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ARTICLE 16[2006/2007]4 ULR MARKET LIBERALISATION & REGULATION IN SCOTTISH WATER SERVICES – HENDRY 161

A major issue in the next price determination, and linking generally acceptable, if not universally welcome, and the 1990s
directly to the introduction of competition, is the charging PFI schemes are criticised, but not to the extent of creating
regime for business customers. The then-Executive consulted real political difficulties. However, as noted in the introduction,
on this in late 2006, with the intention of metering almost water remains ‘special’, and it would be a brave politician here
112
all premises by April 2008, vital for the successful operation who reversed the commitments to public ownership given
of the new suppliers. Other matters included moving surface during the passage of WISA. Nonetheless criticisms of SW’s
115
water drainage (but not roads drainage) from a basis of rateable structure remain and the most common alternative suggested
values to banded surface areas as used in England; and then, in is a ‘mutual’, usually with further reference to the ‘Welsh model’;
the pricing consultation, the identification of another £25 yet Glas Cymru is not a mutual society but a company limited
million of subsidies from businesses to households and also, by guarantee. Since coming to power in May 2007, Alex
imbalances in tariffs within the business sector. Each of these Salmond’s minority SNP administration has had two
is critical to the operation of the competitive regime. Currently, opportunities to engage in this debate in the Scottish Parliament.
some £3 million in water charges are being over-recovered In 2007, the then Labour–LibDem administration
from small businesses, and this may lead to increases of up to commissioned, but did not publish, the Howat Report, which
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30 per cent for a few large users. Similarly, there is an over- reviewed Scottish Executive budgets. Howat recommended
recovery for foul water charges and underpayments of up to mutualisation of SW, which would save the public purse
10 per cent for surface water drainage and as much as 75 per approximately £180 million per year of government lending.
cent for trade effluents. This will be a significant problem Just three weeks after winning the election, in a statement to
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for some, and the government has now suggested that the Parliament, John Swinney MSP, the Cabinet Minister for
rebalancing may need to extend till 2018 to avoid too-sharp Finance, said that the SNP would publish the report, but would
increases. The lessons of the Finance Committee report have not adopt the mutual model. 117
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clearly been learnt in this regard. ‘Mutualisation’, whatever the term may mean, might have
Overall, then, the period from 2000 to the present has been thought to be a solution that had some prospect of being
seen dramatic changes in the financing of the water industry, ‘sold’ to the general public as politically acceptable, and it has
restructuring, rationalising and the introduction of a modern been supported by both LibDems and Conservatives in
and complex system for economic regulation that has made it Scotland, so should have had reasonable prospects of success
possible to start to liberalise the market. It is reasonable to in the Parliament. However, even if he had supported the
conclude that the public sector supplier is in much better shape, concept, First Minister Alex Salmond has chosen his battles
and that service standards and other deliverables are steadily with care. It might be possible to win parliamentary support
improving. Before returning to draw conclusions on the impacts yet allow his opponents to manipulate public opinion, easily
of the competitive regime, it is necessary to look at one more swayed by a potentially hostile press and not always well
persistent question that provides a backdrop to almost every informed as to complex detail by that same media. Putting
other matter addressed in this paper – the legal structure and matters on the agenda within the chamber that provide
ownership model of Scottish Water itself. opportunities for extensive negative comment outside is
something that the new administration doubtless wished to
avoid, so SW remained as it has been since inception, a public
Mutual Benefits? corporation with essentially monopoly status and dependent
on the public purse, albeit with increasingly effective economic
As discussed above, in the late 1990s the political, and possibly regulation.
the economic, situation was such that there was no realistic Very recently, in the early part of 2008, the Parliament
possibility of the water services provider being anything other returned to the issue, with the Conservatives introduced a
than a public sector entity, and the model chosen for SW was motion calling for ‘mutualisation’. A Labour amendment was
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that of a public corporation. There are two main and related agreed, supporting a review, but within a commitment to public
objections to the model; firstly, that the public sector is sector ownership; yet there is an inherent contradiction between
inherently less efficient than the private sector, and secondly, the public sector, and a Glas Cymru-style company limited by
that such heavy reliance on government borrowing is not the guarantee, where capital will come from the private sector even
best use of public funds. For all of SW’s short existence, there although there will be no shareholders, and the possibility of
have been arguments as to whether it would be more
appropriate to move to some other ownership structure. SW
is undoubtedly more efficient and more streamlined now, and
therefore of more interest to potential buyers – and lenders – 115 Scottish Parliament Stage 3 Debate on the Water Industry (Scotland)
in a divestiture, but political problems over such a move would Bill available at http://www.scottish.parliament.uk/business/
remain intense. It may well be that the public in general is officialReports/meetingsParliament/or-02/sor0214-01.htm last accessed
much less resistant to private utilities, and to utilities 10 June 2008.
competition, than in 1992; private utilities have provided most 116 The Budget Review Group 2006 Choices for a Purpose Review of Scottish
Executive Budgets (The Howat Report) available at http://
services for nearly two decades. The current liberalisation seems www.scotland.gov.uk/Publications/2007/05/23114346/0 last accessed
18 May 2008.
117 Swinney, J, Cabinet Secretary, Statement to Parliament; Official
Report of the Scottish Parliament 24 May 2007 Col.134 available at http:/
112 Scottish Executive 2006 Non-Household Water Charges: A Consultation /www.scottish.parliament.uk/business/officialReports/
on Changes to the Current Charging Arrangements available at http:// meetingsParliament/or-07/sor0524-02.htm last accessed 10 June 2008.
www.scotland.gov.uk/Publications/2006/11/17090339/0 last accessed 118 Official Report of the Scottish Parliament 21 February 2008
10 June 2008. available at http://www.scottish.parliament.uk/business/officialReports/
113 Paying for Water Services 2010–2014, Note 38 above, at 20 to 21. meetingsParliament/or-08/sor0221-02.htm#Col6153 last accessed 10
114 Draft Statement, Note 11 above. June 2008.

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