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I welcome people to the 21st meeting in 2004 of the Environment and Rural Development Committee.
I am one of the directors of Ross-shire Women's Aid, which is a charitable organisation that obviously has an interest in water charges.
Thank you. We will put that on the record.
My question is primarily directed at Trisha McAuley. Your submission describes the split between the Executive, which has a policy formation role, and the water commission, which has a role in implementing that policy. Your submission mentions the three elements of sustainability: economics, the social justice angle and the environment. You also say that the water commission, as well as Scottish Water, should have a statutory duty for sustainability. Why do you think that that is necessary? Should that duty be in the bill or could it be elsewhere?
We would like it to be in the bill. We have discussed the matter with Executive officials in the context of the current consultation on paying for water. We cannot have a charging system that does not look at our sustainable use of water in the future. We would like the water commission to have a similar duty to that placed on Scottish Water.
In the past couple of weeks of evidence taking, we have talked about a number of sustainability indicators. For example, we have talked about leakage rates from the water network. Your submission mentions a water poverty indicator based on household income, which Citizens Advice Scotland also mentions. Jim Lugton's submission mentions the proportion of charities that are exempt from water charging. Those could all be sustainability indicators of one type or another. Who should be concerned with monitoring those sustainability indicators and reporting back to the minister? Should it be the water commission, Scottish Water directly, the utility companies or what?
I have not given that an awful lot of thought. I think that the minister should set the policy direction. The commission's role, as I see it, relates to the setting of charges rather than sustainability targets. Scottish Water has a relevant duty as well. I would not like to go down the route of blurring the responsibilities of the commission and of ministers.
My question is, who monitors the implementation of the policy that the minister has set? Who provides the minister with indicators relating to whether the policy is being enacted?
That would have to be the role of the commission. The commission has to report back to ministers on how it delivers on the objectives that have been set.
An important dimension relates to whether we continue to consider conservation on the supply side or start to address it on the demand side. From the voluntary sector perspective, we are ready to become involved in a major campaign on water conservation because we feel that that is every bit as important as the concerns that have dominated the debate so far.
I echo that. We have a long way to go but we are not doing anything to examine the supply and demand issues. At the moment, there is unharnessed consumption and we are continually investing millions of pounds. It is true that we are meeting our directives but, 10 or 20 years in the future, there might come a point at which we are investing simply to meet unharnessed consumption. We are at the beginning of a long process and there might be some scope for starting to examine the issues more broadly.
The Scottish Council for Voluntary Organisations submission discusses the issue of public benefit and whether Scottish Water is truly a public corporation. The bill will require ministers to set out the principle on which water charges will be based in order to harmonise them. You would like low-income households, small businesses and charities to be treated in a similar way. Will you expand on how the bill might achieve some of those aims?
There are already special concessions for a large number of people who have medical and other needs. Further, it is recognised that key public operations such as hospitals have special needs. We need to broaden the scope of the public benefit dimension of Scottish Water's operations. I can quite understand that, for Scottish Water's management, that translates into a worry about who pays. However, the question for ministers is, if Scottish Water is to be a public corporation, how do we deliver the public benefit and who do we deliver it to and what for? We believe that, particularly given what is contained in the draft Charities and Trustee Investment (Scotland) Bill, there is scope for the two policy arms to be brought together. We should recognise that we have a good opportunity to set out what public benefit is and how it can be delivered to groups that have difficulties affording services.
Does the Scottish Consumer Council have a view on the issue?
To follow on from what we said in our written submission, there is a body of opinion that says that water is a public good that should be fully funded through taxation. However, I do not think that it is realistic to go down that road at the moment. Scottish Water operates under a public sector business model and is asked to deliver along business lines. There does not seem to be enough clarity on the relationship between the charging system, as it is referred to, and the public benefit and value that we need to get from our water—we would like more clarity on that. If we are to continue with the current model—Scottish Water being in the public sector but asked to deliver according to a business model—the public good should be addressed by citizens and taxpayers rather than by consumers. In particular, people who are on low incomes and who cannot afford to pay for their water are not getting benefits—that is a cross-border issue that has not been addressed at the UK level since devolution.
Are you saying that the minister has to make things clear so that the water industry commissioner and Scottish Water start to deliver? Do you think that the minister has to have discussions with London?
Yes. Social policy issues should be taken out of the charging system because there are too many cross-subsidies and the situation is becoming a mess.
That is the matter that I want to address. The principle of cross-subsidy in charging is enshrined in what we are discussing. We heard that the SCVO wants exemptions to be extended, but that necessarily means that others will pay more. We heard sound arguments for the protection of business customers, on which provisions are contained in the bill along with provisions on retail competition. Is not there a danger that we will isolate a relatively small group, who will, in effect, pay tax through the water system to subsidise the social policy elements that we are trying to address?
That would be the case if we had not been there before. It is interesting that until the Local Government etc (Scotland) Act 1994, Mr Johnstone's party accepted that cross-subsidy is essential to meet the needs of those who, for various reasons, such as health or public benefit activities, need help with their water supplies. The question is whether that public and private benefit on the basis of need should be resumed. We are not starting from scratch with the principle of cross-subsidy. We suggest that there were strong and rational intellectual arguments for such exemptions and that those arguments still apply. Indeed, some of them may apply even more because of the problems that have developed with family structures during the past 30 years. For example, single parents find it difficult to meet water bills individually. Certain charities also face difficulties. I draw to the committee's attention the example of Coldingham village hall. The local community is working hard to raise £150,000 for major improvements to the hall, which has an income of just over £1,100 per year, but the annual water charge for the hall is £800. Such facilities are in the heart of communities and they deliver benefits to everyone, but they will be difficult to sustain if we do not operate a system of cross-subsidy that supports certain charitable activities.
I accept the priorities that you set out, but the situation that I described is one in which the burdens of cross-subsidy become large: because protection is afforded to certain groups of water users, a shrinking group becomes the target of water charges and, in effect, the taxpayers who subsidise everything that we choose to subsidise.
To an extent, I agree with Trisha McAuley on this issue. It would be fairer to take the cross-subsidy element out of the charging system, because it is an equalisation payment made by the Executive. In fact, doing that would also make things administratively far more straightforward. As we know the level of subsidy and who receives it, it would be a simple matter to totalise it over the year and pay it in an equalisation cheque to Scottish Water. However, although the method is simple, we have to bear in mind the principle behind it. For example, even in 1995-96, which was the last year of the previous arrangements, the cross-subsidy total for all the local authorities amounted to less than 1.8 per cent of water charges.
In that case, do you agree that it might be preferable to have a system in which everyone who uses water pays their share of the total cost of water service provision and those whom society as a whole has decided through its representative bodies to make exempt should be exempted through a system that does not target the charges on an ever-shrinking group of people who can afford to pay?
That is based on the assumption that the group is ever-shrinking. The statistical evidence suggests that the vast majority of people are still charge payers and that cross-subsidy currently benefits a very small proportion of them.
The SCC submission suggests a way of calculating affordability. Many notional affordability indicators in the energy market relate to fuel poverty. The submission says:
No. I just used that figure as an example. Our submission goes on to say that we would need to base our measure of affordability on evidence; however, there is a paucity of evidence on how water charges affect people in Scotland. Although the Executive is undertaking some research on cross-subsidy, far more work needs to be carried out on how the issue affects vulnerable groups and people in our society. We do not have any evidence that would allow us even to start drawing up an affordability indicator. We are well behind England and Wales in that respect.
At a more generic level, we might presume that because the age balance in the Scottish population tips towards older age groups, a larger proportion of households are probably being affected. However, Trisha McAuley is quite right. The water industry commissioner has been seriously constrained in the extent to which he can carry out research in this field—which, after all, requires some fairly rigorous research. The 3 per cent figure is the working assumption that the English water companies use and is the best benchmark that we have had to date in the debate in Scotland. That said, I must stress that it is only a working assumption.
I have some more questions about the charitable exemptions scheme. When it was introduced, we had to impose limits on who would qualify for exemptions, otherwise quite inappropriate charitable bodies would have been subsidised. As I remember, the negotiations on that issue were long and hard.
Let me deal with that last point first. Organisations do not know about the exemption scheme because Scottish Water has never made an individualised offer to charities to sign up to the scheme. At the start of the negotiations, we offered our database as a means of hitting most charities with information about the scheme, but that offer was declined by the Executive.
We will put that point to the minister when we take evidence from him.
There are two issues. First, in the intervening four years, the vast majority of charities will not and cannot now benefit from the exemption scheme. They have lost the possibility of applying for exemption. If the conditions stick, such charities will remain unable to apply to join the scheme.
Finally, your answer to Alex Johnstone suggested that cross-subsidy was the best way of supporting voluntary organisations, but what do you think about providing support out of general taxation? Some argue that the extra water charges for, say, health charities should be funded by the Health Department rather than by cross-subsidy from other Scottish Water customers.
As you will know from your strenuous activity on behalf of Highland Hospice, the specific exemption for hospices, which we welcomed strongly at the time, was an example of a departmentally-led concession. We believe that, in the longer term, it would be better to provide such concessions out of general taxation. In the debate at the conference on 31 August, many people, including Trisha McAuley, were surprised at the degree of unanimity among speakers on the need for a contribution from general taxation if we are to avoid the sorts of problems with cross-subsidy that the committee has raised.
You have just answered the question that I was going to ask. It was about general taxation being the appropriate method of supporting people who require help with water charges, rather than having other charge payers picking them up.
We did not have the money to be able to do that. We used Third Force News, and we used Third Force eNews—or TFE—which we continue to link with. We also used our links with councils for voluntary service, through ECVS, which is a new weekly publication. We continue to try to maintain contact with people. We have now dealt with getting on for 3,800 individual inquiries.
Is there any indication of a willingness on the part of the Executive to discuss with you the exemption scheme and the difficulties that have been thrown up by its operation?
At the moment, we have to rest on what the minister said on 31 August and his reply to a PQ on 15 June. There seems to be a considerable gap between those two statements.
Presumably, you have a request in for some sort of discussion with the Executive.
That is correct.
If no one else wishes to fire in any more questions, I thank both the witnesses for coming in this morning and for answering what was quite a range of questions. It has been very helpful to us, and we will be following up one or two of those questions with the minister when we speak to him in a couple of weeks' time.
Meeting suspended.
On resuming—
We now have our second panel of witnesses in front of us. I welcome Ian Smith, convener of the water customer consultation panels, and Len Scoullar, a member of the north west water customer consultation panel. Thank you both for joining us and for your written evidence. As with the other witnesses, we will go straight to questions. I invite someone to kick off on the interests of customers and how those could be reflected in the new system.
Could you expand a bit on how you wish the powers of the water customer consultation panels to be strengthened and their role and remit more clearly defined? I note that you are strongly of the opinion that the panels should not form part of the proposed water industry commission for Scotland, which should be an expert economic regulatory body.
The best way of answering that is to say that our experience of the present system over the past 18 months has led us to that conclusion. The water industry commissioner has a responsibility to promote the interests of customers, and we have a responsibility to represent them. Sometimes it is quite difficult to place a dividing line between the two.
It does, and it throws up another one. If your remit were to be widened, would you be concerning yourselves with private water supplies, which are not the province of Scottish Water but which affect a great many people, particularly in my part of the world?
I understand the situation in your part of the world, where there are a significant number of private water supplies. That has bothered panels over the past year. We have been dealing mainly with current customers of Scottish Water, but there are other people who would like to be customers of Scottish Water, who are not in the same position.
We discussed the public benefit from the process and I have interacted with non-domestic water rates payers in the Highlands who feel particularly hard done by. Should we probe the possibility of including new ministerial powers in the bill that might help such people? There would have to be consultation on such powers before they could be included in the bill. Can you suggest specific solutions to the problem?
We start with a difficulty in that we try to represent the interests of all customers. It has become clear to us that the interests of the disadvantaged domestic customer can be markedly different from those of large, high-volume industries. The only answer that I can give is similar to the one that other witnesses have given: it is problematic to have the whole body of customers paying for support to other customers. The present system is far too complicated for people to understand and should be simplified.
I hoped that you might take that line, which seems to be becoming a theme.
The Scottish Consumer Council suggested that the water customer consultation panels and the proposed water industry commission should be required by statute to establish a memorandum of understanding. Would that be the best way of establishing the relationship between the panels and the commission, or would the measures in the bill be appropriate?
We came along very much as Johnnys-come-lately, long after the establishment of the water industry commissioner and Scottish Water. We have established a working relationship with the WIC: we not only discuss policy with him but we use his resources, because that is how things were set up. We had to grow into that role, which took a bit of time—sometimes a little longer than might have been ideal.
That is useful. Do you anticipate that issues will arise as a result of the replacement of the WIC with a board?
Not at all. The corporate dimension of the proposed water industry commission's activity would be enhanced by the fact that there would be a board rather than a single regulator. A lot of effective work by competent and committed people in the Scottish water industry goes unnoticed and the proposed corporate structure would enhance that.
That is useful. I have a follow-up question to Nora Radcliffe's first question about complaints. I want to tease out that issue, which has been raised by quite a few witnesses.
My understanding of the process is that—as with all customer complaints across various industries—the first line of complaint is to the organisation that gave rise to the service failure. The present law provides that someone can then go to the water industry commissioner. In practice, that means that the commissioner then goes to Scottish Water and checks to see whether it did things properly.
That is often what people want. If there has been a problem, you will not be able to magic it away. What is important is how the organisation deals with that problem in the context of subsequent issues that other people might raise.
Can I add a little about our experience? We were established at the time that the bills went out last year, when your and ministers' postbags were full of representations from business and domestic customers about the level of charges. We had considerable sympathy for the Scottish Water staff who were fielded to respond, because they were answering for Scottish Water when what was causing the bills was not Scottish Water but the system within which the charges had been set. There was public confusion when it was explained how the bills—particularly things like standing charges—were set. People apportioned blame and were really puzzled that the advice that the water industry commissioner had given to ministers was helping to arrive at the charging regime and that they were then expected to complain to the commissioner about bill charging. That gave rise to a lot of public confusion, so a system that produced a degree of independence and independent scrutiny would go a long way to building public confidence.
I can see that coming with the next set of charge changes and from all the representations that we have received on cross-subsidy. Nobody likes to pay bills, and they certainly do not like paying others' bills; if they think that they are paying others' bills, they will be even less happy. The minister might as well anticipate that issue, rather than deal with its aftermath. We will log that for future discussion.
What is the north west water customer consultation panel's experience on those issues?
Ian Smith has his finger on the button. Like me, you come from a rural area, as you said earlier—no, it was Rob Gibson who said that. We found that, after the imposition of the charging regime had run its course, there was a more subtle degree of concern in the remote areas, primarily about the lack of investment by Scottish Water in the infrastructure for housing and industrial premises. The story that was given was that Scottish Water did not have the money and the developer should pay. However, in a small development in a village, the developer might be building only two or three houses and might not be able to find the funds in their selling price to provide sewerage and water. As we have travelled round the north-west, the point has constantly been made to us that more investment is needed or else people will leave.
I have a couple of questions about the suggested new model of competition and the new framework for the water industry, whereby domestic customers will be dealt with by Scottish Water and industry will be dealt with differently. We have not covered those matters in depth, but you have some views on them and on the issue of prohibiting common carriage. You say that there is a need for
We are puzzled. The more evidence that we read from different people, the more confused we become, because there are many views. For example, there has been a challenge as to whether the Competition Act 1998 should apply—the Scottish Trades Union Congress evidence takes us down that road—and that challenge needs to be answered clearly so that people understand that fundamental point.
You have picked 2010 as an implementation date. Is that based on evidence?
It is a bit of convenient neatness. That date would sit alongside the first break point in the Q and S III programme.
I am concerned that the customer might have to foot extra charges in order for the competition regime to be brought in as quickly as is planned. At the moment, Scottish Water is committed fully to Q and S III. It will need staff to determine how the competition regime should be introduced and to introduce it. If it is introduced as quickly as is planned, I am concerned that prices will have to rise as a result.
We might have to ask the minister who will pay for the preparation for the potential competition process and whether Scottish Water will be expected to allocate the costs back to domestic or non-domestic customers.
I want to return to sustainable development, which your submission highlights. You describe the inconsistencies whereby Scottish Water has a statutory duty but the commission and the new-entrant companies will not. Given the fact that the commission will not be a policy-making body, how do you envisage that it would discharge duties in relation to sustainable development if they were included in the bill—which they are not?
I do not think that I can improve on the answer that Trisha McAuley gave you. I like to think that the commission will be composed of economic experts and perhaps customer service experts with an understanding of the water industry who are guided in their activities by principles of sustainable development, which are about environmental and social justice, following the lead that the Executive gives them. John Sawkins said that we do not want to see the commission getting into the nuts and bolts of leakage and testing on that, but we want there to be guiding principles on sustainability. If sustainability is not just going to be sloganised, it has to be taken to heart by everybody in the industry.
Do you see the monitoring of specific indicators as a role for the commission or is that too much nuts and bolts, in which case who would do it?
It would be desirable if there were self-monitoring for Scottish Water. Scottish ministers should be accountable to Parliament for sustainability in that public corporation. There has to be a dimension of ministerial reporting. We are actively involved with Scottish Water. One of our panel members participates in the working group in Scottish Water on sustainability. We might have an opportunity to measure to ensure that Scottish Water is pursuing sustainable development objectives, in a kind of ride-on role. I do not think that sustainability is the primary thing for the commission or the customer panels, but it is important that it is consistently built into thinking. One cannot compel the new-entrant companies; one can just expect that they follow the principles in their operations.
Someone needs to be in a position to set that as a clear framework, so that everyone is operating on the same level. We should not set higher standards for Scottish Water just because it is a public organisation and not apply the same principles to private companies.
Absolutely.
We need to find out whether the water industry commissioner is responsible for that matter and whether the requirement should be on the face of the bill. We have explored that issue with witnesses.
I do not have an answer for the committee. The issue remains to be tested.
That is a good point on which to end. Thank you for your advance preparation and for coming to speak to us today. Your evidence has been extremely useful.
Meeting suspended.
On resuming—
Our third set of witnesses has not yet arrived, so we will deal with the next two items on our agenda.