7. Making Changes to Existing Abstraction Licences Compensation

7.1 The Government sought views on:

• how the Environment Agency should determine compensation for abstraction licence revocation or variation (7.3); and

• whether there is any need to create a distinct body - with the attendant administrative machinery - to deal with disputes about the level of compensation for revocation or variation of abstraction licences (7.8).

7.2 The Government set out its preliminary view that material considerations in the determination of compensation might include:

- the reasonable needs for water of the licence-holder and the direct costs of making alternative arrangements to meet these needs;

- the period over which abstraction has been permitted prior to revocation taking effect;

- the scale and duration of return on investment inseparably associated with the abstraction to be revoked;

- comparability with other abstractions in the same catchment;

- prospects or assurances of replacement of the revoked licence with another of directly-comparable although time-limited effect; and

- the period of notice of revocation given to the licence holder.

7.3 Respondents generally supported these views either explicitly or implicitly. Some said that provision of an alternative source would be preferable to simple monetary compensation, and several from the agricultural sector extended this to calls for financial assistance with the construction of on-farm storage reservoirs so as to compensate for curtailed abstraction. Others emphasised that all costs of alternative arrangements would need to be considered, including allowance for additional operating expenditure.

7.4 There were very few outright rejections of any of these as material considerations. A few voices were raised against the notion that the existence and extent of environmental damage should colour the manner in which compensation is determined, but others were supportive.

7.5 Of the relatively small number of respondents who addressed the question, a majority supported the Government's view that the Lands Tribunal remains the appropriate body to determine disputes over compensation. The opposing views were not convincing and tended to overlook the administrative and procedural costs which would be involved in setting up another body.

7.6 The Government has therefore asked the Environment Agency to draw up, in consultation with appropriate organisations, a written policy on its determination of compensation for revocation or variation of abstraction licences, taking full account of the Government's initial views and the additional points highlighted above. The Government does not intend to set up a new body to deal with disputes about compensation.

Time-limiting existing licences

7.7 The Government proposed that:

• conversion to time-limited status would not on its own require advertisement by the licence holder (7.16); and

• the Environment Agency should draw up a 15-year plan to place existing abstractions on a time-limited basis wherever and whenever the costs of doing so are justified. Negotiated voluntary agreement should be sought wherever possible. Areas of water stress should receive attention first (7.18).

7.8 The Government sought views on what incentives and assurances would aid the negotiation of voluntary conversion of existing abstraction licences to time-limited status (7.15)

7.9 The majority of those responding to the proposal for conversion to time-limited licences supported it and were generally content with the envisaged plan, although a few environmental groups called for the process to be completed more rapidly. There were very few outright rejections of the proposal, although several abstractors expressed the view that the particular characteristics of their own abstractions would provide little justification for the time and effort of agreeing the conversion - a point which is in any case clearly recognised by the proposal. Few respondents explicitly addressed the proposal that conversion to time-limited status should not require advertisement, but there were no dissenters and some indications that this simplification of administration would provide some incentive for conversion.

7.10 On the more general question of incentives for conversion, several respondents suggested, in various ways, that annual charges for licences without time limit should be significantly higher than for those with. The Government considers that, even within the current overall charging system which is limited in aggregate to recovery of the Environment Agency's water resources management costs, such an incentive could be made significant.

7.11 Other respondents took the view that assurances of Environment Agency assistance in finding alternatives in the event of licence non-renewal would be a necessary incentive for voluntary conversion to time-limited status. The Government agrees that the Environment Agency should endeavour to provide that wherever possible, and considers that the Abstraction Management Strategies which are to be developed will provide a good basis for such assistance. Only a few respondents took the view that only full compensation would provide reasonable incentive. Others recognised that some of the other proposals would bear increasingly heavily upon those who persist with licences without time limit.

7.12 As indicated in the consultation paper, the Government envisages that the process of conversion of existing licences to time-limited status may be quite protracted. As with the determination of the time limits which would apply (see paragraph 4.35), the criteria which would determine the rate of the process will depend on a variety of factors which may vary from catchment to catchment, and which may also need modification in the light of changing circumstances.

7.13 Therefore, the Government expects the Environment Agency to incorporate within its Abstraction Management Strategies plans for achieving conversion of existing licences to time-limited status. The plans overall will thus take into account the priorities and peculiarities within each catchment. The Government expects the Environment Agency to give consideration to establishing financial incentives for conversion through the existing abstraction charging system. The Government will bring forward, when Parliamentary time allows, the legislation necessary to remove the need for advertisement of licence conversion.

Compensation in the longer term

7.14 The Government stated that:

• it is minded to end, from a date to be determined, compensation for losses arising from the revocation or variation of an abstraction licence which has been granted until revoked if the Secretary of State is satisfied that the proposed variation or revocation is necessary in order to protect the associated water environment from significant damage (7.21); and that

• it therefore seeks views on what should be the date from which removal of compensation in the circumstances described above should be, and what rearrangements of their affairs abstractors might need to make as a consequence (7.23).

7.15 Responses to this proposal were nearly evenly divided between support and opposition. Supporters included environmental NGOs and some local authorities. Opposers were, predictably, abstractors of various types or their representatives. Only a few of the responses explicitly addressed the question of what should be the date for removal of compensation; the suggested dates ranged from "immediately" to "in not less than 15 years' time". Views on what rearrangements of affairs abstractors would need to make if faced with the proposal were fragmentary, but almost entirely concerned with the need for them to be assisted by the Environment Agency in locating acceptable alternative resources.

7.16 The reasons for this proposal were set out in the consultation paper. Having considered the responses, the Government's view is that those reasons remain valid. But the Government wishes to emphasise that the proposal relates only to the curtailment of licences which do not have time limits. As these are replaced by time-limited licences, so the possibility of curtailment without compensation will decrease. And that also should provide a major incentive for abstractors to move to time-limited licences.

7.17 The Government therefore intends to bring forward, when Parliamentary time allows, the legislation necessary to implement this proposal. The date of implementation will be 1 July 2012, corresponding to just over 14 years from the first publication of this proposal in June 1998.