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The Draft Private Water Supplies (Scotland) Regulations 2005 and Proposals for a Private Water Supplies Grant Scheme: A Consultation

ANNEX C

Partial Regulatory Impact Assessment

The draft Private Water Supplies (Scotland) Regulations 2005

Introduction

1. Following an invitation to tender from the Scottish Executive, EnviroCentre, Glasgow, were awarded the contract to provide an economic assessment of the costs and benefits which are likely to arise in Scotland as a result of the requirement to implement the Drinking Water Directive (Council Directive 98/83/EC on the quality of water intended for human consumption). This economic assessment has informed the preparation of this partial Regulatory Impact Assessment which assesses the likely impact of the revised domestic regulatory regime on consumers, local authorities, health boards, public and commercial activities.

Purpose and intended effects of the Regulations and risk assessment

2. The Drinking Water Directive, made by the European Parliament and Council on 3 November 1998 established a framework for Europe wide action on the quality of water intended for human consumption. The Drinking Water Directive set quality measures for drinking water standards generally in line with World Health Organisation guidelines for drinking water quality. These represent the concentration of a constituent that does not result in any significant risk to the health of a consumer, usually over a lifetime of consumption.

3. The fundamental review of the previous Drinking Water Directive (80/778/EEC) was considered necessary to reflect current understanding of medical, scientific and technological issues surrounding the quality of drinking water. The Executive has implemented Drinking Water Directive in terms of the public water supply through 'The Water Supply (Water Quality) (Scotland) Regulations 2001' (SSI No. 207). The draft Private Water Supplies (Scotland) Regulations 2005 (the draft Regulations) transpose the Directive into domestic legislation in respect of private water supplies.

4. The draft Regulations will have a significant impact on larger supplies - defined in the Drinking Water Directive as those providing 10 m_ of water a day or serving 50 or more persons, and supplies to commercial or public activities (irrespective of their size). These supplies will be required to meet the revised water quality standards set by the Directive. These are referred to as Type A supplies in the consultation and this partial RIA. Smaller, non-Directive supplies are referred to as Type B supplies in the consultation and RIA.

Options

5. In order to provide an appropriate framework within which to set the Regulatory Impact Assessment, a number of mutually exclusive policy options were identified and analysed. These ranged from non-implementation of the Directive's requirements (the "do nothing" option) through to imposing the full weight of the Directive's requirements on all private water supplies in Scotland irrespective of their size or use. The potential economic impacts of the following four options have been assessed:

6. More detail on the quantitative cost benefits for the four options over 15 years is set out in the Annex to this partial RIA. Following any changes to the draft Regulations after this consultation, a final RIA will be published.

Results of previous consultations

7. In November 2001, Ross Finnie MSP, the Minister for Environment and Rural Development published a consultation document on the regulation of private water supplies in Scotland. This consultation outlined a variety of options regarding the future direction of the regulation of private water supplies in Scotland. The 20 consultation points raised represented key areas of current thinking behind the development of policy for the implementation of the Drinking Water Directive and for the provision of new national standards.

8. That consultation took place from November 2001 to February 2002, and over 500 consultation papers were distributed directly to MSPs, Scottish MPs, Scottish MEPs, local authorities, NHS Health Boards, academic and professional institutes and a variety of rural, farming and business organisations. It was also available on the Scottish Executive's web site.

9. The 82 consultation responses confirmed that there was general support for improvement to the regulatory framework for private water supplies in Scotland. Some reservations were expressed about operational details and costs, and there were requests for clarification of some of the terms used. A Response to Consultation was issued by the Scottish Ministers, which included a commitment to address the issues raised in the 2001 consultation. As far as is possible, within the constraints of the overriding Drinking Water Directive, these points have been addressed in the implementing draft 2005 Regulations.

Cost benefit analysis of each option

10. In considering the economic costs and benefits of each option the whole package of measures introduced through the proposed Regulations were considered for a range of outcomes including the successful transposition of the Directive's requirements; health outcomes; economic competitiveness; social justice; rural impacts and benefits to the UK as a whole. The full range of factors are listed in Tables 1 and 2 of this section.

11. Evaluation of Option 1 and Option 2 identified that these options would not satisfy the requirements of the Directive. These options would have no power of enforcement and would not provide any regulatory improvement or significant benefit to the existing conditions. They would be legally unacceptable and would cost the Executive in non-compliance costs to the EU.

Benefits

12. The main benefits of Options 3 and 4 will be ensuring that water supplied from private supplies is wholesome for human consumption. This will reduce the frequency of adverse health impacts to the populations depending upon private water supplies. This analysis is based on estimates that the draft 2005 Regulations will apply to approximately 1,935 Type A supplies and approximately 18,745 Type B supplies.

13. A summary of the benefits associated with the proposed regulations (Option 3 and Option 4) is provided in Table 1. The extent of the benefit realised will be greater for Option 3 which involves knowledge transfer and education to operators of private water supplies, enabling an increased degree of self-regulation and management. This will allow potential failures to be avoided, rather than detecting them when they have occurred, as provided by Option 4.

Table 1: Benefits summary for new regulations

Identify the costs

14. The main costs associated with the new regulations will be the increased cost recovery for the costs expended by the relevant local authorities (annual costs) and the requirement to upgrade failing supplies. These upgrade costs will involve non-recurring implementation costs, followed by an annual maintenance cost, where no routine maintenance spend at present. A summary of the costs is presented in Table 2.

15. The increase in water quality parameters to be sampled will be determined by the relevant local authority, based on the nature and location of the supply, and the previous history of water quality sampled. The frequency of sampling will be similar to the existing regulations, although all commercial water users will be included.

16. Option 3 will require additional costs to undertake the risk assessment and deliver the education aspects. This will not be a large additional burden, as this can be undertaken during the routine sampling and administration by the relevant local authorities

Table 2: Costs summary for new regulations

Quantifying and valuing the benefits

17. An economic assessment has been undertaken to quantify the cost benefit of the regulations, with a summary of the results contained in the Annex to this partial RIA. This has demonstrated that for Type A supplies under Option 3, that the benefits achieved in terms of less time lost through illness and medication will be in the order of £14.3m discounted over a 15 year period, while the average predicted costs of implementing the regulations are in the order of £15.7m. This does not take into account the indirect commercial benefits of retaining customers, and wider environmental improvements. For Type B supplies implementing the regulations coupled with the risk assessment and education under Option 3 has the potential to realise a benefit of a further £47.2m over a 15 year period, with average predicted costs being £35.0m.

18. At present, the failure rates of samples for Type A supplies range from typically 24% for larger supplies and up to 58% for smaller supplies. The new regulations will reduce these failure rates by a combination of ensuring adequate treatment is in place, improving awareness and providing education on management of supplies.

Equity and Fairness

19. The object of the draft Regulations is to protect human health from the adverse effects of any contamination of water intended for human consumption by ensuring that it is wholesome and clean . The provisions of the draft Regulations fall on all commercial or public activities evenly and the costs and benefits will be borne equally across all businesses affected so there is no advantage to any particular group or sector.

20. The costs arising from the draft Regulations will be borne predominantly in rural areas where private water supplies are generally located. Owners of Type A, supplies will be required to meet the costs of ensuring their supply meets the quality standards set by these Regulations and the Drinking Water Directive. These costs will be offset by the benefits of improved public health through improved drinking water quality. For Type B supplies owners will be encouraged to improve the quality of their supplies; the benefits of improved drinking water quality and improved public health offsetting upgrade costs.

Small and Micro Business Test

21. The draft Regulations will affect businesses and given the financial costs their impact may be expected to be greater on small businesses. However, the proposals for a Grant Scheme, which we are also consulting on, are targeted to ensure that they provide assistance to this group, through a non-means tested grant towards capital improvements to their private water supply.

Public Sector Threshold Test

22. There is unlikely to be any significant additional resource implications to those enforcement authorities arising from these proposals. Thus, a Public Service Threshold Test is not required.

Sectors affected

23. The main sectors that will be impacted by the regulations are:

• Private water supply owners/users (including businesses, citizens and voluntary sector)
• Local authorities
• Scottish Executive

24. In order to comply with the quality standards of the Drinking Water Directive and the draft Regulations the user of a private water supply must ensure that their drinking water at the point of use is wholesome, although the ownership of a private water supply may not necessarily lie with the end user. The cost of sampling will be borne by the owner or end user of the water, as will any improvement works required. The risk of supplies failing can be reduced through education and increased awareness that will reduce costs associated with additional sampling (Option 3).

25. The largest cost increases will be found at the smaller supplies with commercial or public activities that are failing to meet the wholesomeness standards. The cost increase will be in the form of an increased sampling charge and any necessary upgrading costs.

26. The relevant local authority will be responsible for undertaking the routine sampling and analysis of private water supplies. This is similar to the role provided under the existing regulations. Option 3 will require risk assessments be undertaken and there will be a requirement to ensure that staff are adequately trained to undertake such assessments. A database of private water supply details is to be created and returned to the Scottish Executive each year. This is already in place for some local authorities.

27. The Scottish Executive will require to review the results submitted annually by the local authorities, and examine notices served on failing supplies to ensure that adequate measures are being undertaken.

Typical compliance costs

28. Initial sampling costs will be borne by the local authorities, who will have the powers to undertake 100% cost recovery in their pricing schedules for implementing the regulations, up to a fee of £630 per visit. This cost will then be passed onto the users of private water supplies. The £630 compliance cost is broken down as follows:

29. A supply which conforms to the existing regulations will not witness much change from present conditions, however, supplies that fail will require investment to upgrade. Typical compliance costs will vary depending upon the size of the supply and the amount of water quality parameters analysed. For example to the level of audit monitoring required by regulation 24 of the draft 2005 Regulations. A threshold of £630 has been set to cap local authority charging. Small supplies with commercial or public activities will experience an increase in analysis costs initially until the local authority is satisfied with the quality.

30. Private water supplies failing to meet the regulations will require to be improved. This will be a non-recurring cost and will depend upon the supply size and reason for failure, these costs are likely to vary from £500 to in excess of £10,000; averaging around £1,150 per supply affected. Such improvements will also require suitable maintenance and a management procedure put in place, which will be an ongoing annual cost.

'Test Run' of Business Forms

31. The draft Regulations do not introduce any new forms which will impact directly on businesses. However, the Executive will be preparing detailed guidance to assist local authorities draft the various forms of notification which will be required under the draft Regulations.

Competition Assessment

32. The draft regulations are required to transpose the provisions of the Drinking Water Directive and are therefore necessary to ensure parity of regulation across Europe. The provisions of the draft Regulations fall on all commercial or public activities evenly and the costs and benefits will be borne equally across all businesses affected so there is no advantage to any particular group or sector. The draft Regulations will be competition neutral.

Enforcement, sanctions, monitoring and review

33. Enforcement of these regulations will be undertaken by initially providing advice to the supply operators. Option 3 will allow for a risk assessment and educational material to be provided which will help ensure that practical measures to improve the quality of water are in place at the early stages of implementing the regulations. If these are not proving successful, then there is the option to serve an improvement notice on the supply. Option 4 would use an improvement notice as the first step.

34. The enforcement action through legal routes will be avoided unless the supply owners are unwilling to engage with measures to comply with the regulations. It is anticipated that this will be rare.

35. The regulations will be self monitoring within each local authority, and an annual overall review will be undertaken by the Scottish Executive.

Monitoring and Review

36. The draft Regulations implement our obligations under the Drinking Water Directive in respect of private water supplies. The European Commission is required to undertake a statutory review of the Directive in light of scientific and technical progress at least every five years. Member States may need to revise their implementing Regulations in light of such a review. The Executive will undertake a review of the Regulatory Impact Assessment within ten years of the commencement of the Regulations.

Recommendations

37. The analysis of the four options appraised through the partial Regulatory Impact Assessment process has identified that Option 3 - provision of a statutory private water supplies monitoring and enforcement regime as proposed in the draft 2005 Regulations and which form the basis of this consultation - provides the most economically acceptable regulatory framework for the transposition of the Drinking Water Directive.

Annex to partial RIA

For each of the four options considered, the associated costs and benefits have been examined using a model which has been developed to reflect the various parameters to be considered. The predicted cost-benefit is summarised in Table 1, with the baseline data and individual model outputs for each of the options shown in Table 2 and Figures 1- 4 respectively. Upgrades to supplies and increased maintenance costs have been assigned a range of costs to reflect the varying degrees of effort that may be required.

Table A1: Summary of Cost Benefit from Options Considered (£m discounted over 15 years)

Figure A1: Model Results for Option 1 - Do Nothing

Figure A2: Model Results for Option 2 - Non-Regulatory Approach

Figure A3: Model Results for Option 3 - New Regulations + Risk Assessment

Figure A4: Model Results for Option 4 - New Regulations Only

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