Environment and Rural Development Committee, 05 Oct 2004

Meeting date: Tuesday, October 5, 2004

Official Report 289KB pdf

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Water Services (Executive Consultations)

Agenda item 4 is on Executive consultations on water services. Over the past few weeks, we have received background papers and have heard many comments from witnesses in taking evidence on the Water Services etc (Scotland) Bill. In this discussion, we will focus in particular on the Executive's consultations, "Paying for Water Services: A consultation on the principles of charging for water services", relating to the period 2006 to 2010, and "Investing in Water Services 2006-2014: The Quality and Standards III Project".

Members will be aware that, although the Water Services etc (Scotland) Bill will not change the principles of the charging scheme and does not deal directly with investment priorities, the consultations are being conducted in parallel with stage 1 of the bill. I propose to discuss the consultations first and then move on to agenda item 5, to enable the minister to address issues that we want to take up with him about the bill. A couple of weeks ago, we were given an informal presentation by the minister's officials, who outlined the main points in the consultations. For us, that was a useful backdrop to getting evidence from other witnesses.

Before we take evidence, I ask members to declare for the Official Report any relevant interests that they may have.

As members do not have any relevant interests to declare, I welcome back the Minister for Environment and Rural Development, Ross Finnie, and his officials. Minister, do you want to make any opening remarks about the consultations on Q and S III and the investment programme?

I will make some brief remarks only, as members have been given a presentation by my officials. It is clear that the investment programme is hugely complex—indeed, in recent months, we have all become much more aware of the extent and nature of that complexity. When my officials and I looked back at the consultation for the Q and S II programme, we found that nobody—with perhaps one exception—raised issues relating to development constraint as factors that would come into play. Similarly, on technical issues, members will find that even placing more emphasis on odour control did not feature in the earlier consultation. Therefore, in forming the £1.8 billion programme for 2002 to 2006, we were very much driven by a consultation that invited us to place almost the entire emphasis on drinking water quality, on matters relating to improving sewage outfall and on dealing with other regulatory processes.

In the consultation process, I have been, and I am, anxious that there should be a broader and wider understanding of all the elements that properly have to be considered in developing an investment programme and that there should be a better understanding of the hard choices that will have to be made in balancing regulatory requirements, issues such as development constraint and other matters that, in general, members of the public have properly pushed up their agenda. The water team and I have been at pains to conduct consultations and to hold seminars and meetings throughout the country to raise the level of understanding; we have genuinely invited wide participation in the process of bringing forward evidence about the elements that should be included in the investment programme.

There has clearly been a lot of misunderstanding about the basis for charging for water services. I have been extremely anxious that all facets of Scottish society should have the opportunity in the consultation to gain a better understanding of the principles of charging—how it impacts, the basis on which we seek to charge water customers, whether domestic or non-domestic, and how we would do that uniformly on a geographical basis. It is important to acknowledge that water plays a significant part in public health, so there are real issues in ensuring that those who are least able to pay are not debarred from access to water by virtue of their circumstances.

Those are a range of important issues on which we are genuinely consulting. I hope that the process has been much more open, transparent and thorough. We spent much more time on preparing the consultation documents prior to issuing them than we did previously. I hope that we have learned a lot of lessons from the situation that we largely inherited in 1999.

The consultations are running concurrently. Is there a logic behind having both discussions together, rather than deciding what is needed and then working out how to pay for the changes?

We are not expecting to come to any decisions until well into 2005. Extending the length of time that the consumer had to consider these matters—given the time for an appropriate parliamentary procedure—would have been difficult. There might have been some logic to what you suggest, convener, but it would have been difficult, as the process would have been overly prolonged. We have had good attendance at some of the seminars and meetings that we have called. I rather suspect that if we had had two separate bites at the cherry, we might not have had that same level of active participation in the process.

The consultation has obviously concentrated minds. There is a huge amount of potential investment out there. I suppose that the issue is about working out the criteria by which you make decisions about what to put in quality and standards III. Quite a few of our witnesses have raised that issue.

I hope that we can establish that, in your role as Minister for Environment and Rural Development, you have some idea of the need for housebuilding in rural areas. You said that the fact that few consultees came up with arguments about development constraints in the last round has led us into difficulties. We all agree about that. However, in your role as the minister dealing with rural development, did you not have any inkling that there would be problems around extending settlements in rural areas?

I referred specifically to the evidence submitted by the planning departments of each of the 32 local authorities in Scotland, including those in rural areas. Although we are all conscious of development, the fact of the matter is that authorities' formal responses to the consultation in 1999 did not draw attention to the potentially serious situations in which we now find ourselves. My response to that has not been to go backwards; it has been to say, "This perhaps points to a flaw in the process in 1999." That is why, in my opening remarks, I made it clear that we undertook far more preparatory work with local government and other key stakeholders, even in preparing the material that is in the consultation documents. Aside from the factual matters, we sought to ensure that the consultation would have a much firmer foundation and that it would elicit a much more detailed response from the respective planning authorities.

The Scottish Water mechanism was new and SEPA's regulations were being tightened up, but people were perhaps not relating the two. Local authorities might have been slightly underpowered in responding to the number of consultations that were cropping up. Nevertheless, we find ourselves with particular projects being stopped in their tracks. For example, it might not have been possible to build sewerage infrastructure because there was not enough money or because other work needed to be done. Do you think that the backlog that has built up, of which you are well aware through your discussions with Scottish Water, can be tackled as part of the first work undertaken through Q and S III, or will some of the backlog be tackled before that?

There are two difficulties. It is all very well being wise after the event but, as you and I both know, a capital programme does not just take place overnight. Scottish Water has more than 30 projects in the pipeline. Those projects were agreed in principle some time ago and they were worked up as engineering solutions in the relevant groups. Scottish Water has been seeking planning permissions for those developments. We are talking about months and months of planning problems.

I am well aware of the problem that you identify, but we have to be realistic. When we set a capital programme in train, as we have, we cannot just turn it on or off. The crucial thing is that the plan has to be underpinned with seriously good information. What has emerged—regrettably—is that the basic information underpinning the last investment programme was flawed. I am anxious about that. I must confess that I have been much more encouraged by the latest responses of local authorities and other persons who are engaged in strategic, regional and local planning, including those in the private sector. There has been a much greater understanding of the importance of getting the information for the planning process.

Looking forward, I believe that it is crucial that we strike the right balance in Q and S III. Scottish Water, SEPA and others are trying hard, where they can, to address the blockages that exist. In recent months, they have unblocked a number of projects. I am thinking in particular of a situation in Perthshire, which had seemed intractable, but for which a solution was in fact found.

We are not giving up on those projects; we are trying hard to accommodate them. It is extraordinarily difficult, however, to intervene in a capital programme. We cannot stop a process and suddenly turn on a planning permission or a detailed engineering drawing and make that the solution to a technical problem. These things are complex. That is why we must get the consultation process right.

So we can expect that some of the things that are blocked by Scottish Water at present could take several years to sort out. For example—

I am not into these pejorative terms. We agreed a programme of £1.8 billion. It is all very well to turn round now and say that we should not have done that, but on what basis? We have to move forward.

There are two elements in the capital programme. First, there is capacity, which is evidently an issue for Scottish Water, whether that is capacity in drinking water or in sewage treatment plants. Secondly, some development constraints are not just about capacity; some of them are infrastructure issues and concern specialist developments in particular. One of the suggestions that is out for consultation—it is mentioned specifically in the charging regime booklet "Paying for Water Services" and it is alluded to in the investment programme documents—is that, as the infrastructure benefits are exclusively for the development, the developer should pay for part of them. If that general proposition were to be accepted as a consequence of the consultation, that would go some way towards unblocking one element of the development constraints from which we have come to suffer.

When we were considering the Water Environment and Water Services (Scotland) Bill, I raised issues that had been raised with me by rural housing associations, which were concerned that they would not be able to develop more rural housing because of constraints on water supply and sewerage. I attended the rural and islands housing associations forum at the weekend. As you may imagine, all the housing associations were extremely agitated about the constraints that still exist in places such as Orkney, Shetland and the Western Isles.

Rob Gibson has gone over some of the general issues that the housing associations have raised; I would like to ask about some of the more focused issues that have been raised with me. First, there is the business of reasonable cost. I am hearing that, where there are small sewage works—say, in the Western Isles—Scottish Water will not take them over because it will not gain enough income from the system. I am talking about small, private works that have been put in by the local people. Might that be looked at?

Secondly, there is the whole business of modelling. In Orkney, for example, Scottish Water has been asked to undertake a modelling exercise to see whether sites can be connected to the present sewerage system. However, I am told that Scottish Water will not even do that, because it is not in the programme. Orkney Housing Association cannot get funding from Communities Scotland to commission a modelling exercise. Could greater flexibility be built into Q and S III so that people can at least plan what will be possible or needed in the future, rather than coming up against a brick wall?

I will make a couple of points about the general issue first. I understand that the issue in relation to any sewage works—in the Western Isles or elsewhere—is not about income. I am pretty certain about that, although Andrew Fleming will check it out. We are pretty certain that the only reason why a works would not be taken over would be that it did not meet the required standard. There would be an issue of Scottish Water spending money to bring it up to the required standard. However, the only reason for a works not being adopted would be that it did not meet the required standard.

I am aware of the difficulties that Orkney Housing Association has had and I have been in correspondence with it. Sadly, there was no real, effective response to Q and S II. The issue is about trying to get greater flexibility under Q and S III. We have fixed the programme and have asked Scottish Water to produce and deliver it; we have not built into that programme a way of saying to Scottish Water that we want things done slightly differently. Therefore, we will have to do something in the next few years to try to get greater flexibility into how we manage things.

Another issue that the housing associations raised with me was the possibility that, if they could not get Scottish Water to deliver infrastructure, they could do so privately and have, for example, a septic tank connecting three or four houses plus a private water supply. How would that be viewed?

I would have to address the specifics of that. The issue of quality and standards is still imperative. If Scottish Water has a responsibility to pay for that work, that would have to be built in. The issue is not about not contracting out the work; it is about ensuring that, in the specific circumstances, both the drinking water quality standard and—especially in the case that you mention—the standard required by the sewage outfall and septic tank regulations are being entirely adhered to. Again, the issue is not about trying to be inflexible; it is about trying to maintain the standards that Scottish Water has to meet on a regulatory basis.

The other issue that has been raised is how we pay for getting to grips with the development constraints and whether that should be done by cross-subsidy or through general taxation. The consensus of opinion across the housing associations seems to be that it should be done through general taxation. What are your views on that?

The consultation paper raises the question of how we address the need for affordable housing as opposed to general housing developments. A clear differential is to be drawn in relation to affordable housing. We need to have a clear view of the way in which we can avoid burdening those developments with the cost of some of the infrastructure. Of course, some developments come in two parts, because it suits the developer both to have some housing that is to be sold for an entirely commercial price and to make provision for affordable housing as part of the development. I have been in close touch with the Minister for Communities in an attempt to ensure that, when we finalise the consultation, due regard is paid to the need for a flow of affordable housing. We need to ensure that the system is not caught up because the business of ensuring that commercial developers pay their fair share of development costs is overly regulated.

I feel that I ought to leave some room for other members to ask questions on this subject.

Scottish Water talked about the need to have clarity about who is responsible for paying for new connections. Will that clarity be provided for in the bill?

No. When the consultation is concluded, we will make a statement about the level and the basis of the investment programme. The question whether commercial developers will have to make a contribution will be determined at that point. If there is any third element relating to affordable housing, that will have to be dealt with at that time, because that information has to be set out before the water industry commission first. We will set the objectives for Scottish Water from a political point of view and it will then be for the water industry commissioner to take a view as to how the publicly owned water monopoly can deliver those objectives at the most effective price. That clarity should emerge in the early part of next year.

I am trying to see how all the elements join up. It would be a mistake to think of affordable housing as a separate issue, because there could be mixed developments that have affordable housing and private development. That is certainly the solution that is being considered in urban areas. I suppose that the issue relates to your comments about relative costs.

What is the next stage after we have gone through this process? At the end of the consultations on the quality and standards III programme and the principles of charging, you will have a series of bids from local authorities, which will be based on their structure plans and local plans. How will you decide between the bids of local authorities? If a bid is not accepted or if investment for the future is not accepted, will the local authorities be under any obligation not to give development approval for projects that do not have investment coming along behind them? I understand that some local authorities have refused development on the basis of a lack of water and sewerage capacity, whereas other authorities are letting proposals through without any prospect of investment by Scottish Water.

Again, we are talking about clarity and certainty for the future and how these issues slot into the forward planning process, which, historically, has been where decisions about future capacity are taken and where local communities and councils take decisions on the relative merits of projects. What will happen in the future? After the investment framework is established, what happens next? That is a fundamental question.

I agree. If you read the relevant consultation point in "Investing in Water Services 2006-2014", you will see that that issue is referred to specifically. Notwithstanding the need for us to have a view about what is manageable and affordable, we point out the real concern that, in determining the bigger picture, we have to settle issues of strategic economic planning and modelling in and across local authorities. We are conscious that in some cases an appropriate amount of economic modelling has not been carried out between adjacent local authorities, particularly on the boundaries. As I said, we refer explicitly to that issue in the document. We are looking to Scottish Water and the local authorities to show a better method of doing that.

A difficult balance needs to be struck in relation to the scale of development. We need to optimise the amount of total investment, to ensure that efficiencies are brought to bear and, in purely commercial developments, to make use of the call on the developer to pay a proportion of the costs, if that is the result of the consultation. After balancing all those considerations, we return to the question what the respective customer can afford.

On the point about priorities, all that I can say is that they will have to be determined some time before we finalise the programme. Although we will give the broad parameters to the water industry commissioner in the early part of the year, it will be some months before we will have the detail of the consultation—in particular, the detail on developments between the local authorities and Scottish Water. By that time, all that we will have done is to narrow the focus slightly; we will not be at the detailed end of the process—the calculations are complex.

The point that I was trying to make on modelling was that, if you want to know what is needed in Q and S III, you should be doing the modelling now, but it seems that Scottish Water, Communities Scotland and the local authorities will not do it. How will the modelling be done? Surely it needs to be done before we know what is needed.

Some of it is being done. However, I agree that the examples that you cited where it is not being done are disappointing. The local authorities and Scottish Water have a mutual interest in the process. At the end of the day, however, it is the local authorities that grant the planning permissions and development programmes for new housing. We asked Scottish Water to include modelling as part of its costing process. We do not want a repeat of either Scottish Water or the local authorities saying, "It's no us." We want to encourage Scottish Water to build into its costings the need for some kind of modelling process.

It is useful to have that on the record. Over the past few weeks, we have all heard a variety of witnesses say different things in public and private. It will be interesting for us to follow up on that.

A couple of weeks ago, we had a useful presentation from your officials about the two consultation processes. However, I came out of it with the distinct impression that, beyond pure compliance with EU environmental regulations, there are no real policy drivers driving sustainable development. Leakage is not really an issue in Scotland because water is relatively plentiful. To what extent are you using the Q and S process to find out how sustainable development indicators—in particular, odour nuisance, water poverty as a proportion of household income, leakage and energy usage—might be barometers of your policy's progress?

At the briefing, I learned that a large amount of money needs to be invested in our infrastructure to deliver the different sustainable development priorities. However, although the first two indicators involve investment, the final two are about saving money in the long term. I wonder about the extent to which you are working to those indicators to deliver your policies, which I must say do not seem to have been made explicit in the consultation process.

I am sorry if they have not been made explicit. Section 51 of the Water Industry (Scotland) Act 2002 places a very clear obligation on Scottish Water to act and operate in a way that is entirely consistent with sustainable development. Given that Scottish Water has to adopt the plans and that it is obliged under the terms of the act that set it up to operate with due regard to sustainable development, energy savings will be made.

We must remember that there is an enormous range of competing demands, which in many areas are driven by sustainability and requirements under the Water Environment and Water Services (Scotland) Act 2003, which seeks to deliver the water framework directive. As a result, Q and S III has to operate within a very robust framework. It might well be that the headline priorities head towards removing development constraints, although I should say that there is a mutual interest in tackling odour nuisance. The consultation document "Investing in Water Services 2006-2014" covers major elements such as how we develop within the water framework directive, which itself contains a robust series of sustainable aspects that govern developments.

I appreciate all that. However, I suppose that my question is about how you set, see through and monitor priorities. We might be able to follow things through if, for example, the indicator on development constraint were made one of your priorities. How do you set your priorities? I know that it is not an easy task.

It is not easy. The priorities will be set by the policy framework for Scottish Water. That framework has two key elements, one of which involves the overarching provision in section 51 of the Water Industry (Scotland) Act 2002. Under that section, in whatever Scottish Water does, it must have due regard to the impact on sustainable development. Moreover, the organisation must also meet a number of clear regulatory requirements with regard to drinking water quality and sewage outfall and disposal. Those aspects make the task of checking regulatory requirements and the time by which those requirements should be met slightly easier, because it is possible to see a phased development. After that, there is a different order of more economically and socioeconomically driven priorities with regard to, for example, affordable housing.

We must ensure that in delivering the whole programme we have due regard to the overarching concept of sustainable development. I do not decry that suggestion at all. The question is about how we get the various huge building blocks into the one mix and make sure that each element goes to make a cohesive whole in meeting the objective that it has been set.

Do you see a role for indicators in that framework?

Yes, but again I have to be careful about who does the monitoring and how it is carried out. Leakage is a nightmare that Scottish Water would dearly love not to have, because not only is it an environmentally non-sustainable use of the resource, but it places a severe economic restriction on Scottish Water. It is not about an indicator for Scottish Water; it is about an engineering resource that has to be devoted to elements of the network that are not well mapped. For example, there are one or two areas in which Scottish Water has renewed lengths of the carriage only to discover that although the water flows better when the carriage does not leak, the amount of leakage increases when the pressure is increased a few miles down the road. Parts of the network are in such poor condition that for every bit we do better, there is a downturn on the other side. It is not as if Scottish Water is not trying, but there are areas throughout Scotland where the consequence of renewing piping has an impact further down the chain. It is not about not having enough resources; it is about getting a handle on a water network that has suffered from huge underinvestment.

I want to follow up Mark Ruskell's point about odour issues, on which we took evidence earlier today. The consultation does not estimate the cost of dealing with odour problems at sewage works. We have done a fair amount of consultation on that while following up some petitions that have been presented to the committee. Will you have those costings in front of you when you make the decisions on investment priorities, given the need to invest both to comply with environmental legislation and to maintain the network and to balance that work with an affordable investment package? How will you make that calculation to deal with investment to address the odour problems that have been forced on the committee's attention?

In my opening remarks, I acknowledged that during the past three to four years, people's expectations of sewage outfall works have risen and so have their expectations that odour nuisance would be addressed in a more satisfactory way. That is why we make that comment in the investment programme.

On the responses to the consultation, we do not have the detailed costings but we are working on them so that before we make a decision we will have a view on the overall level that might be required as part of the quality and standards III programme.

I am sure that the minister shares the objective of ending the situation in which many people, particularly young people, cannot get access to housing in their local community and so have to leave. One of the biggest priorities that I am sure the committee will have identified is that of development constraints. How do you balance the different priorities in your two portfolios? Surely if you want to help rural Scotland, you have to increase the supply of housing so that the value of property comes down. That means giving access to land and water and sewage infrastructure. How will you determine your priorities between your rural development portfolio and your responsibility for water?

It does not matter whether a minister holds two portfolios or one, as the Executive has to balance those priorities in any event. All that I can say is that I might be more acutely aware of the differentials that have arisen in rural areas as a consequence of the historic underinvestment in water. I do not see that there is a conflict.

I readily acknowledge that determining the balance of the Q and S III programme will be extraordinarily difficult. Some of the numbers in the consultation document are frightening. That is why responses to the consultation have been helpful and important, as will be the committee's report. That information will give us a much better handle on the priorities—including the geographical priorities of different local authorities—before we have to come to a decision. That is why we are engaged in this very full consultation.

To what extent are you working with the ministers responsible for housing and planning? Last week, after the spending announcements, the minister responsible for housing announced that several thousand houses were to be built over the next three or four years. Clearly, those houses can be built only where water and sewerage capacity exists. What is the Executive's strategic plan? Where will those houses go? That decision will surely be influenced by considerations of where infrastructure exists. How do such considerations affect investment decisions?

All the Executive's work in relation to housing involves close collaboration between the minister responsible for housing, housing officials and planning officials. No one in the Executive wants to work in a separate compartment.

When considering the money available to develop more affordable housing, we have to get the balance of investment right in Q and S III, to ensure that as many affordable houses as possible are built. We also have to consider—this may not have received enough attention before—the priority given to developments to ensure that we have the double benefit of meeting regulatory requirements and meeting development constraint requirements.

Maureen Macmillan spoke about the campaign to use taxation to put in new infrastructure, especially in rural areas, to try to prevent depopulation and the loss of young people. Many parts of Scotland are becoming exclusive to wealthy retired people. The only way of giving such areas an economic future is through Government intervention.

Did the spending review process have any influence on investment in water infrastructure? It may be that more announcements are to be made. Have you sought any subvention from general taxation or the Scottish block to address this urgent situation, which has been neglected for decades? Simply listening to the local authorities that shout the loudest may not work; we have to consider where the real need is and get the cash there as soon as possible.

I wholly agree that development constraints are way up on our list of priorities. Richard Lochhead talks about using general taxation, but I am not sure that this is entirely a funding problem; it is more a capacity problem. We have to consider the availability of cash and the availability of expertise to work up the capital investment programme to deliver the volume of investment required. Let us consider the target set for Scottish Water even in Q and S II. When I have attended this committee before, I have referred to the difficulties that Scottish Water encountered in its inheritance from North of Scotland Water, West of Scotland Water and East of Scotland Water. As we speak, Scottish Water is delivering £40 million-worth of pipes and so on a month. We think that the annual figure will be some £500 million. If that happens, it will mean that Scottish Water will be delivering a higher level of water infrastructure investment than any other company in the United Kingdom. I say that not just to pat Scottish Water on the back, but to try to put the scale and nature of the problem into some perspective. It is not only about money but about managing the way in which we raise the level of investment in Scottish Water efficiently, effectively, cost-effectively and qualitatively. There are other issues besides money; it is also about management.

I ask for a specific answer to my question on whether the budget that was announced last week has had any direct impact on the level of investment that is available for the water industry.

Within the settlement, we have secured access to borrowing levels that we believe will be sufficient to enable us to carry out a programme under Q and S III.

We have spent most of the morning so far talking about quality and standards III and what we want to add to the list of future development, and it strikes me that we have not spent much time considering the consultation on the principles of charging. However, Alex Johnstone wants to ask about development constraints.

I am surprised that some members who are present believe that huge infusions of public money are the only solution to the problem of development constraints; I will explore another potential route and the possible impact of legislation on it. I am aware that there are different priorities in different areas to facilitate the development of housing, but in the area from which I come, there are huge constraints, and there seems to be a willingness among developers to become involved in financing the necessary infrastructure to facilitate the developments with which they would like to proceed. My concern is that the opportunities that are afforded by that approach are constrained by the proposals in the Water Services etc (Scotland) Bill to prevent the principles of common carriage from becoming the norm in Scotland. Could we not, by allowing Scottish Water to permit common carriage in certain circumstances in which public benefits could be achievable, allow developers to make investments and become involved in the provision of capacity that could, ultimately, facilitate housing in some of the areas in which development constraints are in place?

There are two separate elements to that matter, which calls for some judgment. First, access to carriage is a question of competition, but it is not necessarily the same as increased capacity. Secondly, if we did not use the provisions in the bill but permitted private developers not only to have access but to undertake developments of their choosing, we would have two separate problems because, genuinely and simply, we would be going into open competition in access and carriage. In that case, we would end up with development by private developers and access to carriage by private operators, which takes us back to the circumstances that might have obtained had we not created Scottish Water. There is an insufficient number of customers in the north, the Highlands and Islands, the south and the south-west of Scotland to sustain a water company with an investment programme, so we would be cherry picking and would put at risk the ability to supply a Scottish water service throughout Scotland.

The minister has answered a question that I did not ask. I am trying to examine the opportunities for co-operation between private developers and Scottish Water where development constraints exist and the will exists among the developers to become involved in the provision of infrastructure.

Through the Water Services etc (Scotland) Bill, we are building a system in which decisions on where investment will take place will, in effect, be made centrally. If Scottish Water was granted the power to become involved in joint projects in which the provision of the necessary infrastructure was, in certain cases, the financial responsibility of the developers and the principles of common carriage were employed to ensure that the developers and Scottish Water worked hand in hand to make sure that such provision was made available publicly as well as to the private developments, is there not a way in which we could exploit—

As I have already indicated, one must draw a distinction between infrastructure that is required exclusively for a development and infrastructure that is capacity in a sewage disposal works or a drinking water supply works. The consultation on charging suggests that, with infrastructure that is just for a development, we should move from a position whereby all such infrastructure is provided by Scottish Water. The consultation also sets out the proposition that, where infrastructure is required exclusively for a development, there is a strong case for the developer who provides that infrastructure to link it to the Scottish Water network, provided that the development meets the construction standards that are set out in the relevant water industry regulations. My view is that there should be no obstacle to that, but a difficulty arises when there might have to be joint expenditure on capacity for the network in a sewage works or a water supply works because, at that point, a decision would have to be made that might affect the meeting of some other priority or objective in another area. The consultation suggests nothing that would prevent private developers from building the infrastructure for a specific development, provided that there was capacity further down the line.

In many circumstances, that remains the limiting factor.

That means that you are talking about joint ventures, because the new infrastructure would not be used exclusively by the developer. In the general framework of Q and S III, choices would have to be made about what priority to give a particular piece of infrastructure. However, there are developments in relation to which the developer could provide the necessary infrastructure.

I will have a final stab at explaining what I am trying to get at.

As long as it is a brief stab, because we will come back to the issue when we move on to our stage 1 consideration of the bill.

In relation to such downstream provision, is there not an argument that if the principles of common carriage were employed, they could allow the direct charging of developers for the use of services? In other words, could developers buy the services that they required on a commercial basis?

No, because a developer who is not adding to capacity but is only buying services commercially would have to buy them from Scottish Water.

But is the developer not facilitating development over time by providing the necessary money?

No. I think that you slightly misunderstand what would happen in such circumstances. There is a distinction between using private money to invest in a specific development and seeking to influence a development priority elsewhere. A developer will certainly not pay 100 per cent of the cost of a shared facility. What you are talking about would involve changing the order of priority in Q and S III. I do not think that one could order priorities according to who was paying the most money.

I think that the minister understands what I was after.

We have teased out that issue. Other members might want to read the Official Report to make sense of parts of that exchange.

I remind colleagues that, so far, we have dealt pretty exclusively with the quality and standards III consultation paper. We have highlighted the fact that the improvements will cost more, but we have not focused on who will pay for them. That is dealt with in the consultation paper on the principles of charging, which we should consider before moving on to discuss the bill. Other witnesses have put to us a checklist of issues, including charitable relief, cross-subsidies and local government finance.

The charitable sector made quite a few pleas that the water charge relief scheme is too complex and too onerous for charities. The sector believes that charities do not benefit from the charitable relief scheme because of the way in which the scheme operates. It was put to us directly that the number of charities that benefit is significantly lower than was initially estimated when the scheme was set up. Does the minister agree that the scheme is not operating as intended, or does he have a different interpretation?

I do not wholly agree. The scheme was intended to grant relief to smaller charities and voluntary organisations that were in receipt of relief as a consequence of the previous involvement of local government. We have now made it clear that the regime that will be in place will exempt a range of organisations from charges until 2010.

The consultation seeks views on the slightly broader question of to whom exactly we should provide relief and whether it should be up or down that chain. Like the committee, I have received representations from charitable bodies, some of which have asked that the scheme be extended to cover all charities. One difficulty that I have with that request is that although certain charities could undoubtedly do with additional assistance, many of them have a relative state of income that is no better or worse than that of some private individuals. I am concerned lest we end up not directing the benefit to those who are least able to pay. There are also issues with how water costs should be measured and therefore with the burden that any person should be asked to pay.

Extending the scheme would simply mean that someone else would need to pay. We have considered the operation of the scheme. We know that some people are agitated because they feel that they should be included in it, but we have tried to be fair to charities that already benefited from the scheme by indicating that, whatever else we do, they will remain exempt from charges until 2010.

The other issues that arose from the consultation paper on the principles of charging were water poverty and cross-subsidies. We received representations on the need for an agreed definition of water poverty, just as a definition exists for fuel poverty. Has the Executive considered whether the assumptions that the Department for Environment, Food and Rural Affairs makes on water poverty should be debated? Also, the consultation paper says that the Executive, Scottish Water and the water industry commissioner are conducting research into cross-subsidies. When might that research be completed and when is it intended to be published? Where is the Executive going on those two issues and how will they fit into the outcome of the consultation process?

On the latter point, we anticipate that the work that we have asked economists to undertake will come to a conclusion just before the end of the year. Prior to the consultation process, evidence was put to us that suggested that Scottish Water's structure still provided a cross-subsidy from the non-domestic sector to the domestic sector. However, that evidence was sketchy at best, which is why we have brought people in specifically to look at that. Whatever their conclusion is, there is no question but that we will have to look carefully at how we can try to unwind those subsidies. It is not something that we would contemplate doing overnight if it was going to have a serious effect on a specific sector.

There are two elements to our looking at and targeting support towards water poverty. I will ask Andrew Scott to comment on the DEFRA scheme in a moment, but there is also the issue of where the support ought to be targeted. At the moment, we use the local authority banding system for partial remuneration, and there are other schemes in the consultation document. We talk about being much more specific and targeting those who are in receipt of benefits. We are trying to concentrate the support very much at the bottom end. Perhaps Andrew Scott can comment briefly on the operation of the DEFRA scheme.

It is hard to find an absolute definition of water poverty, but, as a rule of thumb, people who spend more than 3 per cent of their available income on their water bill experience some kind of water poverty. We do not operationalise any definition like that in our paper, as it is quite hard to justify any particular definition. However, the proposals that we set out in the paper are about taking the help that is currently spread across 900,000 customers, which is worth about £75 million, and concentrating it on roughly half that number of customers.

I could not hear that. Whom did you say the help is proposed to be concentrated on?

The help that we give at the moment is worth about £75 million, and it is generated by recycling charges from affluent houses to less-affluent houses. About 900,000 houses receive that help. The proposal is that that volume of help will be concentrated on about half that number of households in the future.

So, some people would be less subsidised and some people would be more heavily subsidised.

Yes, that is right.

Without a definition, the rule of thumb would be that those who are in receipt of benefit for council tax purposes would be regarded as being most susceptible to water poverty.

So, in a sense, there will be winners and losers but a more aggressive targeting of people at the lower end of the income scale.

Yes. That is what is proposed in the consultation paper, but we have not finalised our view.

That does not take into account the fact that some people are in waged poverty. They might not be on benefits, but they are on low incomes. The council tax banding system, similarly, does not address the problem of people who are in waged poverty.

Someone on a wage can be on council tax benefit. Sorry—I referred earlier to the local authority banding system, but I am talking about council tax benefit.

A water poverty indicator level would pick up not just the people who are on benefits, but those who are in waged poverty. There would be advantages to having a water poverty policy.

I do not necessarily disagree with you. However, there are people who are waged but who are in receipt of council tax benefit. I am not suggesting that that system is the perfect model, and I would be interested in alternative views. Nevertheless, that calculation includes people who are in receipt of income but who, without any shadow of doubt, are deemed to be at the lower end of the scale. That is the group that we suggest should be targeted.

The council tax benefit system is not perfect. As we suggest in the paper, however, using that system would, without reinventing wheels, be a method of capturing a class of people who are already regarded as susceptible to poverty and who will clearly be susceptible to water poverty. I would welcome any refinement of, or alternatives to, that suggestion.

That is useful, thank you.

Our current pricing structure includes a high standing charge. Domestic water charges are based entirely on a fixed charge and charges for larger users have a significant fixed-charge element. The committee has heard that that structure acts as a disincentive to water conservation. Would it be possible for water charges to contain a bigger volumetric element but for us still to protect the social objectives by having a lower unit price for those on the lowest incomes?

There are two issues. First, the practical issues relating to the delivering of water mean that the major costs are of a fixed nature. Secondly, the practical problem with moving to a volume-based system would be that we inherited a non-metered domestic sector. Changing to a volumetric model, therefore, would not be quickly achievable. I am not disagreeing with you philosophically; I am merely pointing out a practical difficulty. There are few domestic customers who have meters.

We heard that it would cost a lot of money to put meters into domestic premises. However, are you considering moving further towards a system that would allow volumetric measuring or will you continue with the high standing charges approach?

As we have said, a huge number of challenges face Scottish Water. It would be lovely to be able to say that, at the same time as meeting those challenges, we could move towards an entirely metered system. For different reasons, the non-domestic sector is keen to move towards greater metering.

At the moment, Scottish Water is unable to work out what the impact of metering would be. I get somewhat exercised about the conservation aspects of metering, but that might lead me to place higher priority on bringing greater metering to non-domestic customers than on doing so in relation to domestic customers.

Another issue relates to simply rearranging the total amount that is being charged in an attempt to address the amount that low users are being charged, notwithstanding the fact that the delivery of water—actually getting it to your tap—is the highest part of Scottish Water's present cost structure.

So the matter will not be dealt with in the bill. I suppose that it is more of a matter for the quality and standards III exercise.

Yes.

I should point out that the drivers are going in the direction of metering. One such driver is the issue of conservation and use; another is the need to find, over time, a way of more equitably distributing cost. The difficulty is that we do not have the meters.

In all the discussions that we have had with witnesses, it has been clear that people think that this issue needs to be addressed. However, it will not be addressed in the bill. If we say that we are going to introduce water metering in five years' time, we are talking about a phenomenal cost without knowing what the benefits would be. The issue is to do with finding ways of getting people to use water conservation methods. There are all sorts of ways to conserve water and it is important to get them on the agenda.

The water framework directive allows for water charges to be used as an incentive to encourage people to use water resources efficiently. However, the costs and benefits agenda does not seem to have got past water metering. It is important to remember that there might be another way of moving towards volume-based charging. Perhaps we could all reflect on that.

We have just about exhausted the topic of the two consultation exercises. I suggest that we take a comfort break.

Meeting suspended.

On resuming—