Scope for modest efficiency savings in Agency's water function

The Environment Agency could shave up to 2.4% from its water resources budget, a National Audit Office review concludes.1 Although good news for water companies and other abstractors, the review finds that the Agency is generally efficient and would need to find much larger savings to meet Treasury targets.

About £114 million of the Agency's annual £850 million budget goes on managing water resources. It pays for a licensing system for some 47,600 abstractors and monitors rainfall, river flows and river levels at 14,300 sites.

The NAO review, focusing on the Agency's water resource function in England, has nothing to do with efficiency targets set as part of the Treasury's spending review last year. The study follows an NAO investigation of the Agency's waste function in 2002, which made some serious criticisms (ENDS Report 336, pp 18-19 ).

The water resources investigation concludes that, in general, the Agency "provides a well-managed and professional service." Nevertheless, it identifies "up to £2.7 million" of possible savings - some 2.4% of the existing budget.

Better control of the monitoring network could cut costs, the NAO considers. The network grew by 12% over the past three years, mainly to improve flood warning capability and meet the demands of the water framework Directive.

The NAO finds that there is no overall control of the size of the network. It suggests that clearer responsibility for the costs of the network and challenging the need for new sites might reduce site numbers by 5% and deliver savings of £435,000 per year.

Similarly, a review of the need and frequency to visit monitoring sites and the use of telemetry could also cut costs. A 5% reduction in visits would yield savings of £190,000 per year. Consistent labour charges across the Agency's regions for maintaining monitoring sites would also deliver savings, up to £330,000 a year.

A sensitive issue examined by the NAO was cross-subsidy between the Agency's water resources and flood management functions. The monitoring network costs some £13.7 million per year to run and benefits both functions.

In most regions, the NAO believes, the costs are not allocated appropriately. It says that a nationally consistent approach would reduce water resources costs by £0.65-1.7 million - transferring the costs onto the flood defence budget instead, largely funded by the taxpayer. As water resources costs are met from abstraction licence fees, abstractors - mainly water firms - would benefit.

DEFRA's target for efficiency savings under the Treasury's 2004 spending review requires the Agency to find savings of £73 million by 2007/08 (ENDS Report 354, p 10 ). This is about 8.5% of its current budget; the NAO review comes nowhere near finding that level of savings on water resources.

The reshaping of the abstraction licensing regime is expected to cause a steep rise in abstraction charges in coming years (ENDS Report 348, pp 39-40 ). However, the Agency expects to achieve savings of £1 million through reforms which will remove 20,000 small abstractors from licensing and catch 6,500 significant abstractors who are currently exempt.

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