Scottish Water
The next item of business is a debate on motion S2M-4036, in the name of Rob Gibson, on Scottish Water.
This debate has to pin down why ministers assured us for months on end that Scottish Water was ready and able to meet the challenge of the quality and standards III exercise for 2006 to 2010. We were also assured that the regulators were in dialogue with Scottish Water and were ready to be auxiliary midwives to the revised business plan, but suddenly, in February, stories emerged that they had not signed it off and that Ross Finnie, who places great store by those regulators, had called in the Scottish Water chairman, Professor Alan Alexander, to explain. As a result, Professor Alexander decided to fall on his sword. Scottish Water domestic and business customers across the country are entitled to ask what will happen next and what will become of the Government's promises to deliver.
On 1 December, the First Minister said to John Swinney:
"We gave a commitment last year to review the strategic objectives of Scottish Water and the long-term investment plans, and we have done that. We set clear objectives that are on target."—[Official Report, 1 December 2005; c 21366.]
Disagreements that emerged in early February seemed to relate to the technical processes whereby each regulator signs off the Scottish Water delivery plan. Ample evidence shows that impatience in the Scottish Executive was forcing the pace. Rhona Brankin's letter of 1 February to each regulator reminded them that they all had to agree that the delivery plan should begin, as that would
"provide a clear means of measuring progress towards delivery of all the objectives."
Each regulator seemed to be working closely with Scottish Water. That was underscored by Colin McLaren, the drinking water quality regulator, who told Ms Brankin on 6 February:
"I had not seen SW's Delivery plan prior to its submission to the Executive on 30th January, although I have worked closely with Scottish water in recent weeks to agree exactly what needs to be delivered to meet the Minister's drinking water quality objectives."
Sir Ian Byatt's team also appeared to be working closely with Scottish Water personnel, but he found fault with Scottish Water's new plan. On 7 February, he noted:
"In a number of material elements the Delivery Plan fails".
He reflected the minister's impatience, saying that he was pleased that Mr Finnie's official would chair the proposed high-level group that was "planning an early meeting". He also caught the ministerial mood by noting that
"we were not encouraged by the tone of the document".
Was that, perhaps, to break the logjam? He also said:
"to ensure that your objectives are met it is essential to define and report on regular (measurable) milestones".
Unfortunately, bungling by officials in the Environment and Rural Affairs Department misled the regulators, who were asked to comment on an older draft of the new delivery plan than the one that was delivered to ministers. The waters were muddied while each party set to rights the actual position. I ask the minister whether that was deliberate.
Despite the previous close working between the regulators and Scottish Water, ministerial stewardship began to look a bit shaky. At that point, Mr Finnie brought the crisis to a head. Professor Alexander's rebuttal letter expressed surprise about many of the regulators' comments. Was the minister beginning to see problems with the delivery of the quality and standards II outcomes for 2002 to 2006 overlapping with the start date of Q and S III in April? Was the conclusion of Q and S III slipping beyond the 2010 completion date? Was the very structure that was forcing customers to pay around 80p in the pound for capital developments creating a new water tax, as commentators have alleged? Further, is the minister siphoning off borrowing consent from Scottish Water for other Scottish Executive purposes, thus adding to the crisis of delivery in relation to Q and S III?
Comments about the impact of delays in development constraints rain in from housing and business developers who are sick, tired and fed up of getting no definite dates for water infrastructure new starts. Given the small sums that were allocated by ministers to remove development constraints in the overall package, was Scottish Water fully to blame?
It is incumbent on ministers to set out how they will handle the sign-off of the 2006 to 2010 delivery plan. It is essential that customers get a clear picture of what will achieve ministerial objectives and what effects the current delay in agreeing them will have on the whole programme.
On 1 December, the First Minister said to John Swinney:
"The Water Industry Commission for Scotland has made it clear in its expert analysis that Scottish Water can deliver all the objectives with less-than-real-terms increases in water consumer charges in Scotland over the next few years … If the constraints and development plans change over time, the objectives will be reviewed. However, we need to get on with the process now."—[Official Report, 1 December 2005; c 21366.]
We are not getting on with the process, and we want to know why. It cannot be put any clearer than the First Minister put it then. Things were on track on 1 December. In mid-February, after Scottish Water submitted its new delivery plan, we were still told that Alan Alexander believed it
"to be wholly compliant with the Ministerial requirements".
By early February, while regulators such as the drinking water quality regulator were continuing to work with Scottish Water to achieve ministerial objectives by 2010, Ross Finnie had decided that the uncertainties raised by Scottish Water's rebuttals were the last thing he wanted to hear. They opened up too many assessments of risks and unforeseen realities, and questioned the £2.1 billion cap with a £50 million contingency that could still make the ministerial objectives go west.
In the Sunday Herald on 26 February, Alf Young noted that he was told by one Executive source:
"we don't mean it's a matter for negotiation."
Scottish Water was told that it had to deliver quickly, but we do not know how.
My colleagues will explore in detail the Executive's flawed water delivery model and poor stewardship. I will listen with interest to members who have lodged amendments, but we will get to the root of the matter if we get some honest answers from the minister.
I move,
That the Parliament notes that, despite assurances from ministers that Scottish Water's investment plans were on target, the Chairman of Scottish Water has resigned due to disagreements with ministers and Scottish Water has been required to produce another business plan; considers that these events highlight poor stewardship of the water industry by the Scottish Executive; expresses its concern over the impact of delays in investment in water and sewerage infrastructure on economic, environmental and social development in Scotland, and calls on the Executive to set out promptly what impact these events will have on delivering the ministerial objectives for the water industry in Scotland.
Any delay in the delivery of Scottish Water's plan for 2006 to 2010 is to be avoided as far as possible. However, let me make it absolutely clear where things went awry between what the First Minister said—correctly—on 1 December and what happened in February.
We were in a process whereby the objectives of Scottish ministers had been evaluated and costed by Scottish Water. It came up with a delivery plan, which then had to be sent to the economic regulator. That is quite proper for a body that is a public monopoly. As members are aware, the regulator's view was that the plan could be delivered for £1.5 billion less, without any deviation and while producing the same amounts to tackle development constraints, environmental quality and drinking water quality. The consequence for industrial and domestic consumers would be that average charges would increase by less than the rate of inflation.
Scottish Water was then required to respond to the regulator. At that point, on behalf of Scottish consumers, ministers made it clear to Scottish Water that we had to be satisfied not only that it was signing up to the economic cap, but that the plan would deliver the entire programme—including the work on development constraints and the improvements in environmental quality—at the right time, the right quality and the right price. We also made it clear to Scottish Water that it had to have the agreement of the regulator.
The minister brushed rather lightly past the First Minister's remarks of 1 December. My question to the First Minister was clear. I asked him to confirm that the dialogue between the Water Industry Commission for Scotland and Scottish Water about the £1 billion funding gap would not delay the process. It now looks as if it has delayed the process. The First Minister told me that everything was on target. I want a more detailed explanation of why the First Minister's statement has been air-brushed out of the record.
With all due respect, I have not air-brushed anything out of the record. Scottish Water had a simple choice: either it accepted the determination in full with no caveats and no equivocation, or it appealed to the Competition Commission. In accepting that, we set the caveat that I mentioned—namely, that the economic regulator had to be satisfied with Scottish Water's response. As Rob Gibson said in his opening remarks, the economic regulator said that the delivery plan did not meet its requirements in a number of material respects.
Why was the regulator involved in dialogue and debate about what has been described to me as a car park of proposals, where some of the proposals in the determination were sidelined to secure an agreement? That led to an impasse, and the regulator has now pulled the plug on the whole development plan. Why did that dialogue take place, given that ministers seem to have had a very different agenda?
In December, it was neither my wish nor the First Minister's wish to get to a point at which Scottish Water was unable to meet the regulator's requirements. Early in December, we had no indication that that was going to be the case. [Interruption.] I do not know how other members operate in business life, but I am content that it is perfectly appropriate for Scottish Water—in trying to respond to a heavy demand by the regulator to take £1.5 billion out of the programme—to have a dialogue with the regulator. That does not mean that in those discussions every aspect of the plan would be approved.
Scottish Water, led by its chairman, was adamant that it would deliver the plan in its entirety, but the regulator advised me that that was not the case, that there were caveats, and that certain material aspects of the plan meant that it might not be delivered. That put at risk the very delivery that John Swinney and his colleagues seek, not only in terms of quantity but in terms of price. Given those circumstances, it seems to me—contrary to what the SNP suggests—that it was good stewardship for me to insist that Scottish Water was unequivocal in its acceptance of the delivery plan. In the absence of such acceptance, we fundamentally disagreed with the chairman, and he decided to resign. I regret that, but it is a fact.
It is not in Mr Swinney's interests or in his constituents' interests for Scottish Water to seek to deviate from a determination by the economic regulator. That would not represent good management. It is a matter of regret, but we now have to move quickly to request a plan that will be delivered. If the SNP is satisfied that another course of action would not have resulted in increased prices, so be it.
You must finish now, minister.
There were doubts about Scottish Water's ability to deliver on development constraints, which is the very matter about which SNP members are concerned. As ministers, we were not prepared to take that risk, therefore we took the action that we took.
I move amendment S2M-4036.2, to leave out from ",despite" to end and insert:
"Scottish Water's draft business plan of April 2005 stated that achieving Scottish Ministers' objectives for 2006 to 2010 would require a capital investment programme of £3.7 billion and a doubling in customer charges; notes that the Water Industry Commission's determination of charges for 2006 to 2010 allowed Scottish Water a capital investment programme of £2.1 billion and charges rising by less than the rate of inflation to achieve the objectives; notes that Scottish Water accepted the determination but its plan demonstrating how it would deliver the objectives within the limits set by the determination was judged by the Executive, supported by the regulators, not to meet the requirements in a number of material aspects; notes that the Executive has required Scottish Water to produce a new plan which will command the confidence of Ministers and regulators, and considers these actions by the Executive to represent good stewardship of Scottish Water in the public and customer interest."
I welcome the opportunity that the SNP has presented to debate the future of Scottish Water. Rob Gibson's motion rightly highlights several problems with the organisation and the recent resignation of Professor Alan Alexander as chairman due to disagreements with ministers.
My amendment details some other difficulties with the nationalised water company. Scotland's business community has consistently complained about overcharging by Scottish Water. Scottish businesses pay much more than their counterparts south of the border. Scottish Water is also inefficient. Today, The Scotsman draws attention to the latest report from the Office of Water Services, which ranks Scottish Water below every one of the 22 privatised water companies south of the border.
The member mentioned the Ofwat report. Does he agree that Scottish Water is trying to do in eight years what other companies have tried to do in 15 or 20 years, so the comparison is poor?
Perhaps we should have started earlier, but I will come to that in a moment.
Scottish Water charges higher prices and provides a poorer service than its counterparts in England and Wales. Once again, there is independent confirmation of something that we in the Conservative party have been saying for years.
Most worrying of all for Scotland's economy is Scottish Water's failure to invest in infrastructure, which has led to development constraints throughout the country. Scotland's economic progress is being stifled by that lack of investment. It is a problem throughout the country. It is a problem in my region—Mid Scotland and Fife—and in the area where I live. As Mr Swinney will know, it is a problem in towns such as Blairgowrie, Coupar Angus and Alyth.
Will the member take an intervention?
I am sorry. I have only four minutes, so I do not have time to take another intervention.
In the towns that I mentioned, much-needed commercial and housing developments—including the construction of affordable housing—cannot proceed due to lack of infrastructure. That is a major economic and social problem.
There is much that is wrong with Scottish Water, and the SNP is right to raise concerns about it, but what is missing from the motion is the SNP's alternative. What does it intend to do about the problem, other than call on the Executive to set out promptly the impact that Alan Alexander's resignation will have on the delivery of ministerial objectives?
We on this side of the chamber are not so coy. I will be helpful to Mr Gibson and tell him what his motion should have said about the future of Scottish Water. He does not have to look too far to find the solution. On 21 November last year, he lodged a parliamentary motion to congratulate Glas Cymru—the company that owns Welsh Water—on retaining the position of joint top-performing private water and sewerage company in Wales and England. Welsh Water is a private company, albeit one that operates as a mutual, rather than with shareholders who draw a dividend.
It is precisely because Welsh Water is in the private sector—as are other water companies south of the border—that it is able to deliver high levels of investment, high-quality water and lower costs than Scottish Water. There is the solution: it is time to take Scottish Water out of the public sector and privatise it. That would solve Mr Gibson's problems for him.
Scottish Water has to appoint a new chairman. It is difficult to imagine that there will be a long queue of applicants for the job, given the difficulties that it has faced. Whoever comes in will be hampered by the public sector status of the organisation and the constraints on it, and they will face the interference of ministers. It was too much for Alan Alexander to cope with, and he walked away from the job. I am sure that the Executive will find some other mug to take on the position, but that will not solve the fundamental problem.
We need to open up Scottish Water to the market. We should not fear privatisation. It has delivered higher investment, better water quality and lower costs south of the border. It can do the same in Scotland.
Mr Gibson and the SNP have simply been too timid this morning. They should join us in the growing consensus in favour of privatising Scottish Water, which would remove at a stroke the problems that hamper economic growth and social development throughout the country.
I move amendment S2M-4036.1, to leave out from "and calls" to end and insert:
"further expresses concern that Scottish Water is failing to deliver an appropriate level of service to its customers; notes the concerns of the building community about Scottish Water's failure to allocate sufficient resources to remove development constraints; further notes the Executive's admission on 9 February 2005 that business customers have been overcharged £44 million a year for water; further notes that the introduction of surface water drainage charges based on the size of the property are to be introduced into the denationalised English water market on 1 April 2006 which will lead to significantly lower charges for small businesses in England than in Scotland, thereby reinforcing the present competitive disadvantage faced by Scots firms; further notes the comments of former Environment Minister, Sam Galbraith, that "We are slowly going broke and the only way to solve this is to reduce the public sector wage bill. Privatise water and, at a stroke, the bill is cut" (The Scotsman, 10 February 2005); believes that as long as Scottish Water remains a bureaucratic, nationalised monopoly it will struggle to adopt the private sector disciplines expected by the Executive and the Water Industry Commission, and therefore calls on the Executive to take its commitment to make economic growth its top priority seriously by creating a genuine market in water and privatising Scottish Water or adopting a "not for dividend" model such as Welsh Water."
I have almost given up blaming the Tories for what they did in the 18 years that they were in government, but in connection with the legacy of a long period of underinvestment in water and sewerage—
Will the member take an intervention?
Yes, if the member wants to explain why his party did it.
I suggest that Mr McNulty looks at the comments of the water industry commissioner, who said that the argument that there was underinvestment in Scotland during the period of the Conservative Government is without any basis in reality.
It depends on the comparisons that the commissioner was making.
I commend Alan Alexander on his period in office first in West of Scotland Water and then in Scottish Water. He had a considerable influence on improving and stepping up the water industry's capacity to meet the challenges that it was set. He was a long-standing advocate of retaining the water and sewerage industry in the public sector. It is a matter of considerable regret that he felt the need to resign.
As well as holding Alan Alexander in high regard, I hold Ross Finnie in high regard. Mr Finnie is perhaps not my favourite Liberal Democrat minister because, after yesterday, my affections might have to transfer to Tavish Scott, but he is a very competent minister. Some of the changes that have taken place in Scottish Water have been a product of Mr Finnie listening, not least to the Environment and Rural Development Committee and the Finance Committee, and adapting the systems of governance. The changes that were made to create the Water Industry Commission for Scotland, for example, have marked a significant step forward, as has the greater transparency that we have introduced into the financial arrangements.
Regrettably, however, this debate occurs at a time when we do not have all the information about what is to happen in the period from 2006 to 2010. There is a time for agreement on these issues. I hope that that agreement is forthcoming soon and that people in the Parliament, in business and throughout Scotland are clear about what they can expect from the implementation plan for achieving the targets set out by the Executive on the advice of the Water Industry Commission.
The targets are challenging. We recognise that, whatever Murdo Fraser says, the past pattern of underinvestment in the water industry requires us to move forward quickly. In my constituency, for example, a £120 million water treatment plant is being built and other major projects are taking place throughout Scotland, many of which are to deal with water quality and other quality issues.
The biggest challenge before us is how to address development constraints. I would like to hear in the minister's response some clarity about the priority that will be given to development constraints relative to other criteria in the implementation plan; the phasing for dealing with development constraints; the mechanism through which local authorities, private sector agencies and others can ensure that they have a timescale for dealing with development constraints; and whether the quantification of those constraints is sufficiently robust to allow clarity in the implementation model.
The minister needs to address those issues and, although he might not be able to do that fully today, I hope that he will do so clearly in the implementation plan for the coming period.
We are very short of time so I ask members to stick strictly to the time limits.
I want to take a wider look at the financial and operational performance of Scottish Water. Who is broadly content with that performance now that Professor Alexander has gone? The First Minister? The Minister for Environment and Rural Development? Sir Ian Byatt? We must presume so, but many more people are not content, including Ofwat, the signatories to the Finance Committee's minority report in 2004, many people throughout the country and, importantly, the formidable, public-spirited Jim and Margaret Cuthbert, who have been on the case since 2003. They recently said:
"The tragedy of the financial mismanagement of the water industry by the Scottish Executive since 2002 has been that it has converted a long-term potential problem (how to fund Scottish Water in the long term under the financial constraints imposed by Barnett) into an immediate crisis of overcharging, inadequate capital investment, and imminent non-sustainability."
Instinctively, many people in the country agree with that. If we return to the minority report of 2004, we see that it noted the reasons why. English water was privatised and, as the report went on to prove, in the absence of subsequent Barnett consequentials, the water industry commissioner, the Scottish Executive and Scottish Water overcharged water users—mainly business users—created many development bottlenecks and installed systems that were not fit for purpose in order to save money and reduce borrowings. That resulted in situations such as that in Campbeltown, where false economies led to there being odours, debris in the loch, flooding, damage to local businesses and expensive retrospective £8 million fixes.
The minority report also exposed a pattern of obfuscation and deceit on the part of the Executive and the WIC, attempting to confuse and make acceptable the unacceptable suggestion that the strategy was justified because it complied with resource accounting and budgeting; because it was in line with free cash ratios elsewhere and regulatory current value; or because the Treasury said that it was okay. Yet all those Executive and WIC defences of unproven assertion and highly technical financial smokescreens have been systematically and logically demolished and dismissed by the Cuthberts.
Now we have the latest technique—not talking.
Will the member simply confirm that that "systematic demolition" was supported only by him and by one other member of the committee and that it was not just a minority but a very small minority that shared that view?
Two other members supported that view. That just proves the ineffectiveness of committee investigations, which was said in the previous debate.
Professor Alexander is in purdah. Sir Ian Byatt is not talking about the 2002 to 2006 strategic review. He wants to apply business criteria, but he does not do the logical thing of emptying the skeletons from the cupboard and starting from a fresh base. Yet the burden on current water charge payers is enormous. In direct financial terms, in the period from 2002 to 2005, 86.6p of every pound of capital expenditure has been paid by water charge payers. Indeed, over the whole period to 2014, 75.5p in the pound will be paid by them. The situation is so bad that I must ask whether the Executive is perversely and deliberately attempting to prove that Scotland cannot balance the competing objectives of maximising revenue and maximising competitiveness.
The strategy, which was originally designed to drive down Scottish Water debt year on year, frees up cash and borrowing for the Executive; boosts Scottish Water's asset value; creates a revenue stream that meets the cash-cow criteria; makes Scottish Water's underperformance a headache for Government, councils, developers and communities; and therefore tees people up to be persuaded that the organisation should be privatised and got rid of, while at the same time generating a queue of potential buyers.
We reject the current financial management and privatisation, because they are not in the public interest. Scotland does not want a highly profitable water company that continues to impede the country's development and the profitability of every other Scottish business.
I support the minister's robust statement of Scottish Water's position. However, introducing a local element into the debate, I think that the majority of people still believe that their local council is responsible for water. After all, the council sends out the water bill and remains the organisation that the public go to if there is a burst pipe or a problem with sewage.
I realise that that does not match the reality of the situation, in which Scottish Water operates through the Scottish Executive and has a telephone helpline that anyone can call in an emergency. However, people still think that the council is responsible for water, which is why many, if not all, councillors include dealing with Scottish Water as part of their workload. For example, last month, in my capacity as a councillor, I had six Scottish Water issues raised directly with me.
Now that we have established that the local council, not the Executive, is responsible for this mess, will Mr Arbuckle tell us what he is going to do about it?
As with Fergus Ewing during the statement on the bridges review, Mr Morgan's brain runs ahead of what he is saying. I thank him for his intervention and he will get a reply to his question soon enough.
I know that in every case that was raised with me I could easily have handed over the emergency helpline number and walked away from the matter. However, one problem that councillors have faced in dealing with Scottish Water issues is the collapse in local answerability. It is very difficult to meet someone—indeed, anyone—in Scottish Water who will deal with a problem. Most of the time, one simply lobs the issue into the system and hopes that it will be addressed.
I do not denigrate the people who work in Scottish Water. They are doing a difficult job to the best of their ability in a system that does not provide as much contact with the public and their directly elected representatives as it should. I urge the minister—and here is my answer to Mr Morgan—to consider including in Scottish Water's plan systems that allow for more transparency. If, in 14 months' time, councillors are to receive increased rewards for their efforts, it is only sensible that their current informal contacts with Scottish Water are made stronger. That would restore and improve an element of local democracy that has recently been allowed to wither.
The Water Environment and Water Services (Scotland) Act 2003 has been described as the most significant piece of environmental legislation to be enacted in the country in the past 40 years and seemed to put us for once at the forefront of European environmental legislation. However, since then, such tight limits have been imposed on the Scottish Environment Protection Agency's budget that we must question whether it is able to deliver on certain requirements under the act. So much for the Parliament and Scotland leading the way in the implementation of European freshwater legislation.
Now it appears to be Scottish Water's turn. In time, the questions and mystery surrounding Alan Alexander's resignation will be clarified—or, more likely, forgotten—but the need to tackle the many separate pressing issues facing Scotland's water will remain. Indeed, last week, Scottish Water's spokesperson stressed:
"Changing the plan does not change what we have to deliver, it just changes when we deliver and the way we deliver."
On the question of investment, I am still concerned that the Water Industry Commission's assessment of the massive efficiency savings that Scottish Water could make could threaten the organisation's operational efficacy instead of delivering improved value for money. I am aware that the commission's remit is quite narrow and is focused on costs. However, I believe that that is exactly where ministers could take a stronger stance on the commission's role in ensuring that Scottish Water is able to deliver on sustainable development aspects. In that respect, I am also concerned about benchmarking Scottish Water's performance with that of English water companies, because they are not on the same trajectory and work in very different physical environments from those in which Scottish Water works.
Because the investment programme is so massive, we must rigorously pursue efficiency gains and value for money. However, at the same time, we must ensure that we do not underinvest and confuse cutting costs with cutting corners. If we fail to meet the environmental requirements of Q and S III, we might be penalised by heavy fines from the European Court of Justice. We must spend our money not on such fines but on improving our water infrastructure.
I know that Scottish Water has been criticised for its financial management—somewhat unjustly, I feel, as a result of benchmarking with English and Welsh companies—and that it is under massive pressure from all sides to extend connectivity in new housing developments. It is essential that the development imperative does not override environmental and other considerations. We must take account of both.
I intend to be brief. In closing, I repeat that I do not know the whys and wherefores of Alan Alexander's resignation but, to paraphrase part of the motion, I believe that we need strong stewardship of the industry and strong leadership by Government. Scottish Water faces a tough task and, although it has been criticised—and no doubt will be criticised again—it is ultimately our water industry. It behoves the ministers, all members in the chamber and the regulators to support Scottish Water in achieving its objectives.
The future of Scottish Water and its ability to deliver on ministerial objectives are crucial not only to all domestic customers but to the business community. We must ensure that constraints on our public water and sewerage infrastructure do not endanger economic growth and development.
We have heard before, and again this morning, that a lack of appropriate water and sewerage infrastructure has severely curtailed essential development in parts of Scotland. I share some of the concerns that have been expressed. Perhaps, in summing up, the Deputy Minister for Environment and Rural Affairs will clarify how Scottish Water's future capital work will begin to address that problem. However, ensuring that that capital programme works is not solely the responsibility of Scottish Water. Our local authorities must work much more effectively with the organisation to find out what further infrastructure might be needed and how that will be achieved within our planning system.
In today's debate, we might be in danger of overlooking the huge advances that have been made in our water and sewerage infrastructure over the past decade. I do not necessarily want to take a leaf out of Stewart Stevenson's book of curricula vitae but, when I was a student, I worked for two successive summers as a temporary sewerman. It was not the most pleasant of jobs, but it was interesting nonetheless. For example, in those 26 weeks, I learned just how inadequate our sewerage system was, how much investment was needed and how little the system's custodians had spent on it in the 1960s, 1970s and early 1980s.
We need a system that is fit for purpose. It was not only the bathing water quality regulations and the drinking water quality regulations but the demand for cleaner beaches that eventually began the drive for greater investment in something that had been overlooked for so long. That investment has continued under Scottish Water and the organisations that preceded it. We now have a four-year capital investment programme of more than £2 billion, a commitment that customer charges in Scotland will not rise above the rate of inflation and the Executive's belief that its objectives will be delivered. That is all being delivered by our publicly owned Scottish Water.
I believe that Scottish Water is delivering for a better Scotland—although perhaps not as quickly as some of us would like—and is continuing to make the improvements that were not made in the past. I reject the Tories' call, yet again, for a privatised Scottish Water and I also reject their amendment's implicit attack on Scottish Water workers, who provide an essential service, sometimes in the most appalling, unpleasant and unsanitary conditions.
For the guidance of members, we are being advised at the moment to keep the press gallery and the area towards the rear of the Conservative benches clear. That area is clear because I have just moved somebody from it. I shall update members on the position as we get further information. I call Derek Brownlee.
Thank you for moving me, Presiding Officer.
This is a timely debate. I was interested in what Murdo Fraser said about the Ofwat paper, which I am sure all members will have read with interest. I would like to mention some highlights from that paper—if "highlight" is the appropriate term. On page 58, the Ofwat comparison paper states:
"The water and sewerage companies in England and Wales appear … more cost-efficient than Scottish Water."
On page 62, it states:
"Scottish Water has a higher proportion of its underground assets in a poor or very poor condition than the England and Wales water and sewerage company average."
On page 31, it states:
"all England and Wales water and sewerage companies performed significantly better than Scottish Water."
On the points that have been raised about investment, Scottish Water is quoted in The Scotsman today as saying, in defence of its position:
"In England and Wales they have had 15 years of major investment, whereas this report measures Scotland only two years into a £1.8 billion programme."
I am not entirely clear whether the argument is that, despite the past nine years of Labour Government and subsequent Lib-Lab Administration in Edinburgh, it is only for the past two years that Scottish Water considers itself to have been adequately funded, but the comparison with England and Wales is valid. Many of us, particularly those who represent the south of the country, have constituents with businesses that operate in Scotland and in England. Trying to explain to them why the cost base of Scottish Water is significantly higher than that of the water companies in the north of England is a difficult thing to do. There are two issues to explain: the underlying cost base; and the allocation and calculation of water rates. The comparison with England and Wales is valid and is something that we need to examine closely.
Jim Mather touched on the report from the Cuthberts, which was published in the Fraser of Allander Institute's "Quarterly Economic Commentary" in February. I am sure that members will have read that report too with interest. I was not a member of the Finance Committee—or even of the Parliament—when the minority report to which Jim Mather referred was published, but it seems to me that there is a fundamental issue to be addressed. We are talking about Scottish Water appearing to be less efficient than other water companies and asking questions about its cost base, but the minister seemed to cast some doubt on the accuracy of the conclusions in the Cuthberts' report. We are entitled to understand in a little bit more detail why that is.
The February report stated that, between 2002 and 2010, £960 million could be passed on in charges to the consumers of water in Scotland. That is a major sum of money and, as Murdo Fraser said, if Scottish Water were in the private sector and able to borrow freely, that figure could be met by water consumers over the period for which the investment would last, rather than during the narrow period over which it appears that it is being drawn out. It is not, as some people might think, about ideology. It is about getting a fair deal for water consumers.
I notice that today's edition of The Scotsman also quotes Scottish Water as saying that 95 per cent of its customers are satisfied with its performance. I wonder whether 95 per cent of its business customers are satisfied. Given the record of underperformance that we have seen in Scottish Water, not just in recent years but over the piece, I wonder whether the minister really expects us to believe today that all the promises of improvements to come are credible and sufficient. We need to look much more fundamentally at the structure and cost base of Scottish Water. If we do not, we are condemning businesses—and, in future, consumers and taxpayers—to a significantly higher bill than we need to.
Nobody would disagree that water and sewerage services are fundamentally important or that, over decades, the water industry suffered from underinvestment in infrastructure maintenance and development. That is not in doubt. We have passed three water acts to set up Scottish Water and the framework within which it operates. Throughout that legislation, we kept faith with the Scottish people, who did not and do not want a privatised water industry. Privatisation is neither an option nor an answer.
The issue here and now is about how the objectives set by Scottish ministers for 2006 to 2010 will be delivered. Those issues include improved customer service, further improvements in drinking water quality, improved compliance with environmental standards and support for new housing and economic development. Customers, both domestic and business, want those improvements to be delivered; they also want to see how they will be delivered. The debate has usefully put on record the sequence of events in the past few weeks. A number of members have mentioned the lack of investment in the Q and S II regime, which led to development constraints not being addressed. That has been recognised and addressed in Q and S III. As we move forward, that balance between maintenance and development will shift considerably, as people want it to do.
After listening to Jim Mather, I think that I would be inclined to offer him the job of chairman of Scottish Water. He seems to know exactly what we should do, how we should do it and how we can solve all Scottish Water's problems. That might be an interesting rollercoaster ride.
Andrew Arbuckle highlighted areas in which Scottish Water's customer service could and should be improved. That has been a matter of on-going concern to those of us who are dealing with casework. Scottish Water probably recognises that. It is faced with enormous problems in bringing the water industry up to modern standards from a very low base, and perhaps customer service has not had the priority that it might have been accorded. I hope that that will change.
I offer Eleanor Scott the reassurance that, when we were putting in place the framework for Scottish Water, we were extremely careful to ensure that environmental issues would be given their proper place alongside social and economic issues.
Scott Barrie made an important point about local authorities and Scottish Water having to collaborate and work closely together to deliver efficient and effective water services that will integrate with local planning and with housing and economic development. He also usefully reminded us that enormous progress has been made.
The focus now must be on producing a delivery plan for 2006 to 2010 that achieves ministerial objectives within the financial limits set by the Water Industry Commission, to the environmental standards required by SEPA and the drinking water quality regulator.
It is interesting that we have reached this apparent crisis in the water industry, given that many of the things that the Conservative party said during the passage of previous water legislation may well be coming home to roost.
There is a certain irony in the fact that, as we on this side of the chamber sat under a beam that was dangling from the roof, the Presiding Officer suggested that efforts were being made to clear this corner of the chamber—many SNP members must have thought that that is what the electorate has been trying to do for a number of years.
The debate takes us back to a period in Scotland's recent political history that we have to revisit occasionally, and I am pleased to revisit it again today. I refer to the period during the early 1990s when some decisions were made—perhaps not for the long-term good—based on the political pressures of the day. At the time, the dynamic and productive Conservative Government was hampered in its progress towards the provision of an efficient Scottish water industry by the efforts of people such as Des McNulty, who put in huge efforts to prevent the privatisation of Scottish Water, which would have used a similar model to that which is being used in the south. It is that failure—a failure that I freely admit to—of the Conservative Government to press home what would have been a sensible policy that resulted in the situation in which we find ourselves today.
Will Alex Johnstone take an intervention?
No, I cannot take an intervention.
The truth is that the water industry in Scotland, influenced by the many decisions made by the Scottish Executive, is now a cumbersome, nationalised organisation that is unable to respond to the pressures of the day. The fact that Q and S II did not contain any commitments on development constraints and the struggle to include that particular problem within Q and S III are clear examples of how difficult it is to steer such a huge organisation.
Many accusations have been made during the debate, not all of which I will be able to respond to directly. It is clear that there is once again a need for change in the Scottish water industry. The minister expects Scottish Water to match private sector performance, but to do so within a public sector model. The cumbersome regulatory regime that has been made necessary by the decision to keep the industry in the public sector, which I believe was made strictly on political grounds, has left us with the water industry that we have today. Members such as Jim Mather quoted extensively from the Cuthberts' conclusions, but he failed to mention that they also believe that the privatisation of Scottish Water is now inevitable.
Eleanor Scott said that we need strong leadership and centralised control within the water industry. I suggest that we have seen a clear example of how supposed strong leadership can result in inappropriate control.
We heard clear evidence from Scott Barrie that the political problems that surround Scottish Water are as strong as ever they were. He seemed to suggest that the Scottish people want public ownership of Scottish Water at any price for political rather than practical reasons. Far too many of us in Scotland have heard from businesses that have suffered as a direct result of the cost of the supply of water. We heard from Derek Brownlee that we should not be talking about ideology. This is all about economic performance, and we have seen a water industry that cannot provide that performance.
The structure of the industry has resulted in a situation in which it is all too easy, given that Scottish Water is an arm's-length organisation, for the minister to take the credit and for Scottish Water to take the blame. As a result, the resignation of Alan Alexander was inevitable. The minister should commit himself to reconsideration of the position that he has taken in recent years.
Our priority is to find an interim chair who can lead Scottish Water into the next phase of its development and ensure that it has a robust delivery plan for the business. Ministers recognise members' concerns that the time required to do that could hold back Scottish Water from making progress on issues such as development constraints. That is why we are moving swiftly to replace Alan Alexander.
I will address as many of the issues that members raised as I can in five minutes. Several members raised the issue of development constraints, about which Des McNulty asked some detailed questions, and I will try to respond to them.
We recognise the important role that Scottish Water plays in economic and other development. Where current infrastructure capacity is constraining communities, we are determined that those constraints should be overcome. One of the key tests of the delivery plan will be its attitude to alleviating development constraints.
Scottish Water, working within the delivery priorities that we set it, will work directly with local authority partners and others to anticipate future development needs and deliver new strategic capacity in response to those needs.
Scottish Water must produce an annual strategic capacity report, which will set out for the first time not only where strategic capacity exists and where it is constrained but its investment plans to address those constraints. Scottish Water will publish the first report by 1 April, and will publish reports annually thereafter. We believe that the publication of those reports will bring greater clarity and certainty to all parties. We have also required the establishment of a joint protocol between Scottish Water and SEPA to maximise the available infrastructure capacity across the country.
I will address the allegations made by Jim Mather and others. Jim Mather has yet again repeated the Cuthberts' suggestion that the Executive should lend Scottish Water more money. We believe that doing so would not be sustainable; such an approach would mean that Scottish Water would keep adding to its debt without adding to the value of the infrastructure, and would lead to higher charges, with future customers paying for the service that today's customers receive.
The Water Industry Commission is the expert body tasked by Parliament with the economic regulation of Scottish Water. That is the model that Parliament agreed to. The commission is under a legal duty to decide how much funding—including customer charges and borrowing from the Executive—Scottish Water requires to deliver the objectives that ministers have set.
I ask the minister a very simple question. Does she think that it is reasonable that, from 2002 to 2014, of every pound of capital expenditure, water charge payers will pay 75.5p and that, as a result, Scottish Water has a burgeoning corporation tax liability? Is that reasonable and prudent?
I do not agree with that analysis. The Finance Committee looked into the matter at the end of 2003 and considered all the evidence, including that from the Cuthberts. It concluded that the financial sustainability of the industry is key, that the Cuthberts' allegations were wrong and that robust and transparent economic regulation has a crucial role to play in ensuring that Scottish Water becomes more efficient. If the choice is between the Water Industry Commission and the Finance Committee on the one hand and the Cuthberts on the other, I know which source I would choose.
It has been suggested that the public sector model is not working, and the Conservatives have said that we should privatise the water industry; we fundamentally disagree. The Conservatives have suggested that Scottish Water in its current form cannot be sustainable and efficient; we believe that that is nonsense.
In its first four years, Scottish Water has saved customers £3 million a week. It is concluding delivery of a capital investment programme of £1.8 billion, which has improved drinking water for customers and has contributed to a cleaner water environment. Despite the concerns that we have heard about development constraints, Scottish Water last year enabled more than 20,000 new homes to connect to the public system.
Looking forward, Scottish Water's average household charge in 2006-07 will be £287, compared with £294 in England and Wales. That means that our charges will rise by 2 per cent, including inflation, whereas those in England and Wales will rise by 5.5 per cent, including inflation. Those charges will fund one of the largest ever investment programmes in the UK water industry. That programme will raise standards and provide new capacity.
The decisions that we have had to take recently have not been easy, but they have been necessary in the long-term interests of Scottish Water and the customers and communities that it serves. Failure to take those decisions now would have put at risk the delivery of the higher standards and increased capacity that we want. We were not prepared to take that risk. What is more, had we done so members would properly have criticised us. That is why the Executive's amendment to Rob Gibson's motion should be supported.
Not for the first time, I wish that Nora Radcliffe was on the Government front bench. If that were the case, she could enforce her suggestion that Jim Mather should be the chairman of Scottish Water. He could give it the decisive leadership that it requires. I am sure that he could manage to do that and sustain his responsibilities in Parliament as a first-class representative of the Highlands and Islands.
Why am I concerned about the issue and why have I welcomed the opportunity to debate it? I will give the minister a number of reasons why I am concerned. There are currently development constraints in my constituency in the village of Meigle and the towns of Alyth, Coupar Angus, Aberfeldy, Ballinluig, Blair Atholl, Dunkeld, Balbeggie, Bankfoot, Guildtown, Wolfhill, Kirriemuir, Maryton, Westmuir and Forfar. I will not mention the small villages and settlements that are also affected by development constraints—about 40 per cent of my constituency cannot sustain development because of development constraints. That is why I have pursued the issue so assiduously and why I asked the First Minister, on 1 December, what the consequences were of a £1 billion shortfall in what the Water Industry Commission said was the price tag on Scottish Water's proposals to deliver the ministerial objectives. On 1 December, the First Minister stated:
"We set clear objectives that are on target."
Here we are on 2 March and we are not on target. Scottish Water has neither a chairman nor a credible business plan for it to implement in the next four years.
My understanding is that the next business plan is to be submitted to the Government for agreement on 1 April. That is when the investment plan is supposed to be implemented—or when its implementation is supposed to start. If a delay in the implementation of the plan is in prospect, what hope does that give to my constituents who want to undertake legitimate developments in their communities?
I return to the fact that the First Minister gave me an assurance on 1 December that the process was on target and on track. Several months later, we find out that that is far from the case. I plead with ministers to listen to members when we raise local issues about which we feel very concerned. When we do so, as MSPs, we are entitled to be given decent, straight and dependable answers. The First Minister's answer on 1 December could never be accused of that.
Mr Swinney and I will not agree on the matter, but I ask him to accept that the First Minister had no way of knowing on 1 December that Scottish Water's delivery plan would be found by its economic regulator not to meet its requirements in a number of material respects. Given the dialogue that was taking place between all the parties, there was no way that the First Minister could have anticipated that.
Instead of giving the stupid and nonsensical answer that he gave me on 1 December, the First Minister should have told the Parliament just that. If he had done so, I would not have objected. He did not do that; he gave me an answer in which he said:
"We set clear objectives that are on target."—[Official Report, 1 December 2005; c 21366.]
If the First Minister wants to be held in high regard in the Parliament, he should come to the chamber and give members proper answers—as the Minister for Environment and Rural Development has just done—and not the sort of rubbish that he gave us on 1 December, the object of which was to placate MSPs and brush aside the news agenda.
In today's debate, the minister tried to have it both ways. He said—and he has just repeated—that there was no way that the First Minister could have known on 1 December that the Water Industry Commission would find Scottish Water's plan so wanting. If I accept that—let us say for a moment that I do—why has the Water Industry Commission been involved in a negotiation with Scottish Water over the past few months, during which projects have been delayed or have been accepted only because people have said, "Well, we can delay this one but not that one". That was being done to ensure that a credible package would come forward. Perhaps the chairman of the Water Industry Commission knew that the determination that he delivered on 30 November could not be sustained.
If the view of the Water Industry Commission is the one that should prevail, why did not the Government simply enforce it on 30 November? That would have avoided the hiatus of the past number of weeks in which we have seen such slippage in the Scottish Water programme.
Will the member take an intervention?
In a moment.
The Government tells us that economic growth is its top priority, yet 40 per cent of settlements in my constituency alone cannot be developed because of development constraints that are now subject to yet further delay.
In her winding-up speech, the deputy minister said that the Government was now on top of the situation. She said that it was undertaking a strategic assessment, the first report of which would be published in a couple of months' time. How many times does a member have to question the Executive on an issue in the Parliament before it wakes up to the fact that there is a massive problem out there? The most generous description of the minister and deputy minister's response to date is that it has been tardy.
The member seems fundamentally to misunderstand the regulatory process that Parliament put in place.
Of course discussions between Scottish Water and the Water Industry Commission were taking place—they were taking place to allow Scottish Water to decide whether it would accept the Water Industry Commission's final determination or go to the Competition Commission. Scottish Water agreed with the Water Industry Commission's final determination and therefore decided not to go to the Competition Commission.
If the minister were to consider how the dialogue looks from my perspective, she would see that the Water Industry Commission was in dialogue with Scottish Water to try to come up with a flexible fix to a problem that could not, in the end, be sorted out. When the minister asked the hard question, the Water Industry Commission had to retreat to the position that it took in its determination of 30 November, which is a position that it was negotiating away with Scottish Water.
In his speech, Des McNulty said:
"There is a time for agreement on these issues."
Of course there is. The investment plans are due to start on 1 April 2006, yet a credible business plan is not in place. If that is not evidence of the Scottish Executive's poor stewardship of the water industry and of the failure of our present regulatory system, I do not know what evidence members require to prove our point.
There is some conflicting intelligence on what we should do at this point about the problem that occurred earlier with the chamber roof. In order for the situation to be resolved, there will be a suspension.
Meeting closed at 11:40.