Scottish Water
The next item of business is a statement by Lewis Macdonald on Scottish Water's objectives. The minister will take questions at the end of his statement, so there should be no interventions.
Earlier today—indeed, only some 45 minutes ago—the Parliament completed consideration of the Water Services etc (Scotland) Bill. The bill gives clear powers to ministers to set Scottish Water's objectives and to determine the principles that are to be applied in setting charges. It also establishes a water industry commission with a new duty to set limits on water charges. Those limits must comply with the principles on charging that ministers set and provide Scottish Water with sufficient charge income to meet its objectives and to deliver its services at the lowest overall reasonable cost.
Subject to the bill's enactment, the commission will be established later this year and will determine charge limits for the period 2006-10. Today, I am publishing our objectives for Scottish Water's investment programme for 2006-14 and the principles of charging that are to apply from 2006 to 2010. Those objectives and principles are the result of two years' work and respond to concerns about protecting water quality, dealing with sewage flooding and odour from treatment works, addressing constraints on new development and ensuring that charges are stable, fair and affordable.
They also reflect the water industry commissioner's work to date on the strategic review of charges. The commissioner has stressed that customers should be asked to pay only for investment that can be delivered efficiently. He has advised that Scottish Water should be capable of delivering a programme as large as any that is delivered by any other water company in Britain without compromising efficiency and without average charges having to go up by more than the expected rate of inflation between 2006 and 2010. We have set objectives and principles of charging that take that advice into account, that address what we have learned about customer and stakeholder priorities and that apply the principles of sustainable development.
In guiding Scottish Water's investment programme, we have set the following objectives: to achieve the maximum affordable improvements in public health and environmental protection standards; to support housing and economic growth throughout Scotland through investment in new infrastructure capacity; and to ensure that charges are affordable, stable across the period and sustainable.
To ensure that we get as much as possible by way of affordable improvements in public health and the environment, we will ask the water industry commission to identify, as part of the strategic review of charges, the largest capital programme for Scottish Water that would be consistent with efficient delivery and stable prices.
We have split our investment objectives for 2006-14 into two categories. First, there are essential objectives, which Scottish Water must fulfil. They are: to improve the quality of 530km of rivers and coastal waters; to improve the quality of drinking water for 1.5 million people throughout Scotland; to tackle constraints on new development by allowing an estimated 120,000 new homes and more than 4,000 hectares of land for commercial development to be connected to the public networks; to take action on odour from 35 waste water treatment works with the aim that they will all conform to the statutory code of practice on sewerage nuisance that we intend to introduce under the Water Services etc (Scotland) Bill; and to remove more than 1,100 homes from the risk of sewage flooding.
Secondly, there are desirable objectives. We will ask the commission to determine how many of the desirable objectives can also be delivered without compromising our goals of efficiency and stable charges in accordance with the priorities that we have set. Those priorities are: improvements in the water quality of more of our rivers and coastal waters; further reductions in the risk associated with lead in drinking water; improvements in water pressure for almost 6,000 properties; and improved standards of service in areas of poorer asset performance.
All the objectives that I have just mentioned are important, but I will say a little more about tackling development constraints. Our consultation proposed that, where new development requires additional local capacity, the cost of providing it should be met by the developer, and it should be for Scottish Water to remove constraints on development caused by a lack of capacity at a strategic level. That approach was widely supported and I confirm today that it will be applied from 2006, striking the right balance and ensuring that both the public purse and the private developer pay their proper share to enable new development to happen.
Having set out our investment objectives, I want to set out how the costs of meeting them will be shared among Scottish Water's customers. I confirm the principle of harmonised charges. Customers in any given group will continue to pay the same rate for the same service, wherever they are in the country. That goes a long way towards making charges affordable for households and businesses in more remote and inaccessible areas.
We have paid careful attention to concerns about the affordability of water charges for people on low incomes. We will maintain the 25 per cent discount on charges that single adult households currently receive, and we will help low-income families by introducing a new 25 per cent discount on charges for households with two or more adults that receive council tax benefit. The new discount will be introduced on 1 April next year, and its cost will be met by the abolition of the discount on water charges that is currently available to the owners of second homes.
We will make changes to how businesses pay for their water and sewerage services. We commissioned independent research into claims that non-domestic customers are paying more than their fair share of Scottish Water's costs. That research has found that there is an imbalance of around £44 million a year. It would not be in the interests of Scotland's long-term economic growth and prosperity for that imbalance to continue. Therefore, we will require the water industry commission to set charges for 2006-10 in such a way as to reduce that imbalance in the manner that is calculated best to minimise the impact on household charges.
The water industry commissioner has estimated that that can be done in such as way as to keep average household charges pegged to inflation, while average business charges will rise at a rate below the rate of inflation over a four-year period. That rebalancing exercise will bring the £44 million of excess charges on business to an end, without unreasonably penalising anyone else.
Over and above those changes, we intend to consult business on the introduction of more widespread metering and a more equitable approach to surface water drainage. Our aim is to introduce a fairer approach in those areas from 2010.
So far, I have concentrated on how the customer will contribute to the cost of water services. The taxpayer will also make a contribution by providing public funds for investment up to a total of £200 million a year in each of the years from 2006 to 2010. Up to £182 million of that annual funding will be available to Scottish Water in the form of lending by the Scottish Executive. The level of that lending will be subject to the water industry commission's assessment of how much is required to fund Scottish Water's capital programme in a sustainable manner. It is important that bills for today's customers are not kept artificially low by bequeathing an unreasonable burden of debt and servicing costs to future generations. In addition to that lending, we will make available a total of £14 million per year for housing, the details of which will be announced in due course by the Minister for Communities.
The investment objectives published today are challenging, but they are achievable. The programme of investment that I have outlined today bears comparison with the most ambitious programmes yet undertaken south of the border. While average charges in England and Wales will rise by more than 20 per cent in real terms between now and 2010, average charges in Scotland will not rise in real terms at all.
The Scottish ministers proposed—and the Scottish Parliament agreed to—the creation of Scottish Water three years ago. Today's announcements and the plans that we have presented show that that was the right decision. Those who work for and who regulate our publicly owned water business here in Scotland have achieved a great deal in the past three years. By delivering the objectives that I have outlined today, they will achieve a great deal more in the future.
A considerable number of members want to ask a question. I ask them to stick to a question, with no preamble.
I welcome the minister's announcement on development constraints. What assurances will he give us that the distribution of additional capacity for 120,000 homes around the country will reflect the needs of every single part of Scotland, both rural and urban?
I assure John Swinney that the figures that I have published today are based on our best estimates in conjunction with the work over the past two years of our partners, the quality and standards III board, which considered that question among others. With reference to the national planning framework and other documents, we believe that our figures show the kind of quantum that we need to address.
However, the principle is more important than the estimate. The principle that we are establishing today is that Scottish Water will meet the development requirements at a strategic level over the period. We estimate that 120,000 homes and 4,000 hectares of commercial and industrial land will be needed. If Scotland's population increases by more than we expect it to and if Scotland's economy grows even faster than we expect it to, we will revise our estimates.
Will the minister clarify the process of co-ordinating new investment through the land-use planning system? How will the line be drawn between strategic and local investment? Does he believe that Scottish Water is funded sufficiently to engage in the process and to carry out the additional background research to ensure that we get the right investment throughout the country?
Those are important points and I will address the last one first. The answer to the question of which elements of infrastructure development will be met by developers and which by Scottish Water is in part technical and relates to the distinction between part 3 costs, which will be met by the developer, and part 4 costs, which will be met by Scottish Water. In essence, part 4 costs are for strategic provisions, such as new water treatment works and waste water treatment works. Part 3 costs can include the cost of sewer mains to connect a new development to the water and waste water treatment works.
The principle that I have established is that the developer will pay part 3 costs, but Scottish Water will calculate the income that it expects to receive over the first 12 years of the new development and will subtract that from the cost that it expects the developer to pay. Therefore, there will be a Scottish Water contribution to the part 3 costs, but it will relate to the income that Scottish Water expects to receive as a result of the new development being put in place.
On engagement with the land-use planning system, which is what Sarah Boyack's other question was about, we are encouraging Scottish Water to engage more proactively in the planning process. Part of the detailed background to today's announcement is a requirement for Scottish Water to produce an annual strategic network capacity and development plan, which will allow both local authorities and other stakeholders to see where the strategic network and capacity are being taken forward. That will be a transparent process that will allow all concerned to address those issues better in the planning system.
How confident is the minister that the objectives will meet the requirements of the Water Environment and Water Services (Scotland) Act 2003? Will he make Scottish Water a responsible authority under the act? What key tests of public benefit will he apply before he lifts development constraints throughout the country?
The body responsible for ensuring that Scottish Water—and everyone else—meets its obligations under the act is of course the Scottish Environment Protection Agency. That is as it should be. We will require the water industry commission to indicate to us the level of charges that will pay for the investment that is required for Scotland to meet its obligations under the act and the water framework directive, which inspires and forms the basis of the act.
In the light of the revelation that Scottish businesses have been overcharged by £44 million a year, is there any likelihood that the sliding scale that the minister has announced will include any element of compensation for those who have been overcharged? Further, after this retrenchment, are we likely to see the same thing happen with business rates?
I look forward to seeing Conservative candidates go up and down the country, telling voters that the Conservative party in the Scottish Parliament believes that they should pay money to business in lieu of past charges on business. That is not at all our intention.
Our intention is to ensure that domestic and non-domestic customers pay their appropriate share of the cost of water provision. I think that business will welcome today's announcement that we want to move in that direction, but we want to move in that direction in a way that is sustainable for all concerned. The objective that we have set, and that I will seek to ensure that the water industry commission sets, is to have corrected the tariff imbalance by 2010 and to have a balanced approach to charging and investing in services.
I thank the minister for providing a prior copy of his statement.
The minister said that we would be expected to face hard choices and his statement shows that there are hard choices still to be made. I refer to his statement that the advice from the WIC is that it is important that bills for today's customers are not kept unreasonably low by bequeathing an unreasonable burden of debt and servicing costs to future generations.
Does the minister agree that customers feel that the charges are artificially high due to underinvestment by Tory and Labour Governments, particularly before devolution—
Is there a question, Mr Gibson?
Does the minister agree that the cost could be spread further and wider if we had a not-for-profit trust running the water industry, which would allow us to invest over the long term?
It is disappointing that, on the afternoon on which the Parliament has passed—I am sorry, I should not presume. It is disappointing that, on the afternoon on which Parliament has considered the Water Services etc (Scotland) Bill and expressed broad support for its principles, including the principle of having a publicly owned water company, in the form in which Scottish Water exists, with the amendment relating to retail to business, the Scottish National Party wishes to use a guerrilla tactic to promote other forms of ownership.
Public ownership of the water industry works. That is why we will continue to ensure that Scottish Water delivers in the way in which it has done. It has shown clearly that, as the WIC has advised us, it is as capable of delivering a capital programme as the private sector companies in England and Wales are. Scotland should be proud of that, as should Scottish Water's staff and management. With proper regulation to ensure that the customers' interests come first, I believe that we will continue to achieve the objectives that are set out in today's statement.
The minister might already have partially answered my question. Is he confident that Scottish Water is geared up to apply fully and effectively the significant sums of money that are available to it?
I am, but it is, of course, essential that we continue to apply regulatory pressure on Scottish Water to encourage it to continue to do that.
In recent months, Scottish Water has been investing more than £1 million a day, and it will invest something in the order of £500 million in the current year. We believe that that is a significant achievement. On the basis of that achievement, we have made the assessment that it can continue to deliver that level of investment without impacting on charges in real terms. That is why we have made the announcement that we have made today.
Of course, within the framework that the Water Services etc (Scotland) Bill will set, we will continue to maintain the pressure to increase efficiencies to ensure that all of our objectives can be delivered at the lowest reasonable cost to all concerned.
Does the minister accept that we thought that we had got the balance right between renewing old infrastructure and providing new infrastructure in the quality and standards II programme, but that the settlement was too inflexible to allow us to reprioritise? Will he assure me that, during the eight-year duration of Q and S III, there will be enough flexibility to allow us, if necessary, to revise our priorities if we find unforeseen constraints in particular areas, or to spend more resources on, say, river and coastal water quality?
We have learned from the Q and S II process, but I do not think that the balance of the different forms of investment was wrong in Q and S II. The fundamental point is that we simply did not recognise at the time, as we do now, the level of infrastructure capital investment that was required. In the objectives, we have set capital investment targets—including targets for dealing with development constraints and the need for new infrastructure—and we have built into the process a degree of flexibility, as I said in answer to a previous question. We are establishing the principle that we will meet development needs and we have estimated what that means for the number of properties and so on. The water industry commission will give us an indication of the charging that that represents, but we are clear that we will have a continuing ability to respond to changes in development pressures over the eight-year period. That is built into the process and provides the flexibility that Maureen Macmillan seeks.
Obviously, the infrastructure capital works and the 120,000 new homes target are welcome, but I am concerned about local provision. If the developer is paying, I am concerned that that will have a knock-on effect on what registered social landlords can provide and will upset the balance between low-cost home ownership and affordable rent. Indeed, there could be an on-cost for tenants' rents and for first-time buyers.
In respect of strategic development, I wonder whether the minister has considered service sites to speed up the provision of housing, as new town development corporations did some decades ago.
The final point is interesting, but it is essentially for planning authorities and local authorities to consider. In response to Sarah Boyack, I mentioned that we expect Scottish Water, in producing its annual report, to engage with local authorities in the land-use planning process. We also expect it to engage in the community planning process, which is clearly a forum in which a number of issues to do with appropriate development and appropriate sites will be addressed.
On affordable housing, I simply encourage Ms Fabiani to wait for Malcolm Chisholm's announcement, which will be made shortly.
The year 2010 was repeated throughout the minister's statement. Businesses must wait until 2010 to get fairer charging and there is to be a fairer approach to metering by 2010. Why must people wait until 2010?
It would be interesting if we put to the business community the proposition that there should be an overnight change from the current system of billing for water for non-domestic premises to a new system. It is clear that a number of businesses feel hard done by, because they consider themselves to be low users of water and that they pay a higher charge. If that is the case, it probably follows that a comparable number of businesses that are high users of water are paying less than they will under a metering system, simply because both types of business are paying a standard charge. We are giving business notice that we intend, in four years' time, to have moved to a position in which we can introduce metering for non-domestic customers and surface drainage charges that relate to the area of the surface being drained. We do not propose to do that overnight, and I do not think that business as a whole would welcome our doing so. We are saying that we have listened to concerns that business has raised, that we are addressing issues to do with tariff imbalance and that we are giving notice of how we intend to deal with other issues.
I will press the minister on that matter. He well knows that many small businesses that are low-volume water users felt particularly hard hit by the introduction of the standing charges, which seemed to discriminate against them. Will he be more specific about how quickly he envisages moving from the standing charge regime to a regime that is based on usage rather than on the cost of the capital infrastructure that leads to the particular business?
It is worth bearing in mind the fact that, for all businesses, there are significant fixed costs for the supply of water and the removal of sewage. Those costs will be sustained in any case. As I said in answer to the previous question, we are likely to come to the strategic review of charges for the next charging period—which is 2010-14—in 2009 or so. At that point, we will consider how we can put in place a different basis for charging.
For now, the basis for charging will remain the same and we will address the tariff imbalances between the domestic and non-domestic sectors. However, the water industry commissioner has been asked to begin work now on how we will introduce a system of charging for the future.
I recognise some signs of reaction from the Scottish Executive to disquiet about charges and the overall management of Scottish Water. That disquiet was highlighted by the minority report that we produced, which proved that the result would be higher charges—
A question, Mr Mather.
The question is coming.
Put the question now, please.
So far, that conclusion has been rebutted only by assertion. When will we get a definitive response to the points that were raised in that minority report?
The minority report to which Jim Mather refers was disagreed with at the time. In the context of this afternoon's statement, that is all that needs to be said.
Will the minister assure me that there will be a transparent system for determining which development constraints are prioritised over the period? Can he tell me how those decisions will be made and by whom?
Yes. The annual report on the network capacity that we will ask Scottish Water, in its strategic capacity, to publish will form the basis for Scottish Water's work with local authorities, other stakeholders and its regulators, including SEPA, to address the issues that Des McNulty raises. I am encouraging Scottish Water and the Scottish Environment Protection Agency to address some of those issues in a memorandum of understanding, to allow, where possible, an early start to be made on tackling those issues.
I am interested in the £44 million a year that the minister thinks that business is overpaying and the research that has been done. We know that BP pays less than we do, per unit, for its water. I am interested to know the source of the minister's information. He says that he is going to give business back that £44 million without unreasonably penalising anyone else. Who is going to pay for it, or are we dealing with Wendy Alexander's fairytale economics, according to which no one will pay for it?
If Frances Curran had noted the lending figures that I mentioned, she would have observed that the level of Scottish Executive lending to Scottish Water will rise by something in the order of £30 million a year over each of the four years. That is part of the answer to her question. We commissioned Stone & Webster economic consultants to consider the costs of supplying water and sewerage services and how the requirement to meet those is reflected in charges. The consultants reached that figure after considerable investigation. Their report will be published, and I invite Frances Curran to read it.