Part 5: Water Section 88: Water abstraction: no compensation for certain licence modifications New section 61ZB No compensation where variation to remove excess headroom: England
New section 61ZB provides that permanent abstraction licences in England can be varied on or after 1 January 2028 without the payment of compensation where at least 25% of the licence volume remains unused for at least 12 years before the date the Environment Agency makes a proposal to vary the licence, as long as the Secretary of State is satisfied that the variation does not reduce the quantity of water the licence holder is authorised to abstract to a level below that which the holder reasonably requires.
	Subsection (1) sets out that the section only applies to relevant licences that are varied on or after 1 January 2028 pursuant to a direction made by the Secretary of State under section 54, following a licence change proposal by the Environment Agency.
	Subsection (2) defines the term "relevant licence" used in subsection (1). A relevant licence is a licence (a) that allows abstraction in England only, and (b) that does not have a time-limit – that is, one that would remain in force indefinitely unless revoked, commonly known as a permanent licence. As a result, licences that allow abstraction in Wales and licences with a time-limit are not affected by the provisions.
	Subsection (3) provides that no compensation is payable under section 61 to the licence holder, if (a) the licence holder has abstracted 75% or less of the annual licensed volume in each of the 12 years preceding the relevant date, and (b) the Secretary of State is satisfied that the variation would not reduce the quantity of water the licence holder is authorised to abstract to a level below that which the holder reasonably requires.
	Subsection (4) defines the term "relevant date" used in subsection (3). The relevant date is the date when the Environment Agency serves notice on the licence holder that it proposes to change the licence. It is the end of the 12-year period used to calculate under-use.
	Subsection (2) of section 88 amends section 27 of the Water Act 2003 so that on or after 1 January 2028 it will only apply to licences that fall within the definition of a relevant licence as defined in new section 61ZA(2) of the Water Resources Act 1991 – that is, permanent licences that authorise abstraction in England. Section 27 will not apply to relevant licences on or after 1 January 2028, but will continue to apply to relevant licences up to and including 31 December 2027.
	Subsection (3) of section 88 omits paragraph 30(4) of Schedule 8 to the Water Act 2014, so that the legislative changes introduced in this Act can be incorporated into the new Environmental Permitting Regulations regime. In future, it is intended that the water abstraction licensing regime will be moved into the Environmental Permitting Regulations regime under the Environmental Permitting (England and Wales) Regulations 2016. Making this change should ensure that the abstraction licensing regime is consistent with the regulation of other activities affecting the environment. The powers under which the regulations will be made include Schedule 8 to the Water Act 2014.