Water Industry
The next item of business is a statement by Sarah Boyack on the water industry. The minister will take questions at the end of the statement, so there should be no interventions.
The purpose of this statement is to announce the appointment of the first water industry commissioner for Scotland, but I would also like to take this opportunity to set out the new regulatory arrangements for the Scottish water industry and the commissioner's vital place in the new framework. The new regulatory arrangements were announced by the Scottish Executive in July, but so far there has not been an opportunity for Parliament to discuss them.
The water industry is a vital part of our lives, yet it is almost invisible to most of us, most of the time. Clean, safe drinking water, and efficient, environmentally friendly removal of waste are essential for our survival, yet we take those services for granted—we expect safe water to come from the tap whenever we need it, and waste to be removed with no apparent effort. However, much of the basic infrastructure on which we rely, both for drinking water and for sewage, was put in place in the Victorian era. It has served us well, but decades of under- investment mean that much of it needs to be replaced soon. That is the backdrop against which new challenges must be faced.
The Scottish water industry faces twin challenges: to meet the aspirations of the Scottish people in terms of environmental standards and drinking water quality, and to do so at minimum cost to the customer.
The water industry has a central role to play in our ambitions for sustainable development in Scotland. That is reflected in the Executive's programme of government, in which no less than three of the key environmental commitments will be delivered through the Scottish water authorities: improving standards of urban waste water treatment by the end of 2000; bringing Scotland's designated bathing beaches up to European standards; and investing to raise the quality of Scotland's drinking water.
The challenge that is posed by those commitments should not be underestimated. It involves an unprecedented investment programme of around £1.7 billion over three years, and significant further investment will be needed beyond that. The industry has to work to long time scales, a fact that increases the importance to the authorities of being able to plan for the medium term with some certainty.
Investment is needed to meet our European obligations, which cannot and should not be evaded. Most prominent among them are the urban waste water treatment directive, the main provisions of which take effect at the end of next year, and the drinking water directive, for which the main deadline is 2003. More important, investment is needed to protect and improve the quality of our rivers, coasts and beaches, and to ensure that the water that we drink meets the highest public health standards.
The second part of the challenge is to achieve those objectives and deliver the investment programme at the least cost to customers. The water industry's activities can be financed only from charges to customers and by borrowing, which has to be repaid. Scotland's water services are firmly in the public sector and that is where they will stay, because the people of Scotland have made it clear that that is what they want. Our three water authorities are accountable to the Executive, and through the Executive to the Parliament, for their performance.
The coming of the Scottish Parliament strengthens the direct chain of accountability between the authorities, democratically elected representatives and customers. We must demonstrate that our Scottish approach can also deliver on efficiency and customer service. We need a regulatory regime for the Scottish water industry that provides the best framework for meeting this environmental and public health challenge at the minimum cost to the consumer. I am confident that the arrangements that will come into effect on 1 November provide such a framework.
The Water Industry Act 1999, which became law in June this year, included provisions for reform of the regulatory system in Scotland, including the establishment of an independent water industry commissioner. Because devolution was about to take effect, our predecessors deliberately drafted the legislation in a way that left it to the new Scottish Executive to decide whether to implement the new system.
Having considered carefully the present system, we had little hesitation in agreeing that there was an urgent need for change. Customers deserve a system that ensures that their interests will come first and that they will get the highest-quality services at the best price.
The water authorities need a system that gives them clarity and certainty, so that they can plan and manage their operations as efficiently as possible.
The Scottish Executive's three roles in relation to the water industry are as owner, environmental and public health regulator, and efficiency regulator. In addition, the regime that we inherited involves a completely artificial division between the Scottish Executive—as efficiency regulator— and the customers council, which has primary responsibility for agreeing water charges, looking only one year ahead. It is difficult to carry out that function without a full appreciation of the scope for efficiency gains in the water authorities and the investment programmes that the authorities need to implement.
Before devolution, ministers carried out a wide- ranging review of the water industry and concluded that it was essential to bring together the strands of economic regulation and price setting. The new regulatory regime will remove that artificial divide and, by bringing efficiency regulation under the responsibility of the new water industry commissioner, will distinguish more clearly between the roles played by the Scottish Executive. A crucial feature of the commissioner's remit will be his professional scrutiny of the water authorities' finances.
The water industry commissioner is at the centre of the new approach. His overriding duty is to promote the interest of all water customers. There is no conflict between his two roles of economic regulation and customer protection—those are the functions that come under the term economic regulation. His role—to examine closely the authorities' finances, to question and challenge their costs, and to encourage them to be as efficient as possible—is at the heart of customers' interests.
We believe that that role should be carried out with rigour, transparency and clear independence from Government. That will reassure customers that the water authorities' finances are subject to independent, expert scrutiny and will enable them to see that the charges they pay are being kept as low as possible.
Alongside those new responsibilities, the commissioner will take over the Scottish water and sewerage customers council's current roles, including investigating unresolved customer complaints and approving the authorities' codes of practice. We are grateful to the members and staff of the council for their work and their commitment over the years to protect the interests of customers. I am confident that the commissioner will inherit firm foundations, which have been laid by the council.
The commissioner also needs to know about customers' concerns on a regional or even local basis. That is why there will be three local consultative committees to support the commissioner and advise him on the interests of customers. The commissioner will chair those committees, ensuring that their advice is at the heart of the regulatory process.
The new regime will also change the way in which the Scottish Executive plays its role of environmental regulator. The commissioner's job will be to provide expert economic analysis and advice, but it is not his job to decide which areas of the water authorities' plans and operations are essential or optional. Those are issues for ministers, who are responsible for defining the standards of water quality and environmental protection that must be met by the water authorities. Most of those standards flow from European commitments, while others reflect the Government's own priorities for the industry.
Therefore, the Scottish Executive will give the commissioner a statement defining the standards that must be met by the water authorities. The commissioner will still be able to challenge the cost of the work associated with those standards, but he will not be able to question the need for that work. We shall publish that statement at the same time as we send it to the commissioner. It will be an important new step. For the first time, Government will set out clearly in one place the standards that it requires the water authorities to meet. For the first version of the paper, we plan to bring together the standards that have already been set and the broad implications for the investment requirements of the water authorities.
However, the document is not the end of the story. It marks the beginning of a continuous and transparent process in which, as we strive for improved environmental standards, we will be able to assess and provide for the resources needed to deliver those standards. It means that the commitments that we make will be achievable as well as challenging.
The quality and standards paper and a broader guidance document on the conduct of the charging process will form the essential framework within which the commissioner and the water authorities will operate. Within that framework, the commissioner will advise ministers on the charge levels necessary to enable the authorities to meet the environmental and water quality standards that have been set. In effect, the commissioner will recommend to ministers the level of a charge cap, which normally will be for a period of several years. Ministers will consider the commissioner's expert advice and decide whether to endorse his recommendations. They will then finally set the charge cap.
We are committed to ensuring that that process has maximum transparency. There will be no question of the commissioner's professional expertise being compromised or influenced by ministers. The legislation guarantees that all
stages of the process, including both the commissioner's advice and ministers' decisions, will be made public. That demonstrates our commitment to a process that is rigorous and open, and our commitment to avoiding shorttermism.
Once ministers have decided on the level of the charge cap each year, the commissioner and the water authorities will agree, or if necessary refer to ministers, the individual charges for services. The water authorities' annual charge schemes will have to fit within the charge cap that ministers have set.
Our basic principles will be quality, efficiency, transparency and accountability. The water authorities have a key role in cleaning up our beaches and rivers, and in using water in a sustainable way. However, success in meeting those broader objectives will depend on partnership, not only between the Scottish Executive, the new commissioner and the water authorities, but with local authorities, industry and us as individuals. Local authorities have a key role in the planning and provision of amenities. Industry and the farming community can minimise waste and water pollution through improved practices. All of us can use water resources more responsibly. The Scottish Executive will work to encourage that partnership approach.
I take this opportunity to give an example of the partnership approach in action. I have intervened to defer for a year the increases in water charges facing some charities and voluntary organisations. Last year, the water authorities and the customers council agreed to begin withdrawing relief from charges that is currently granted to a range of bodies. As a result, those bodies faced higher water bills this year.
Soon after I took office, the Scottish Council for Voluntary Organisations made representations to me that the charitable and voluntary bodies facing higher bills had not been given enough warning about the increases. As those bodies typically operate on fixed, annual grants, it was becoming clear that the money to pay for the increased water bills might have to be found by reducing front-line services. Given the importance that the Executive places on the voluntary sector's contribution to Scottish life, I was concerned by that, and agreed to investigate.
Although the average increase in bills is small and the water authorities were acting quite properly in trying to ensure fair treatment for all their charge payers, I agree with the SCVO that the organisations that were faced with higher bills needed more time to budget for them. Therefore, I have arranged with the water authorities that they will immediately restore in full relief for the current year. The SCVO will welcome that breathing space for its members. It understands the argument that its members should pay for the services that they receive, but deferring the withdrawal of relief until 1 April 2000 satisfies its main concern. I am pleased to say that there is further protection for the sector, in that the full charges will not come on stream for five years.
We had no doubt that it should be a priority to put the new regulatory regime in place as soon as possible. We have decided to implement the new regulatory arrangements from 1 November. That means that benefits can begin to feed through to customers and the water authorities from the water charges settlement for the next financial year. If we had not made that decision, the annual nature of the charging round means that the new regime would have had no impact until April 2001.
We announced that decision promptly, in July, because we needed to move quickly to identify and appoint a suitable person as the first water industry commissioner, in time for 1 November. We were determined to ensure that the appointment process complied fully with the rigorous principles that are required by the commissioner for public appointments.
The demanding and important new position of water industry commissioner needs someone with the right blend of special skills, experience and personal qualities. I am delighted to announce to the Parliament that we have found such a person, and that we plan to appoint Alan Sutherland as water industry commissioner from 1 November.
Mr Sutherland has relevant expertise and experience. He studied economics, and has wide experience in banking and in management consultancy. He also has direct experience of establishing and managing a customer-focused company in challenging circumstances. I am convinced that Mr Sutherland has a firm commitment to ensuring the highest levels of service and value for customers. He also understands clearly the business and economic issues that confront the water industry. I have no doubt that his experience and talents make him well suited to the post of water industry commissioner.
Our new regime will involve a powerful new watchdog for customer interests, equipped to ensure that prices are no higher than required to meet our environmental and public health objectives. There will be a longer planning horizon, through a multi-year cap on charges, giving greater stability for customers and water authorities. The system will be much more transparent, with a clearer division between the Executive's roles as owner, economic regulator and setter of environmental standards. It will be a regulatory regime under which Scotland's public water industry can become a world leader in
customer service and efficiency.
I am happy to take questions from members.
Thank you. As the minister said, she will take questions from members. Members who want to speak should press their request to speak buttons. I remind members that questions should be in the form of a question and should be brief.
Thank you, Deputy Presiding Officer, I take on board your comments, but I am disappointed that the minister took 15 minutes to make her statement and that the Opposition is allowed only one question in response. I have, therefore, to limit my question to one aspect of the issue: the new arrangements for the regulation of the water industry.
I congratulate Mr Sutherland on his appointment, but is it not the case that the new role of water commissioner is that of the Executive's placeman? Given that the water commissioner will be subservient to the civil servants as opposed to the customers—the water consumers—the voice of the consumer has been silenced. Would it not be a step in the right direction for the water commissioner to report back to the Parliament, rather than to the ministers, so that we can play a role in defending the customers' interests, given that they have not been taken into account under the new arrangements?
Will the minister respond to concerns expressed by the Scottish Consumer Council—which are shared by the SNP—that the proposals to make the water commissioner chair the local, so-called consultative, committees will not lead to a strong independent voice for the consumer?
On the last point, the whole purpose of appointing an independent commissioner is that he will be able to take direct responses from consumers. We have ensured that he will chair local forums so that he will able to hear consumers' concerns directly. It is important to stress that all those meetings will be held in public; the meetings will be a matter of public record and people will be able to assess the independence of the water commissioner.
I hope that the framework that we have established will provide accountability. Every part of the chain will be open and publicly accountable. It will be possible for the Transport and the Environment Committee, for example, to discuss the issue of the water industry and its regulation in the future. There will be an effective process of accountability, through the Scottish ministers' appointment of the water commissioner, who will report back to them. All that correspondence will be made public. People will be able to see how decisions are being made.
The purpose of the commissioner is to act in the interests of consumers and to ensure that they understand the key issues that the water authorities are addressing. At the moment, we do not think that that role is being carried out effectively.
If the new role is—
Excuse me, Mr Lochhead, but you do not have a supplementary question on a statement. I will move on to the next questioner.
I share Mr Lochhead's concerns, and I have noted the response to his comments. I am a little unclear from the statement about how the local consultative committees will be constituted. How will members be appointed and who will they be—or, if members have already been appointed, who are they?
On a lighter note, I presume that the title of water industry commissioner is to ensure that the mnemonic is WIC rather than WC?
That last comment was very helpful.
Committees will appointed in the same way as before. Their membership will be made public so that everyone can know who is on them. Their purpose will be to feed through the interests of the customer, just as they do at the moment. The difference will be that the water industry commissioner will have direct access to the views of those people. That is a matter on which the Executive can report back to the Parliament. We will have to review the way in which the process operates.
I acknowledge the concerns that Mr Lochhead and Miss Goldie have expressed. This is a new system and I hope that it will work effectively, but we will monitor the process.
I welcome the minister's statement, which I believe will significantly increase the public accountability of the water and sewerage industry.
I remind the minister of the success of an earlier example of co-operation between the Labour and Liberal Democrat parties. The Strathclyde water referendum decisively rejected the policies of the previous Conservative Government—policies that would have threatened the continuing operation of the industry in the public sector. I know from the debate earlier today that the Conservative party is suffering from voluntary collective amnesia—
Mr McNulty, will you come to your question please?
It is important to emphasise the commitment to retain the industry in the public sector. Will the minister describe the mechanisms of accountability now that we have a Parliament and a public water industry? It is important to stress that both of those things have now been established.
On a point of order. Had I been able to express myself as Mr McNulty has done, I could have asked about five questions.
I remind members to ask questions and not to make statements. The more that people can observe that rule, the more questions they will be able to ask.
I am happy to reassure Mr McNulty that the process that we have established today should ensure accountability and transparency in our public water authorities. The Scottish Executive will set the framework through its paper on quality and standards. The paper will inform the water authorities, via the water industry commissioner, of the standards that we hope they will meet.
We want a dynamic public sector water industry that can learn from the private sector, because there are many ways in which the water industry will be able to develop over time. The critical thing is that it will be accountable through Parliament—I appoint the water industry commissioner—and through local forums to the customers. Their views will be heard through the water industry commissioner. Local water authorities will still be appointed by ministers and there will be opportunities for local involvement at that level as well, as there was in the most recent round of appointments.
Is the minister aware that the model of consumer representation that is in the statement is not widely accepted? In the energy industry, for example, the need for the consumer body to be independent of the regulator is well recognised. What informed and industry-oriented body will criticise the water industry commissioner if he acts against the interest of consumers?
The approach that we have taken acknowledges that the water authorities are in the public sector. They are not accountable to shareholders; they are accountable to their charge payers and their customers. We make that distinction. I hope that the system will be transparent and that people will be able to see the process by which the water industry commissioner regulates the three water authorities. The Parliament will be able to monitor that over time. I am confident that our system will deliver transparency and accountability.
On two occasions during the summer there were water shortages in Fort William. The nearest elected councillor serving on the North of Scotland Water Authority was based in the east of Scotland. My constituents would have had to traverse the Mamores and the Cairngorms to consult that councillor. If the minister favours partnership, will she appoint at least two councillors from the Highland Council area, from which not one councillor serves on NOSWA now? If not, is the partnership that she talked about the partnership of Jonah and the whale?
Why are NOSWA and the other water authorities not to be members of the proposed Scottish utilities forum?
It is not possible to ensure that every area is represented on boards. Of the people who put themselves forward, we try to choose from the widest geographical spread possible, bearing in mind, of course, the talents they offer.
On the Scottish utilities forum, we think that the system that we have established today will be effective and workable, and will meet our objective of achieving high-quality standards in our water industry, as set out in our programme for government.
The minister will be familiar with the study commissioned by West of Scotland Water Authority into why Ayrshire beaches have failed to meet European water standards. Will she outline what specific measures she is introducing to improve standards in the interests of public health and local tourism?
I am happy to report that the West of Scotland Water Authority is implementing a significant investment programme to ensure that there are cleaner beaches on the Clyde coast. Earlier this summer, I visited the waterworks at Fairlie, where the new system is being introduced.
It is important to take into account not only the work of the water authorities but the fact that there are wider industry and agricultural challenges to meet. A key long-term issue that we need to consider is partnership between the range of people involved. I want to pick out the farming community in particular, with whom we had some good discussions over the summer. In the coming years, we will have to address issues such as diffuse pollution, which can be done only in partnership. I am glad to say that the Scottish National Farmers Union's response was very positive, which bodes well for the future.
A motion on public appointments will, I hope, be lodged soon. In view of that, will the minister tell us how many people were considered for the post and how many were on the final shortleet?
There were 20 applications for the post. As the appointment was made according to the Nolan requirements, I cannot tell Mr Harper how many people were shortlisted. However, if he is keen to know, I can provide that information in writing afterwards.
I welcome the minister's statement on the firm commitment to keep the water industry in the public sector and the relief for charities and organisations that has been announced.
I want to follow up Euan Robson's question by asking whether a number of different models for regulation were considered and why this particular model was chosen as the best.
This model was chosen because we felt that it reflected the opportunities provided by the establishment of the Parliament to introduce an effective system that would be accountable to MSPs. It was important to separate off the issue of economic regulation, which we felt was not appropriate for the rural affairs department to operate. The job of ministers is to set overall environmental standards. The water industry commissioner will be able to review local water authorities to ensure that they are providing as efficient and as effective a service as possible. We feel that the chosen model will be economically efficient, will meet environmental standards and will be accountable to Parliament.
As the minister has referred to her desire for openness and transparency, will she detail how much the first water commissioner for Scotland is being paid, what benefits he will receive and how much his likely staff will cost?
The water industry commissioner's starting salary will be £67,500 a year. The commissioner's staff costs will come to £1 million, which is broadly the same as existing arrangements.
Can I suggest—
I am sorry; you do not have a supplementary question.
I want to ask Ms Boyack about the capping regime on costs. She will doubtless remember that, earlier in the session, she provided an answer to a parliamentary question in which she said that the external financing limit available to North of Scotland Water Authority was programmed to decline quite sharply over the period from 1996 to 2002. In that context, will the regime that is being introduced guarantee that customers in that water authority area will have the same standards at the same pace and at broadly the same cost as customers pay in other parts of the country? As not everyone can pay the same amount, can we have a cost regime that is broadly comparable between regions?
The water industry commissioner's regime will ensure appropriate investment to meet environmental standards in each water authority area, that charges are reasonable and that water authorities carry out their job as efficiently as possible. However, we have not established a regime in the way that Mr Tosh suggests.
I am sure we all accept that it is much more difficult to provide water and sewerage facilities in the northern part of Scotland. That reflects the point Mr Ewing made. I visited some of those areas in the summer. They are very spread out and provide a challenge for the water authorities. We must bear that in mind when setting standards for the authorities in the coming years.