Customers instead of taxpayers set to pick up the cost of environmental enforcement

The Environment Agency is consulting until 26 May on introducing a levy on water companies to fund its water industry enforcement work. This could ultimately be passed through to water customers.

The watchdog’s enforcement effort includes prosecutions, civil sanctions, and revocation of permits; investigations and bringing enforcement proceedings, including those that result in no action or are unsuccessful; and cross-cutting functions such as the provision of digital tools where they relate to water company enforcement.

Under the Water (Special Measures) Act, the watchdog is able to recover the cost of existing and new enforcement activities, which were previously funded by government Grant in Aid. Environment Agency chair Alan Lovell said the move would “close the justice gap, deliver swifter enforcement action and ultimately deter illegal activity”.

The levy will be an annual charge rising with inflation, paid by sewerage undertakers and New Appointments and Variations, in addition to annual discharge permit charges. It will be calculated according to the number, type and volume of permits each company holds, to raise around £21m in 2025/26.

The Agency plans to apply the charges shown in Table 1, with the annual levy due from each sewerage undertaker calculated as the combined total of: 

• the discharge permit unit charge (£393) multiplied by the total number of permitted discharges held, plus

• the volume unit charge (£0.51) multiplied by the total volume units held.

  
  

Table 2 shows the Agency’s calculation of the impact of the levy, by various metrics. It commented that the data suggests the impact will be “minimal” but that, unlike enforcement fines and penalties, the cost of the levy could be passed on to customers. That would cost an average 60p per household per year, although the impact would vary between companies. 

The Agency noted: “Our water industry enforcement effort is complex. We acknowledge that an approach whereby operators are directly charged the costs of our enforcement after the event (“reactively”) closely aligns with the polluter pays principle. However, our levy proposal facilitates upfront funding to put in place a trained and skilled workforce to assess the scale of offending and address the public’s demand for an improved water environment. Income we receive from the levy will be used to fund a consistent, intelligence-led and outcome-focused enforcement service to address both sector wide and company specific issues.”

The Agency did not rule out moving to a performance-based mechanism “to bring greater fairness” over time and if intelligence permits. Moreover, it said where it could recover costs for formal enforcement action, such as through the courts, it may continue to do so.

The scheme is expected to be finalised and implemented this summer. The Agency added that it plans to consult on increasing charges for environmental permitting, abstraction licensing and waste charging, due to rising operational costs.