Running Dry

It is now clearly established that the rate at which water is being taken out of the environment to supply homes and businesses is causing damage to rivers across the UK . The water white paper ‘Water for Life’ published in December 2011 has signalled a government intention to change the system of taking water out of the environment that is ‘inadequate’ and if not reformed will damage rivers ‘beyond repair’.

The white paper also clearly states that this means changing the price system in a way that better reflects the “value of water to customers, its relative scarcity and the value of ecosystem services to ensure our rivers … are protected”.
But what is the value of river protection for customers? Can you put a price on the health of your local river environment? Would people be willing to pay £5 or £10 per year to protect it? Would everyone be willing to pay the same?

This research shows that the price people place on reducing river damage fluctuates greatly depending on what information is given to them and by whom. Furthermore, some groups of people are far more responsive to environmental information than others.

Understanding this process is important because water companies are about to embark on a series of customer consultations as part of the price review process. The price review process is overseen by the government through the activities of the office for water regulation, OFWAT. Within this framework, water companies are given a large degree of autonomy and freedom to consult with customers in determining water bill prices and the proportion of revenue spent on different schemes.

Whilst OFWAT retains the final say on approving the price review plans of the water companies, it is a risk that customer consultation programmes undervalue the price of reducing such river damage. The risk of undervaluation is that failure to provide necessary investment for reducing river damage now will lead to greater water shortages and more severe environmental damage in future. Such damage will be more complex and costly as time goes on.

Previous research by the Fabian Society has demonstrated that views on water efficiency were liable to change once people understood more about the social and environmental context of their water use. Put simply, if you don’t know that there is a limit on the amount of water that can be taken out of the environment to supply your home then there is little motivation for you to conserve water.

We hypothesised that the same is likely to be true when asking people how willing they are to pay for reducing river damage as an annual extra on their water bill. To correctly value the health of your river, you have to understand the connection between the demand for water and the subsequent damage caused to rivers by the large volumes taken out of the environment to supply homes and businesses.

If our hypothesis is correct, then it is important that water companies understand the connection between providing environmental information and determining levels of customer willingness to pay for reducing river damage. Such an understanding could lead to more effective and realistic valuations of river environments.

What we found from this research was that the role of the government was a strong factor in determining how willing people are to pay for reducing river damage. Information about the connection between taking water out of the environment for supply and the damage caused to rivers increased willingness to pay overall, but people placed far more trust in the government than water companies to provide this information.

Responses to the information across the different groups in our survey varied according to age, social classification and region. Older people were more sceptical towards the environmental information provided in our survey. Younger people, Londoners and those in social classifications ABC1 were more receptive to environmental information. This complex variation has important implications for how water companies consult their customers.

The research also found that people are more willing to contribute extra on their water bills to reduce river damage if they know more about the precise plans to do so. Giving people specific information about how water damage will be reduced by extra funding mattered across all the groups in our survey. Finally, our research found that fairness also matters. If people thought that the distribution of payment was fair, they were more willing to pay towards reducing river damage.

These findings question the appropriateness of the low priority the government is placing on its communications role in the price review process. They also provide a steer for water companies on how to approach their customer consultations to reflect the variety in opinion across different groups in the population.