey shows that when asked to choose packages of improvements and movements in bills, the vast majority of customers chose either stable bills with a few major improvements (44%), or a real reduction in bills with current standards maintained (39%). Less than one in seven customers wanted bills to increase in real terms to finance many major improvements.

In contrast, when the EA presented customers with the choice between lower bills and no environmental improvements, or the same bill with some improvements, 95% chose the latter option. There was, however, no reference to inflation in this survey to determine whether customers were choosing real price reductions or stable bills and questions were asked, over the telephone, without putting the issues in context.

The conclusion I draw is that customers prefer their bills not to rise in real terms. I note that neither survey presented respondents with the realistic option of reduced bills and continuing improvements to the environment.

An alternative approach to exploring customers' views is to ask respondents to allocate efficiency savings between improvements and bill reductions. The Water UK survey results indicate that customers would like to see approximately half of possible efficiency savings used to reduce their bills. The larger the available saving, the larger the amount that they would want returned to them in cash. The ONCC survey provides useful insight into why this is important for low income customers who are particularly keen to see reductions in bills, despite concerns that services might deteriorate as a result.

Drawing together the results of the various pieces of work, a number of conclusions can be drawn at this stage. Customers do wish to see improvements, but they are as much concerned with improvements in services as they are with higher environmental standards. They have indicated that they would prefer to see steady environmental progress over a ten year period. Customers do not want to pay more for the improvements they would choose but would prefer to see these financed by efficiency savings. At the same time they want to see a share of the efficiency savings returned to them as savings on their bills. The evidence so far available suggests that there may be significant variations across the regions.

I hope that this information will aid you and the Secretary of State for Wales in compiling your guidance later this month. I have copied this letter to the DWI, EA, water companies and will release it to the media on Wednesday 8 July.

I also copy to the Secretary of State for Wales.

I C R Byatt