Water Industry
Today I am launching a consultation paper on modernisation and competition in the Scottish water industry. The paper's themes are: ensuring that the water authorities—while remaining in the public sector—are able to respond effectively to the challenges of competition; dealing with increasing competition in the sector; and meeting our objectives on social inclusion, public health and environmental protection.
Competition is already a fact of life for our water authorities. They have to compete for business in a number of areas—although that is confined, so far, to services that are not delivered through their own networks. The Competition Act 1998 extends the possibility of third parties competing to provide services on those networks—whether through common carriage or other arrangements. Competition is, therefore, likely to become an increasing feature of the sector. There are potential benefits, and I welcome that. Where there is competition, customers have choice. Choice encourages innovation, improvements in service and keen prices, all of which mean value for money for customers.
I want to see those benefits for water customers throughout Scotland. That does not mean that there will be unfettered competition without regard to the wider public interest. Our water and sewerage services are too important for that. They have a vital role to play in maintaining public health, protecting the environment and promoting social inclusion. That means that they must be safe, accessible and affordable. Any competition must contribute to that—not undermine it.
The aim is for competitors to offer real choice through greater efficiency and improved services—not through the crude cherry-picking of the most attractive customers by playing the system and adding nothing to it. The challenge for our publicly owned authorities is to continue to improve the quality of the service that is available to current customers. Any shift to different providers would be entirely a matter of customer choice.
Meeting our objectives means that we must put in place a proper statutory framework. At present, Scottish water and sewerage legislation makes no provision for third parties serving customers through access to, or use of, the public networks. That situation needs to be remedied to avoid wholly unregulated competition. The last thing we want is for policy in this crucial area to be determined through the courts. It is imperative that the Scottish Parliament sets the limits. We must set the boundaries and the right framework. That is why the consultation paper proposes a new statutory framework for the Scottish water sector.
The new framework will introduce a licensing regime that requires all operators to meet high standards of technical competence and financial strength. That regime will be an absolute requirement. It will make new entrants to the market liable to criminal prosecution if they supply unwholesome water—as applies to our water authorities at present. The framework will give water authorities clear responsibility for safeguarding continuous service on the public networks and it will clarify that authorities can permit access to the networks. It will also ensure that the authorities' charges for access to the networks are fair and fully reflect the costs to the authorities of maintaining the networks.
To secure this network, the water industry commissioner needs to be given the duty of licensing operators. At the same time, we should enhance the powers of the Scottish Executive as the drinking water quality regulator.
Everyone must recognise that operating water and sewerage systems is a complex technical task. Delivering drinking water that is wholesome and that also meets all our expectations for taste and appearance requires skill and constant vigilance. Meeting the ever higher standards of environmental protection requires massive investment in new treatment works. It is only right that those who want access to the networks must meet the exacting standards that are required of the water authorities day in and day out, or face the consequences. There is no place for cowboys, or for the "here today, gone tomorrow" sort of operator. Anyone wishing to operate services must be able to stay the course.
Affordability of services is also a major issue for the authorities, particularly for vulnerable groups in society. In the longer term, the standards that are set by the water industry commissioner to increase efficiency will work to keep charges as low as possible.
For the time being, the Executive is considering ways of improving on the protection that is already provided to many of the least-well-off consumers. Last week, we began a short exercise to canvass the opinions of experts in the field. We will draw on their advice when we frame our proposals, which will be the subject of consultation later in the year. Our proposals will require legislation by the Scottish Parliament. There will be an announcement on the timing of that legislation in due course, after the consultation exercise.
Our planned legislation will recognise the crucial role of the Scottish water authorities in delivering vital services. It will also acknowledge their continuing place in the public sector. The Executive remains committed to the authorities as publicly owned bodies. Nothing in our proposals alters the fact that the authorities are accountable to ministers and, through ministers, to Parliament. They are responsible for the public infrastructure of water and sewerage in Scotland. That fact is fundamental to our policy, but that is not to say that some changes might not be necessary. Competition poses a challenge for incumbent producers and suppliers, which is why it is good for the customer. The water authorities are no different—they must meet their customers' demands as efficiently as possible.
This is undoubtedly a challenge for the authorities. I want them to rise to that challenge and, in doing so, to vindicate the public sector model by competing fairly and successfully with the private sector. While the Executive believes that the authorities are capable of that, if they are to succeed, the Executive, as owner on behalf of the public, will have to reassess some of its controls over them. Therefore, the consultation paper seeks to encourage debate about the ways in which the authorities will need to adapt as competition develops, because they will need to be able to develop innovative approaches.
The consultation paper describes our decision to relax the guidelines that govern joint ventures. Such action is not dependent on legislation and it, therefore, can be implemented independently and quickly, which is important in enabling water authorities to retain their customers where competition exists for waste water services.
A more flexible approach to commercial opportunities is an important element of the authorities' response to competition. However, the key for the water authorities is for them to concentrate on delivering the core services the public expects of them as efficiently as possible. If they do so, their position will be secure and their customers will be well served.
The consultation paper sets out our proposals for ensuring that customers benefit fully from increasing competition in the Scottish water sector. It does so in the context of our commitment to develop a public sector water industry in Scotland that is empowered to deliver for its customers and to develop services that meet the need for clean, safe and affordable water.
I want customer choice and a modern public sector industry, with no compromise on public health, environmental standards or social inclusion. Therefore, we need a framework that delivers those objectives. We must enable the authorities to modernise and we must equip them to deliver for the future. Already, they are implementing a major investment programme that will deliver cleaner beaches and safer water and that will maintain our Victorian infrastructure.
In the consultation paper, we are proposing competition that will work in all our interests. I look forward to receiving comments on our proposals.
I thank the minister for finishing before the time limit. A large number of members wish to ask questions, so short and snappy exchanges would help.
I welcome the minister's statement, given the importance of the Competition Act 1998 to the future of the water industry in Scotland. However, I was thoroughly disappointed to read some of the details of the minister's statement in yesterday's press. Perhaps, in future, ministerial statements could be kept for the chamber.
I am also extremely disappointed by the delay in the minister's announcement—we were promised it months ago. The announcement should not have come four months after the 1998 act came into force—it should have come four months before that happened, so that we would not have to play catch-up.
I trust that the minister agrees that the best way forward for the water industry is for the three authorities to become efficient and competitive publicly owned enterprises. That would enable them to fight off competition and to keep down water bills in Scotland. None of us wants any part of Scotland's water industry to fall into private hands.
While the minister says that competition might offer the opportunity to ensure that the public authorities deliver the best possible services to customers in Scotland, we know that there are serious threats to that opportunity. The overwhelming view in Scotland is that our water industry must remain firmly in the public sector, yet competition places a big question mark over the industry's future under the new Labour Government.
I trust that the minister agrees that it would be bad news if privatised water companies were to cherry-pick the biggest industrial customers, leaving the rest of us to pay higher water charges to fill the gap.
I would like straight answers to the following questions. First, does the minister agree that water bills have rocketed because the new Labour-Liberal coalition that runs the Government has refused to contribute one penny towards the massive investment programme that is currently under way in the industry? We face the danger that private companies will feel able to compete against the water authorities in Scotland, enforce the act and poach the big commercial customers. That would leave us with a smaller customer base, from which authorities would have to raise their income.
Secondly, in order to avoid such undermining of our publicly held authorities, will the Scottish Executive dip into its pocket—or Gordon Brown's pockets—to finance the measures that the authorities will need to implement to see off the competition? Even better, will the Executive reduce next year's water bills to make the water authorities more competitive?
Finally, it would be appalling if—just as the water companies in England are turning their back on privatisation and becoming publicly owned—ministers here were prepared to stand back and allow our industry to be privatised via the back door.
On a point of order.
I know the point of order that Des McNulty wants to raise. I always allow the Opposition spokesman a reasonable right of reply, but short and snappy exchanges should follow.
Is it in order for members to make a speech before they ask three questions?
As I said, Opposition spokesmen are always given some latitude.
Although Richard Lochhead's welcome for my statement was a bit grudging and he does not appear to have read some of the detail, I appreciate it.
I want to make absolutely clear that there has been no delay in bringing this statement before Parliament. We made a commitment to make a statement to Parliament and I am honouring that commitment today. This is the right time—
On a point of order. The details of the statement appeared in five newspapers yesterday. Presiding Officer, can you clarify whether that is in order for ministerial statements?
That is not a point of order. Carry on, minister.
I reassure the member that no details of my ministerial statement appeared in the newspapers. After this week's Cabinet meeting, there was a press briefing on the issues that were discussed—that happens every week. That is not the same as a briefing on the content of my statement.
There has been no delay in making the statement. This is the right time for us to act. The consultation period over the summer will enable consumers, those who work in the industry and those who have knowledge of it to engage in the discussion.
The Competition Act 1998, which the SNP supported at Westminster, is a reality. Richard Lochhead asked three questions, but two of them were the same. There is already competition in the water industry—some major customers are putting their contracts out to tender and our water authorities need to be able to respond. I am proposing that the Scottish Executive's control be loosened to enable the water authorities to do that, so that they can keep those customers. The key issue is to set in place a new legislative framework that will avoid the cherry-picking to which Richard Lochhead refers. To do that, we need a regulatory framework. If we do not have one, the water industry will be wide open and the issue will be dealt with in the courts. That is why we need to address the matter.
Richard Lochhead's suggestion that the Executive has not invested in the Scottish water industry is simply not true. I have made clear on a number of occasions that, through the external finance limits, each of the Scottish water authorities receives direct financial support from the Executive. That support was proportionately greater in the north of Scotland, where we knew there was a more significant investment challenge. I am happy to have the opportunity to lay to rest again the myth that Richard Lochhead propagates.
The aim of the consultation paper is to boost our Scottish water industry and to ensure that we have the appropriate regulatory framework that will ensure that the industry is not undermined. I ask Richard Lochhead to read the detail of the paper and to engage with the questions that we are asking about how to deliver a secure, safe regulatory framework. I invite all colleagues in the chamber to do likewise.
Now even more members want to ask questions.
Having raised the matter on a number of occasions, I welcome the fact that the minister has made a statement on it today. I welcome, in particular, her concern that the water provided by all operators should be of the same quality as that which the existing water boards are expected to provide to customers.
I have two questions. The first relates to cherry-picking. The minister was firm about that, but it is not clear from her statement or from the consultation paper how cherry-picking can be avoided in practice. I suspect that the detail might lie somewhere in what she said about continuous supply, but it would be helpful if that could be made clearer and more specific.
My second point relates to what the minister said about joint ventures and greater commercial freedoms. I have looked carefully at paragraphs H8 and J4 of the consultation document—which address joint ventures and invite consultation on that issue—but there does not appear to be a clear or detailed proposal from the Executive. It would help the chamber to determine whether it is possible to generate significant and adequate additional investment if the Executive divulged its thinking on the nature of the commercial freedoms that it proposes to confer on the water authorities.
I hope that that was reasonably short and snappy.
I shall try to give relatively short and snappy answers.
On cherry-picking, we will require average water charges to be in place and to be delivered through the mechanisms that we have identified in the paper, via a combination of the water industry commissioner and the water authorities identifying access charges. Having an average water charge means that in rural areas and throughout the wide swathes that are covered by water authorities, the cheapest customers cannot be picked off and dealt with. That is the mechanism that will address the issue.
Secondly, on joint ventures, the issue is not about legislation, but about regulations. At the moment, the water authorities are in a tied straitjacket with regard to entering into joint ventures. I propose to loosen that straitjacket, which will put less of a burden on the authorities in terms of consultation and give them more freedom within the public sector framework. The paper identifies why we intend to do that.
The consultation paper is timely and welcome, because it is essential that we get the matter of water services right. I hope that we get a wide range of responses that will feed into getting it right. We need a regulatory framework that maintains the viability of public water authorities and protects rural interests.
Will the minister consider the overall structure of the water industry in Scotland? Does she see the water regulator as the champion of the consumer? When will we see evidence of the commissioner acting in that capacity?
I welcome the comments on the need for the widest possible consultation. The issue affects every one of us and our constituents. I have considered the overall structure of the water industry in great depth, particularly in the light of the challenge of investment in the industry, which I know is of concern to members.
At the moment, the top challenge for our water industry and water authorities is to make sure that the investment programmes that they have to deliver—which amount to £1.8 billion—are delivered as efficiently and effectively as possible. That point was picked up by both Opposition parties' spokespeople and we are all agreed on it. My view is that playing around with the overall structure of the three water authorities would be a diversion. However, in the medium to long term we need to think about that structure and I am keenly interested in the development of the mutualisation process that is being considered in England and Wales. Although I do not think that now is the time to address that issue—we need to get the framework in place to regulate competition and to defend interests in water safety and public health—it is a longer-term issue to reflect on.
The water industry commissioner has already published for consultation a set of tougher standards for the water authorities to meet on the timing of the delivery of their services and the compensation that might be given to people if they experience a failure in service delivery. The requirements that it is proposed the water authorities should meet are tough and crunching. If members wish to support them or suggest alternative mechanisms, now is the time to give feedback to the commissioner. However, his overall approach of trying to improve efficiency and effectiveness in the industry is about value for money for customers. That is the biggest contribution that the water industry commissioner has made.
Will the minister explain whether the new regulatory framework would specifically prevent privatised companies from cherry-picking lucrative commercial contracts, such as the multi-million pound contract to supply water to Grangemouth, which—if lost—would fatally undermine the financial viability of East of Scotland Water Authority?
As Yorkshire Water—which ripped off taxpayers at the time of privatisation—is now seeking to offload massive debts on to the backs of water consumers through mutualisation, we should not be paving the way for such people to come in, but seeking to keep those privatised sharks out of Scottish water altogether.
The critical challenge that is faced by the water authorities is not the result of the access issues that were opened up by the Competition Act 1998. The challenge is that, for a number of major contracts, there is already scope for customers to have water supplied from outwith Scotland's water industry.
My proposals, on the regulatory side, for joint ventures are designed to give our water authorities the opportunity to compete with the big water authorities that are being invited to tender for contracts by organisations such as BP Amoco.
There are two issues to reiterate. First, there is existing competition, which is why I wish to offer the authorities, in a modernised, public sector framework, the challenge to compete, so that they do not automatically lose out when contracts are being awarded.
Secondly, there is the longer-term issue of delivering a viable framework, set by the Parliament, that will deal with issues about fair competition and access charges, so that the investment that we are making through the three water authorities is not given away. If anyone wants access to our water industry, they will have to pay a fair price. The mechanism that I suggest we set up, through the regulatory framework, would let us deliver that. It would let us set the ground rules, rather than those rules being decided by the courts. We need the legislation—decided accountably and transparently by Parliament—in place, so that people can see what we are trying to deliver.
First, people have been hit by enormously increased water charges this year. They already have bills to pay. Does the minister think that it was really good enough to canvass expert opinion on affordability last week, when water charges have increased 300 per cent since Labour was elected in 1997? Is not that too little, too late?
Secondly, how can giving authorities power to borrow money, which will be paid back by the customers, be described as a Government investment in water?
If we have a public sector water industry, we need to be able to raise investment. That is done on the public sector balance sheet. The point that I made to Richard Lochhead when he raised that matter in the chamber was that if investment is not raised through increases in charges or customers' payments, it comes back to the Scottish balance sheet. It then has to be paid for through increased taxes. If the Scottish National Party is seriously suggesting that £1.8 billion should be paid for by the public purse through raised taxes, it can do that, but it should be honest about it.
The point of borrowing money is that we need to modernise the system if we are to have a Scottish public water authority. The paper opens the debate on how we do that. It is not a debate that we should duck—we need to engage in it.
On Colin Campbell's first point about increased water charges, everybody in the chamber acknowledges the need for massive investment to meet European requirements, the need to deliver safe water across Scotland and the need to ensure that what we do is carried out in the most efficient way possible. Those are the challenges and we all accept that. The member can haggle about how we deliver it, but if his alternative solution is funding through the public purse, that would mean more taxes. He should be honest about that.
John McAllion's question is the most important that has been asked in the debate. However, on water quality, is it still the Executive's intention to add fluoride to Scotland's water?
That issue is not covered in today's paper, which is about modernising the water sector. Robin Harper's question is for another day.
I agree with the minister's point that there is no place for cowboy operators of the "here today, gone tomorrow" variety. In that context, will the minister tell me how the water industry commissioner will ensure that any new entrants pay their fair share towards the cost of public water networks?
Two points are crucial to that. The first is that we must identify a licence system so that every potential competitor is assessed on their capability to deliver a wholesome, safe, secure water service. That means that we must make requirements about their financial status. The last thing we want is some fly-by-night operator that does not have financial security. The point about liability is critical. To ensure that there is a level playing field, our current water authorities are liable if they provide unhealthy water services. Any new competitor would have to operate under the same regime.
The second critical point is financial viability. Those who know about opencast mining will know that any company that is obliged to reinstate land after mining an area is required to submit a bond. Our consultation document asks for views on how to secure that, but there must be financial viability in the long term, not just in the short term. We must regulate the process and, in the customers' interests, we must require that the water industry commissioner is the person who hands out licences. That process should be subject to public scrutiny and access charges should be fair and should reflect the investment that the water authorities have made. We must deliver the whole package, and the document sets out the framework for that in detail.
The minister is familiar with the difficulties that Moffat residents have suffered with their water supply. In the interests of snappiness, I shall not go over them. Although it might have been superficially attractive for residents to change to a competitor company, the water that they received would have been the same. What assurance can the minister give that the consumer will have the key role in determining whether the quality of the water supply is adequate?
The water industry commissioner has set up three consultative committees that will give him advice and feedback. I met members of those committees when the Parliament met in Glasgow a few weeks ago. The questions they asked persuaded me that they are completely engaged in the challenges of representing consumer interests and feeding that directly to the water industry commissioner.
Wholesome water is not the same as water that is safe, because taste is important. David Mundell and other members have raised questions not only about safety, but about people's perceptions of the quality of their water. The system that we have set up with the water industry commissioner and his advisory committees will enable those points of view to be put directly into the framework that we are trying to develop.
I welcome the statement, the commitment to keeping water in the public sector, the licensing regimes and the access charges. At the moment, the capital requirements are being met mainly though public-private partnerships, capital from the Government or from an income stream. Will the consultation document open up the water boards, not just in the joint venture system, but generally, so that they can obtain capital in different or innovative ways?
I have included in the consultation paper a question that invites views on how to change the process and what opportunities can be plugged in. I have spoken to the water authorities about the broad content of the paper. During the past few months they have raised, in discussion, points about the need for greater flexibility. That is something that I am prepared to consider. However, we must modernise the public sector in a way that retains accountability. That is a critical issue on which I am determined to deliver.
If the water industry commissioner is now to deal with licensing, is not it time to remove his role as the consumers' representative and set up an independent consumers' body, as in the energy industry and other industries?
The paper explores the complex relationships that are needed to manage the new regulatory framework. Euan Robson should study the details of how we propose to allocate the different responsibilities. He is right to say that the water industry commissioner must act in the interests of the consumer. His role is central in licensing and in considering the way forward for the industry. He is in a crucial position to deliver for the consumer—that is why his role is important. The advisory groups that he has set up to give him feedback on consumer interests will allow us to manage that tension. Parliament is a major stakeholder in Scottish water and the public sector authorities, and we can influence the industry through the framework that we set as a Parliament.
The law of the jungle in the water industry usually means that there is cherry-picking of large companies. I heard what Sarah Boyack said and she has heard the concerns about cherry-picking that have been expressed by all parties. If cherry-picking takes place, can the minister give a cast-iron guarantee that small companies and domestic users will not have to pick up the tab? Will the minister take measures to ensure that bills remain the same and that they are not excessively high in the domestic sector?
We are bringing forward proposals for a regulatory framework. The Competition Act 1998 opened up the possibility of access to the water network. In England and Wales they have had a different history. There are already privatised water companies and there are licensing arrangements.
In Scotland, we have no such framework and no protection for consumers. If the matter is dealt with through the courts, Parliament is unable to take action on the points that I raised about cherry-picking, setting of access charges and setting of high environmental and health standards, because we have no legislation that allows it to do so. We need the legislation, such as that which I am putting out for consultation, to avoid the problems that Gil Paterson has raised. We need a robust system. There must be a proper framework and that needs the democratic legitimacy of Parliament. The challenge for us all is to decide on the detail of the bill, as it will be when it comes before Parliament.
I apologise to the four members who I have not been able to call, but we are out of time. As the minister said, we will come back to this subject in the future.