Plenary, 19 Jun 2003

Meeting date: Thursday, June 19, 2003

Official Report 752KB pdf

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Water Industry

Good morning. The first item of business is a debate on motion S2M-162, in the name of Murdo Fraser, on the water industry. There are two amendments to the motion.

I will take a sip from my glass of private water and begin.

The Government-owned quango, Scottish Water, is rapidly becoming a national embarrassment. It is failing Scotland with higher domestic bills than in England; higher—and rapidly rising—bills for commercial premises than in England; and poorer quality water. It is time for the Scottish Executive to take action to address the concerns of water consumers throughout Scotland and to consider again the quango's management and structure.

I am sure that members will have had similar experiences to mine—being contacted by numerous constituents to complain about a rise in water charges in the current financial year. I have had a number of such letters, which tell of increases of between 200 per cent and 500 per cent. To quote just one example, Hackston's of Dunkeld, who are plumbers of Cathedral Street, Dunkeld, wrote to me on 12 May to complain about an increase in their charges from Scottish Water from £73.32 last year to £344.94 in the current year—an increase of almost 500 per cent. That charge is for an office with one toilet and a cold water tap.

It is not only small businesses that are affected; voluntary groups are affected too. The secretary of Grandtully bowling club in Perthshire wrote to me on 11 May to complain about an increase in fixed charges from £13 in 2002-03 to £130 in 2003-04—a rise of 900 per cent. That is for a small bowling club with fewer than 30 members who use water only for the toilets and the occasional cup of tea.

Business organisations such as the Federation of Small Businesses, the Confederation of British Industry Scotland and the Forum of Private Business tell me that they have been deluged with complaints about the increases from members. In some cases, the increases threaten the future viability of those small businesses. My colleague Phil Gallie tells me about Andersons Hardware and Hire in Dalmellington, Ayrshire, which has experienced an increase of more than 400 per cent in water charges since last year. When the proprietor phoned Scottish Water to complain that the increase threatened the viability of his business, he was told that it was up to him to run his business better. The words pot, kettle and black come to mind.

If water quangos are so bad, why did the Tories set them up?

Hindsight is a wonderful thing. We have considered the performance of the water quangos—the three boards and Scottish Water—and clearly they do not work. As Mr Fergus Ewing is aware, if one draws a comparison between Scottish Water's performance and the performance of the private water companies south of the border, it is clear which model is delivering for its customers.

The Federation of Small Businesses believes that the decisions that were taken and the rules that were made by the water commissioner and, in particular, the switches to increased fixed charges for water supply are at the root of the problem. Today we ask the Scottish Executive to consider urgently the charging structure for Scottish Water.

It is not only the increases against last year's charges that constitute the problem. Scottish businesses already pay substantially higher bills than equivalent businesses south of the border. BP's Grangemouth refinery will pay Scottish Water £12.7 million in the current year. South of the border, the equivalent bill would be in the region of £7 million. BP is considering taking Scottish Water to court to try to force a reduction.

There are some more dramatic examples. In some cases, commercial premises in Scotland pay 16 times what their equivalents pay south of the border. Water charges are placing Scottish businesses at a competitive disadvantage. It is little wonder that Digby Jones, director general of the CBI, said in Edinburgh last Friday that it was seriously likely that companies would pull out of Scotland because of soaring water bills. He said that CBI members were deeply concerned about the increased cost of water compared with charges in England and that the charges contributed to the competitive disadvantage of Scottish companies.

I note from Mr Fraser's motion that the Tories are reticent about saying that they want to privatise water. Given the position that the Tories are developing on privatisation, why do they not just spit it out? They are pushing at an open door, anyway.

I am obliged to Mr Crawford for that helpful intervention and I will develop that point if he will bear with me for a moment.

All those examples of increased charges seem to be at odds with the Executive's declaration that growing the Scottish economy is its first priority. Scottish businesses already face higher business rates than those south of the border; now they have the added burden of higher water rates. That double whammy makes Scottish business uncompetitive and makes Scotland a less attractive place in which to do business than the rest of the United Kingdom.

I appreciate that Scottish Water requires investment in infrastructure, but I wonder whether I am too cynical to suggest that the increases are directed at those in the small business sector because they are in the weakest position to protest. If the increases were applied to the domestic sector, I imagine that every MSP in the chamber would be drowned under the weight of complaints from constituents and the matter would be right at the top of the Executive's agenda for action. However, the small business sector is regarded as a soft target for Scottish Water and that is simply disgraceful.

Domestic customers, however, do not escape. Scottish household bills have increased by 94 per cent in real terms during the past decade, whereas English domestic bills have risen by only 22 per cent since 1989. The average measured household bill in England and Wales is £209 for 2003-04 compared with £245 in Scotland—that is 20 per cent higher—yet Scottish Water delivers lower water quality, more pollution from leaking sewers and more wasted water as a result of leaking pipes. The water commissioner has concluded that, as a result of Scottish Water's inefficiencies, the average household pays about £86 a year more than should have been necessary had Scottish Water been as efficient as its English counterparts.

Between 1988-89 and 1998, the following price rises occurred in England: South West Water, 142 per cent; Northumbrian Water, 112 per cent; North West Water, 111 per cent; Severn Trent Water, 108 per cent; Southern Water, 107 per cent—I could go on. The average increase was 102 per cent and, in real terms, 46 per cent above inflation. That is the legacy of Conservative privatisation. In the same period, profits in Northumbrian Water rose—

Will Mr McNulty take an intervention?

Mr McNulty will have the opportunity to make a speech in due course. Is he disagreeing with the water commissioner, who says that Scottish householders are paying £86 a year too much because of the inefficiencies of Scottish Water? Let us remember Mr McNulty's role in the famous referendum. Perhaps he needs to reflect on that in the light of experience.

We are aware of the problems of Scottish Water. The question is, water we going to do about it?

Ooh!

First, the Scottish Executive must take urgent action to reduce the burden on Scottish businesses. That might involve examining the water commissioner's approach to fixed charges for small businesses and considering increased use of water meters.

The question of Scottish Water's inefficiency also requires to be addressed. As I pointed out, Scottish customers are paying through the nose for the inefficiencies of the Scottish water industry. I appreciate that there has been a reorganisation of Scottish Water, but that does not excuse its poor performance compared with its counterparts south of the border. It is difficult to regard the Scottish water industry without reaching the conclusion that the difference between the more efficient and cheaper water companies in England and Scottish Water is that the English companies are in the private sector. If the Scottish water industry had been privatised at the same time as the English water companies, we would today have a more efficient industry, better quality water and lower bills for more domestic and business customers. Only by moving Scottish Water into the private sector, whether as a privatised company or, preferably, as a mutual company, will we provide a proper solution.

Will the member take an intervention?

Not at the moment. I want to respond to Mr Crawford's point.

I should make it clear that my party has no ideological problem with the notion of privatisation. I do not want anyone this morning to accuse us of being wets. However, the information that we have received from industry analysts is that investors would not find Scottish Water attractive if it were sold off. Moreover, Welsh Water prospers as a mutual company and Yorkshire Water is considering a move from its fully private status to becoming a mutual company. As a result, it seems that mutualisation offers a better model.

Which mutualisation model would the member follow? Would he follow the model of Welsh Water, which is a shareholding, or that of the Glasgow Housing Association, which is a not-for-profit trust?

If Mr Crawford had read our motion, he would have found that we call on the Scottish Executive to investigate the different models of mutualisation to see which would be the most suitable. It is clear that mutualisation works.

I read with some interest the SNP amendment, which

"calls on the Scottish Executive to consider a not-for-profit trust".

What exactly is the difference between a not-for-profit trust and a company limited by guarantee that returns any profits to its members? I am not sure that I see any difference at all. Indeed, I wonder whether the SNP is so ideologically opposed to the private sector that it cannot swallow the thought of using the words "private company" and instead dreams up the phrase "not-for-profit trust".

I acknowledge the member's point that we have to make major changes to Scottish Water's structure. However, how on earth will that solve the immediate problem of the introduction of standard charges? Restructuring will have no impact whatever and is no solution to the problem that our small businesses and the voluntary sector face. Either Murdo Fraser suggests allocating some money to tackle that problem or he remains silent.

Mr Lyon has not been listening to me. I have outlined why Scottish Water's charging structure needs to be examined. However, in the longer term, the organisation's fundamental structure must be addressed or we will continue to see the price rises that I have highlighted.

Will the member give way?

I am in my last minute.

I think that, in view of the large number of interventions, I will give you about 14 minutes, Mr Fraser.

I am grateful.

As far as the longer term is concerned, how would turning Scottish Water into a mutual company reduce charges? By necessity, the company would have to borrow on the markets and would therefore be charged a higher rate of interest on its current level of borrowing.

I point the minister to the example of the privatised companies in England. They were able to deliver better quality service, better water quality and lower charges for a period of 10 years and more because they were in the private sector. We should follow such a model.

It is true to say that Scottish Water is burdened with a £2.1 billion debt. When the English water companies were privatised, their debts were written off, although much of that money was recovered from the sale proceeds. However, it is wrong to think that Scottish water companies have been penalised unfairly. As Peter Jones pointed out in The Scotsman on Friday, the net cost to the taxpayer of writing off the debts for the English water companies was around £50 per customer whereas in Scotland the figure would be about £300 per customer. There can be no argument that it is justifiable at this stage to write off more debt, at least not until such time as Scottish Water can show itself to be an efficient industry that strives to make cost savings.

A mutual company would be owned by its customers and employees and would be answerable to them. Being part of the private sector and operating in a competitive environment would give it an incentive to drive down costs. Furthermore, a mutual company would be free from political interference. I should point out that, far from the Tories having a monopoly on such an idea, the Scottish co-operative movement has also expressed an interest in the mutual model. As a result, it should command support from across the chamber.

When I saw the Executive's amendment, I thought that it was having a laugh. The amendment says that Scottish Water

"has started the process of delivering cost effective and improved services".

Where are they? That statement will come as a great surprise to the many small businesses that I mentioned earlier. The Executive amendment reeks of complacency. The fact is that the Executive appoints the regulator, owns Scottish Water, as it owned the three previous water authorities, and appoints the management. Ultimately, the buck stops with the Executive, which means that it must sort the matter out. However, there is no sign today that the Executive is taking the business community's real concerns seriously.

Mutualisation offers a model for the future of Scottish Water that will deliver a better quality service at lower cost to Scottish householders and—equally important—Scottish business. It is time for the Scottish Executive to take the necessary action to prevent Scottish Water from continuing to be a burden on economic growth in Scotland and an embarrassment to the nation.

I have pleasure in moving,

That the Parliament notes with concern the dramatic increases in charges by Scottish Water to businesses in 2003-04 which, in some cases, amount to nearly 500% more than the amount charged in 2002-03; believes that these increased charges bear no relation to the service provided by Scottish Water to these customers; is concerned that these rising costs have increased the competitive disadvantage faced by Scottish firms, particularly in relation to England; further notes that household bills have gone up by 94% in real terms over the past decade, while English domestic bills have only risen by 22% since 1989; acknowledges that privatisation in England has brought substantial capital investment which has led to lower bills for businesses and households alongside improved water quality; calls on the Scottish Executive to address urgently the concerns of domestic and business customers in relation to these higher charges and to look at widening competition with a view to reducing costs, and further believes that, as public ownership has failed customers in Scotland, the Executive should investigate models of private ownership.

I add my concern to that which was expressed by Murdo Fraser over those who face increased water bills this year. No one, least of all me, wants costs to rise. However, at this point, I caution against Mr Fraser's proposal that changing the whole system would necessarily benefit customers or consumers.

I will remind members why Parliament decided in the previous session that public ownership of the water industry in Scotland represented the best deal for customers and explain why the changes to charges have been made. Scottish Water has started down the path towards more efficient services, which will keep down future charges for consumers. I say to Bruce Crawford that any change in ownership now would simply detract from that progress and would be worse for customers.

Our programme for a better Scotland makes clear the Liberal Democrat and Labour commitment to retain Scottish Water in public ownership. We must remember that Scottish Water was created only just over a year ago at the Parliament's behest. We knew then about all the problems in the water industry and we knew that there was need for further investment. We knew that we needed to protect public health and to improve water quality and customer services. Moreover, we knew then—as we know now—about the need to deliver those services efficiently. However, we knew that all those things could not be done overnight and therefore we decided, correctly, that the best deal for the Scottish people was to merge the three water authorities into one national public sector organisation. That was true then and remains true now.

As Mr McNulty has pointed out, the claim that prices in Scotland have risen at four times the rate of those in England is wrong. It does not compare like with like. A decade ago, there were no sewerage charges in Scotland as they formed part of the general local authority charges. As a result, the Tories are comparing payments for both water and sewerage with payments for water alone.

Will the minister confirm that Scottish domestic customers are paying on average 20 per cent per annum more than domestic customers in England and Wales?

I confirm that, as far as comparisons with England are concerned, it might be true that we are tackling problems a bit later than they were tackled in England; however, we are certainly tackling them vigorously now. I think that that is probably what Mr Fraser is complaining about. We set up Scottish Water as a regulated public sector corporation to tackle those problems and we intend to see the job through.

It is early days to be judging the performance of Scottish Water. After all, its first report has not even been laid before Parliament yet. However, I believe that Scottish Water has already made a good start in its first year. Operating costs have been significantly reduced; customer services have been improved; and the quality of both drinking water and the wider water environment is better. Indeed, I can testify to that from the example of Saltcoats in my constituency. All that has happened at the same time as we have had to merge the three former water authorities into one.

There is still a long way to go. Although much has been done, there is much more still to do.

I am sorry to interrupt the minister's self-congratulation. However, will he address one of the major points of this debate, which is the disproportionate impact of the new charging scales on small businesses? That situation has come about mostly because of standing charges, which in some cases have led to bills tripling or quadrupling.

I will address precisely that point.

As we all know, the water infrastructure that Scottish Water inherited was not in great condition and, rightly, there is considerable pressure to bring it up to higher standards, which requires the massive investment programme that we have embarked upon. During the four years from 2002 to 2006, we will invest £1.8 billion in the industry, which, per capita, is more than will be invested in England and Wales.

That investment will improve drinking water quality and enhance bathing water and the natural water environment, but it has to be paid for. It is being paid for partly by the current charging regime, to which Alasdair Morgan referred, and partly by increased Government borrowing. Claims that Scottish Water is required to eliminate its borrowing by 2006 are wrong. The Executive is providing huge financial support for the investment programme—we will lend a further £250 million this year and almost as much for the next two years.

Let me develop my point, because it relates directly to the issue that Alasdair Morgan raised.

No one—least of all me—wants costs to increase, which is why Scottish Water has been tasked with making significant efficiency savings, the fruits of which will be seen in future, as they will lead to lower charges in the longer term. However, we also want the charges that people pay now to be fair and equitable, which I think was the point that the honourable gentleman Alasdair Morgan made. That desire underlies the charges scheme that has been agreed by Scottish Water and the water industry commissioner for Scotland this year. The level of charges is based on two principles: charges should be harmonised throughout Scotland and they should reflect the cost of the provision of the service. People and businesses throughout Scotland should pay the same for an equivalent service and the amount that is paid should reflect the average cost of providing that service. The water industry has largely fixed costs, which is reflected in the charge increases.

Of course, members pick on the extreme examples of charge rises—I have had 50 or so representations from members, including Alasdair Morgan, on that subject—but, naturally, we do not hear from the 20,000 or so business customers whose bills are lower than they were last year, or from the many thousands more who had low percentage increases. Nor do members point out the critical fact that those who face the 500 per cent increase to which Murdo Fraser referred had bills of less than £60 last year, which is on average less than the band A householder would pay. I sympathise with those who face much larger bills this year, but we must remember that those customers have in the past paid less than the full cost of the service they have received, which means that other customers have had to pay more. That is not fair and cannot be right.

A review of ownership would create only uncertainty and would undermine the progress that Scottish Water is making, which cannot be in the public interest. We do not need more analysis; we need to allow Scottish Water to deliver on its programme of efficiencies and capital investment. It should not be deflected from that course, which is why I commend to the Parliament the Executive amendment to Murdo Fraser's motion.

I move amendment S2M-162.3, to leave out from first "notes" to end and insert:

"believes that, having established Scottish Water in 2002, this is the right means of delivering cost-effective and improved services in accordance with the requirements of the Parliament and that, in the short time since Scottish Water's establishment, it has started the process of delivering cost effective and improved services, and further believes that a review of its ownership and funding now would undermine that progress to the detriment of all customers."

I expected to begin my remarks with the comment that surely we all agree that the present situation cannot be allowed to continue without serious adjustment or intervention, but that was before I read the Executive amendment. Is the minister saying, despite his crocodile tears, that he is perfectly content that the present situation is not only tenable, but desirable, which is the clear implication of the Executive amendment? To be frank, the staggering complacency of that attitude beggars belief.

The impact of the charges on Scottish businesses is absolutely dire and it is felt no matter how big or small the business is. The figures make depressing reading and show the effect on every high street, industrial estate and large manufacturing enterprise in every part of Scotland. We have heard reference to some of the price hikes that business must endure. Small businesses that use hardly any water are faced with 100 per cent rises—for example, Mr Barnes's Interproducts in my constituency has been faced with such rises from one year to the next—and bigger businesses are equally hard hit by price rises. Of course, there are also the invidious comparisons with water rates south of the border. Does the Executive just not care? That is the implication of what the minister said.

Comparisons with other water rates illustrate starkly the competitive disadvantage of Scottish businesses when compared with similar businesses south of the border. The disadvantage seems to be most marked in the commercial and retail sectors, but businesses such as newsagents and restaurants also pay far more.

Interestingly, the figures show that the one sector in which the Scottish average charge is lower than that in England and Wales is the brewery sector. That leads one to the conclusion that one thing that Scottish Water can do well is to organise the proverbial in a brewery. The difficulty is that people draw the conclusion that that might be the only thing that Scottish Water can do well. That perception might be a little unfair, because even the critics accept that the problem is not only for Scottish Water to resolve. Bill Anderson of the Forum of Private Business recognised the need for Scottish Executive transparency when he said:

"Everybody is blaming everybody else. The debt charges around Scottish Water's neck is a huge issue but if they had come to consumers and said we're going to have to increase water charges to pay for urgent work on the infrastructure, we might have understood. But to impose unfair extra burdens on those most unlikely to be able to pay by stealth shows a total disregard for open government."

I do not want to absolve Scottish Water of all responsibility for the current situation. The truth is that we cannot continue with the existing levels of customer dissatisfaction, from both domestic and non-domestic customers, for much longer. Businesses do not know where to turn for redress, which leads them to compare their water usage with domestic usage. The business in my constituency that I mentioned is an example of that—its charges have increased from £223.59 to £451.93, but if the owner's small office were a flat, it would be in the lowest council tax band and he would pay around £210 per annum. He pays way more than twice that.

It is understandable that businesses should react by comparing their charges with domestic charges, but the reaction ignores the likelihood of future price rises in the domestic sector, to which I will refer shortly. However, whether customers are domestic or business, the situation highlights the lack of a clear customer champion in the present set-up. Two years down the line, we are beginning to see the drawbacks of having a water quality regulator who is responsible for quality and enforcement but whose hands are tied because financial decisions are taken by the water industry commissioner. Perhaps the time has come to consider the amalgamation of those two posts with a beefed-up role that includes customer advocacy. That post would provide a better process for Scottish Water and for customers.

I mentioned the potential for rises in domestic charges. My concern arises out of the Scottish Executive's published spending figures for the next few years. I listened to the minister's detailed defence of the Executive's spending plans. In 2002-03, spending was planned at £285 million; in the present year, it is to be £256 million; but for 2005-06, it is to fall to £207 million. Those plans beg the question how Scottish Water will make up the difference. Things are bad now, but it looks like they will only get worse. Will the minister guarantee that the difference will not be made up by a further increase in domestic water rates, which, at the moment, definitely appears to be on the cards?

The Executive cannot just sit and do nothing in the face of that issue. We urgently require a full and detailed review of the financial arrangements for Scottish Water with the remit of affording Scottish Water greater financial flexibility.

I understand that greater financial flexibility means borrowing more in the financial markets, at interest rates that are necessarily higher than those available from the Executive. How would that benefit Scottish Water or its customers?

I call Roseanna Cunningham to reply, but inform her that she is in her final minute.

I am in my last minute and I have two more paragraphs of my speech, during which I will deal in part with the minister's point—my colleagues will also deal with it.

Through legislation in the coming year, the Executive will allow local authorities to decide for themselves on an affordable and prudent level of borrowing for their financial circumstances. Surely that same flexibility could be granted to Scottish Water, so that it could make its own decisions. Is that even under consideration? If such a move is being considered for local authorities, are we going to consider it for Scottish Water? Scottish Water needs to be released from the constraints of Executive diktat, and the Executive itself is constrained by Treasury rules.

I hope that the future funding of Scottish Water comes about not through privatisation, which is what I suspect the Tories—and perhaps Labour too—really want, but through a not-for-profit trust: a Scottish public services trust. Such a trust could serve as a means of levering in the investment that we all believe to be necessary. That means not a change in ownership, but a change in the way in which investment is levered into the sector. Ultimately, the solution to the high charges that are being faced by business is a sensible way forward for Scottish Water that involves precisely that.

I move amendment S2M-162.4, to leave out from "acknowledges" to end and insert:

"believes that the offices of the Water Industry Commissioner for Scotland and the Water Quality Regulator should be amalgamated to create a tough new champion on behalf of customers; further believes that a full and detailed review of the financial control arrangements for Scottish Water requires to be undertaken as a matter of urgency with a view to affording Scottish Water greater financial flexibility, and calls on the Scottish Executive to consider a not-for-profit trust to provide an appropriate vehicle for investment which would allow Scottish Water to be free of artificial constraints and keep charges under control."

One truism often heard is that we get what we pay for. Paying for what we get would seem equally reasonable. What are the customers of Scottish Water paying for? The Victorians built a superb system of piped water, serving homes and premises and providing sewers to take away waste. That probably did more to improve public health at a stroke than all the efforts of the national health service since it was created put together.

In recent times, that system and its water pipes and sewers were the responsibility of local authorities. Then it was handed over to three water companies, which were subsequently rationalised into one publicly owned body, Scottish Water. For whatever reason—over the years, there were reasons that could, at the time, have been viewed as good and sufficient ones—the stewardship of that magnificent asset left by the Victorians was lousy. We are left with the consequences of decades of underinvestment in the maintenance and development of the infrastructure. Scottish Water inherited a system that required a major overhaul and upgrading. It also inherited the data, staff and structures of three water companies that, in turn, had inherited the data, staff and structures of 30-odd local authorities. Furthermore, those handovers took place over a relatively short period.

Scottish Water has had to rationalise what it inherited: widely differing charges in different parts of Scotland; a huge and complex set of assets, some of which were in fact liabilities; not very good data about what assets it had, where they were and what condition they were in; and a requirement to meet ever more stringent quality standards. So much for how we got here and for a starting point for achieving safe, efficient, sustainable and equitable water services for the whole of Scotland.

The Conservative motion highlights dramatic increases in charges to businesses. Without trying to downplay those increases or the impact of the standing charge on small businesses and low-volume users in particular, I notice that one of the most dramatic percentage increases—626 per cent has been cited as an example—was an increase from £19 per annum to £138 per annum. The percentage increase makes the cash amount sound rather dramatic.

That pinch of salt having been taken, there is no doubt that the decision to apply a standing charge has had a big impact. The reason for the standard charge must be considered. About four fifths of the costs of supplying water services relate to the fixed assets—the pipework. I understand the fairness argument, which is that everyone should bear an equitable share of those costs, as those costs have to be met regardless of the amount of water used or the amount of waste generated.

The other big impact on this year's water bills has been the effect of harmonising charges across Scotland. I see that harmonisation as only fair. There have been big losers, and no doubt there have been big winners, although we do not hear from them. The water users who are currently losers and who are now picking up their fair share of the costs of providing water services must previously have been getting an unfair bargain at the expense of those who were paying more than their fair share.

Does Nora Radcliffe appreciate the fact that this year's increases are only part of the problem? The other major issue is the fact that Scottish businesses are paying much more than their counterparts south of the border—sometimes 16 times more for an office of similar size. Will she comment on what the Liberal Democrats believe to be the reason for that?

If I may, I will leave that point until later in my speech, when I intend to deal with it.

It should be remembered that that harmonisation hit is a one-off, in that any future increases will be roughly the same for everyone. The differential impact across Scotland arises partly because some of us—in the old North of Scotland Water Authority area—took a whack earlier.

Much has been made of comparisons between the situation with Scottish Water and the situation in England and Wales. Some of those comparisons have been very selective. There are wide differences between different areas of England. In addition, modernisation began a lot earlier in England, so direct comparison is not always meaningful.

Furthermore, privatisation was not universally beneficial, as some proponents would have us believe. Indeed, Sir Patrick Brown, the civil servant in charge of privatisation, has since said that customers lost out with privatisation. Phrases such as "mass profiteering" have been used, and we should not forget the high level of disconnections in some areas and the outbreak of dysentery in such areas.

The Scottish public made it perfectly clear that they did not want privatisation. Mutualisation might be a good option, but there is no single right answer. Scottish Water was set up last year after widespread consultation and much discussion in the Parliament during the passage of the bill that set it up. It does not seem sensible to mess about with a body that is barely a year old.

Scottish Water has a lot to do. It could perhaps have done what it did better. We cannot, however, get away from the facts that the infrastructure must be upgraded, that harmonisation has to be achieved and that Scottish Water needs to become more efficient. The quickest route to achieving efficiency seems to be to allow Scottish Water to get on with the job that it has to do. Messing about with what was set up so very recently would be daft. I return to where I started: we get what we pay for and we have to pay for what we get.

Many members wish to speak during the debate. I intend to try allowing six minutes for back benchers. If the position changes, I will let members know, and we will move to five-minute speeches.

In opening the debate, Murdo Fraser demonstrated at some length the extent to which the water industry has become an expensive burden on the Scottish economy. Such an extraordinary burden might in some way have been justified if it was possible to argue that the quality of service that the industry provides or its guardianship of the environment had in some way been improved as a result of the higher charges. Unfortunately, however, the reverse appears to be the case.

Scottish Water's performance has become something of a joke in certain circles. The percentage of drinking water tests passed in 2001 has fallen below the level—

Will the member acknowledge the numerous projects around the country that have already been completed to improve the basic infrastructure of the water industry? When he says, in a cavalier fashion, that there has been no improvement in the quality of services, is he totally ignoring the impact of that investment?

No, I am not ignoring the impact of that investment. I hope to go on to discuss the fact that that investment is not producing the results that similar investment in the south has produced, both for public service and for economic water provision.

Does Alex Johnstone accept that the investment that has been made south of the border has had about 10 years longer in which to have an effect?

What we are discussing today is the fact that the model south of the border has been more successful. Nora Radcliffe has just demonstrated that on my behalf.

We are trying to demonstrate that the Scottish economy is being threatened, and my point is that investment is not achieving the results that were intended, even if we disregard the level of cost.

Leakage is a particular embarrassment, with a massive 23.7 cubic metres per kilometre lost each day. That compares with 9.8 cubic metres of loss per kilometre south of the border. The water industry commissioner for Scotland, Alan Sutherland, pointed out that Scottish water and sewerage bills in 2001-02 were 60 per cent higher than they would have been under the three former water authorities, had they operated as efficiently as their English and Welsh counterparts. Consequently, we continue to suffer the economic disadvantage.

According to its amendment, the Scottish Executive's position appears to be that all in the garden is rosy. While we try to open the eyes of our opponents to the alternative structures that have delivered more successfully in our neighbouring country, the Executive's position seems further entrenched, with an increased determination to keep the water industry in the straitjacket that it has placed it in.

The Scottish Executive has told us that the draft bill that is to be introduced later this year will establish that Scottish Water alone is able to draw drinking water from and add waste water to public sewerage and water networks and will prohibit common carriage. It will prohibit anyone other than Scottish Water from providing domestic customers with retail water and sewerage services and will establish a licensing regime to control organisations that provide retail water and sewerage services to non-domestic customers. Consequently, the opportunities for competition that were brought about as a result of the Competition Act 1998 will be denied to Scottish industry and therefore further efficiencies will be denied to the Scottish economy.

The Scottish National Party's position seems equally naive, although certain questions have been raised if the comments that have been made so far are anything to go by. The SNP's 2003 election manifesto guaranteed that water will remain under public control and suggested a not-for-profit trust to deliver infrastructure investment and keep charges under control. However, questions asked this morning—they have not been successfully answered so far, in my view—would appear to indicate that the model of a not-for-profit trust that the SNP wishes to discuss is not that dissimilar to alternatives that we have proposed, such as mutualisation.

The member refers to mutualisation and not-for-profit trusts as being one and the same thing. How could either model borrow more for less in the financial markets than the Scottish Executive can?

I did not say that they were the same thing—I said that they were not dissimilar.

What we are trying to point out is that efficiencies in the running of the industry may conceivably—in our view definitely—produce efficiencies within the structure of the industry that would far outweigh any additional cost of borrowing, which in my view remains marginal.

Will the member take an intervention?

No, I am into my last minute and I will have to get on.

By any standard, Scotland and its water consumers have had a raw deal from the reorganisation of the water industry. In comparison with water providers south of the border, Scottish Water is second rate in almost every respect. Not only is our water more expensive, both for the domestic consumer and for businesses, but the quality of service is below the standards of the industry's main UK comparators. Why are we in that position? Why did we not go down the same road as the English water companies, which have delivered cheap, clean water and better sewage disposal? The answer is that in Scotland, those were not our priorities. In Scotland the number 1 priority for the people I am looking at in the chamber was to deliver a politically acceptable, state-owned water provider. If the Des McNultys of this world hoped that that would provide an example of the benefits of a state-controlled monopoly, their naivety has exposed them, for which the Conservatives are grateful. I support the Conservative motion.

I greatly enjoyed the performance of "Alice in Wonderland" put on by pupils at St Joseph's Primary School in my constituency, but none of the surreal aspects of their performance can be paralleled by the presentation from our Conservative counterparts.

The reality is that water prices in England and Wales are coming down because of the imposition by a Labour Government south of the border of tight regulation, which has cut back the super-profits that were made by privatised water companies under the previous Conservative Government. The reason that water prices have gone up so much in Scotland, compared to 1988-89, is the very low levels of investment that were permitted by the Conservatives. The Conservatives are not alone: if we go back 30 years, we can see that there has been consistent underinvestment in the water and sewerage industry in Scotland. However, the 18 years of Conservative domination was the worst and most pathetic period for infrastructure management in Scotland. Not only did the Conservatives refuse to take the problem of water investment seriously, but they diverted attention from charging with the ridiculous procedure of the poll tax. We spent the early 1990s talking about the poll tax, whereas in England the Conservatives began to address water investment through privatisation, even if that was a flawed solution.

The solution we were given in 1994-95, to which we in Strathclyde systematically objected, was that proposed by the Conservatives. The Conservatives ignored what the people of Strathclyde wanted—and, I would argue, what the people of Scotland wanted—which led to their ending up with no Scottish MPs in 1997. Unfortunately, the Conservatives' solution persisted until last year. The underperformance of the three water quangos was a consequence of the nature of the reorganisation that the Conservatives put in place. They are responsible for the period between 1979 and 1997 and it has taken time to unravel the consequences.

Significant investment is now being made, which is leading to increases in water charges. Had that investment been balanced out over 12, 15 or 20 years, as it should have been, those increases would have been much smaller. The real, long-term responsibility rests with the Conservatives. If Murdo Fraser wants to be honest with the CBI and the small businesses that write to him, he should say, "Mea culpa. I'm sorry, we didn't put the money in in the 1980s and 1990s and we ended up with all those flawed and silly solutions." The way in which the Labour Government south of the border has sought to control—

Why does it not do so here?

I believe that it is doing so.

The water industry commissioner has reduced from £2.3 billion to £1.8 billion the amount that we will have to pay for new investment. That is not enough, and I will come to the legitimate criticisms that can be made of Scottish Water. However, the Conservatives' stance on the issue is fundamentally dishonest.

There are flaws in Scottish Water's charging regime, although I pick up from business not only issues about the charging regime, but fundamental issues about the constraints imposed by the lack of investment and Scottish Water's lack of capacity for investment in new developments. Growth opportunities in Scotland are being held back because Scottish Water cannot get the pipes into areas where investment is needed.

In my constituency, there is the case of a much-needed old people's home that people have wanted to build for more than 10 years. However, Scottish Water cannot find the resources for the central option, which is the one that would meet the legal standards and make some improvement to the asset, although it would invest only enough to prevent further deterioration. That is the framework within which, politically, Scottish Water operates. There should be some flexibility, because we need a framework in which there is an opportunity for utilities to co-ordinate their work with developers, local authorities and others. We need to find a mechanism that allows development to take place and prevents Scottish Water from holding development back.

I am concerned that whenever I ask a question of Ross Finnie, the Minister for Environment and Rural Development, I get the answer, "This is an operational matter for Scottish Water." A couple of weeks ago, Bruce Crawford asked Mr Finnie when he next intended to meet Scottish Water. The response was:

"I have nothing in my diary".—[Official Report, Written Answers, 29 May 2003; p11.]

There are major issues attached to Scottish Water. I speak not only of the charging regime and the way in which that impacts on small businesses, or of the development issue that I highlighted, or of specific issues with developments such as the one in Mugdock in my constituency. Ministers must take more responsibility for such matters than they have until now. There is one doctrine that we must strongly attach ourselves to, which is that ministers have a responsibility for organisations such as Scottish Water that work at arm's length—not a day-to-day, operational responsibility but a responsibility for ensuring that they pick up the consequences of such organisations' policies and the frameworks that they set. I do not think that that is happening at present. I hope that Mr Finnie takes account of the points that I have tried to make, mends his ways and responds more positively in future when members raise issues of concern.

Carrbridge is an attractive village in my constituency that relies substantially on tourism for its survival. There is also a garage there. I am sure that if members visit the village during the holidays they can buy some petrol from Dougie MacDonald at the garage.

However, during the Easter weekend all the residents and businesses in Carrbridge had no water for five days because of a faulty valve in a pipe. I mention that serious problem because the real cause of it goes back two years to attempts that were made to get permission to lay the new water pipeline that is needed to replace the faulty existing pipeline from Loch Einich, which is in the northern part of the Cairngorms. It has taken two years for us to have the various quangos involved agree that the new pipeline may be laid below ground. It has taken so long because the pipeline would cross sites of special scientific interest.

It has cost Scottish Water £1 million to prepare the environmental impact assessments that are required under the Natura regulations to prove that every other possible source of water that would not involve the pipeline crossing an SSSI could not be used. Scottish Water even had to prepare an EIA for Loch Ericht, which would involve the laying of a pipeline for 30 miles at a cost of £30 million.

I want to make constructive points, rather than to contribute to the unedifying spectacle of a competition between the Labour and Tory parties about whose record is worse.

Will the member give way?

I will give way to the member later.

All of us want to preserve and protect our environment, but the current policy is not what is required. It is a greedy, gas-guzzling Cadillac of an environmental policy, when we require a normal, respectable family saloon.

From Joe Moore, the head of operations at Scottish Water, I understand that a cost of £1 million just to lay a pipeline under the ground is the norm. I know that my constituents—especially patients in the north of Scotland who are waiting 53 weeks for a liver scan—would regard that as a massive waste of money. What are we doing spending money on it? It is no wonder that our water charges are so high.

Des McNulty is right to draw attention to the fact that when we ask questions about Scottish Water Ross Finnie and his able deputy Allan Wilson say merely that these are operational matters for Scottish Water. That is very convenient. The real reason that the Tories set up the quangos and Labour and the Liberal Democrats retain them is to deflect blame and responsibility on to the quangos. Alan Sutherland and Alan Alexander get the flak, rather than the Executive.

The member said that £1 million for a new pipe system seemed hugely expensive. Is he making the point that it is too expensive because someone else could provide it more cheaply, or is he saying that we should not have to pay for that investment? I am not trying to score a point—I simply want to establish what the member means.

I am happy to clarify the point. The £1 million was just for the consultation. We have not begun to pay for the pipeline. We have not even reached the stage of applying for planning permission. The £1 million was spent just on securing Scottish Natural Heritage's agreement to the pipeline. What is that about? It is no wonder that Scottish businesses are complaining about their water rates. It is no wonder that the Golf View Hotel in Nairn told me that its standing charge has increased by 9,000 per cent—by 90 times.

Clearly, Sarah Boyack was not listening to Fergus Ewing's speech. I was, and I noticed that the member said that £1 million was spent on the study. Is this an example of the regulatory impositions that are driving down prices in England and to which Des McNulty referred, or—as we all suspect—is it an example of the fact that regulatory impositions drive up costs?

It is an example of a lack of common sense.

I want to talk about fixed charges, which are anti-environment because they do not discourage excessive consumption. In South Africa, post apartheid, a system was introduced under which every household receives a supply of water per week that has been calculated to be more than ample to meet the weekly needs of a family. Excessive consumption is discouraged by the use of metering. The system that we have is the obverse of that: it encourages profligate use of water and, as the Federation of Small Businesses has pointed out, may be incompatible with the duties on companies under the Environment Act 1995, which requires companies to promote efficient use of water by their customers.

Where do we go from here? For the past two weeks, as a member of the Finance Committee, I have suggested that the Parliament should conduct a thoroughgoing inquiry into and review of Scottish Water. The inquiry should examine the claims of Alan Sutherland that £300 million could be saved. I do not accept those claims. I think that Mr Sutherland has done a hopeless job and would like to scrap the office of the water industry commissioner for Scotland, which would save £2 million straight away. However, if Mr Sutherland has said that £300 million could be saved, why is the Executive doing nothing about that? Why is there no inquiry or review? Will Labour and Liberal members block a parliamentary inquiry by one of the committees that would sort out the issue and find the solutions that every business and customer in Scotland wants?

No one can deny that the water system in Scotland must be upgraded: statistics reveal that about 17,000 miles of underground water pipes, most of which date back to Victorian times, need to be renewed at a cost of £2 billion.

The amalgamation of the three water authorities that existed previously made absolute sense as a way of spreading costs throughout Scotland. That was the perception. Until this year, customers in the former North of Scotland Water Authority area were paying much higher rates than were customers in the rest of Scotland, because of the geographical disadvantages of delivering the upgrades that are needed in that sparsely populated area.

I am pleased that the debate has been scheduled to address the vastly increased prices that business throughout Scotland faces. Those increases are especially galling because they seem to have affected Scotland's small businesses particularly badly. I have been contacted by businesses in my constituency that have this year received bills demanding increases of between 100 and 200 per cent. This morning we have heard reports of even higher increases in other areas.

Those increases must be considered in the context of other increases that small businesses face at the moment: increases in property insurance; the recent increase in national insurance; and the longer-term aim of increasing the national minimum wage. All those increases impact on our business community, and especially on small businesses, many of which must—because of their size—pass on cost increases to their customers in order to avoid going out of business. In the case of a small village shop, the rising costs will have to be paid by the most vulnerable members of the community—those who do not have cars and who are on low incomes, such as the unemployed, the disabled and the elderly. Rises in water charges must be considered in that context.

When the water boards were merged into Scottish Water, the water industry commissioner gave the commitment that overall charges would not increase by more than 7.8 per cent. I would like to ask the commissioner why the charges of a constituent of mine have risen from £217 to £420, which is an increase of almost 100 per cent. I do not believe for one minute that the commissioner would regard that as being something like 7.8 per cent.

In another case, a constituent read in the local newspaper a Scottish Water advert that claimed that people's charges would be reduced if they installed a water meter—a very attractive proposition. My constituent did not use a great deal of water and so had the meter fitted. When the first bill arrived he found to his amazement that his water charge had almost doubled. Scottish Water is backtracking quickly in that case, but no real solution has been arrived at. Questions must be asked about the need for a commissioner: if a commissioner cannot control increases, is there any need for the job?

Many members will have received numerous complaints about water and waste-water charges. For industry and commerce, we all accept that the situation is especially bad. The decision to apply standing charges has penalised the smaller water user, small businesses and domestic users. It does not encourage water conservation, which is the plea of Scottish Water. Similarly, high standing charges for meter customers do not convey the appropriate price signals: people go on to a meter and are then whacked with a great extra bill. The charges do nothing to promote efficient use of water in Scotland, which is Scottish Water's objective.

Scottish Water must listen to pleas from industry, commerce, domestic users and people who are trying to make a living in our country. If the current charges continue, we will see a vast decline in the small business community and in larger industry and commerce.

I ask members to keep their speeches to five minutes. I will try to call as many members as I can.

You will be pleased to know that my little speech is probably only about three minutes long; I believe in short and sweet.

The Scottish Green Party believes that the supply of water is a basic human right and, as such, must remain in public ownership. In this country, for most of the time, we have a superabundance of water, but we must still look carefully at how we manage what is becoming an increasingly valued resource. Scottish Water has had a huge problem in being saddled with debts that were written off in England and Wales. There, not only were debts of £4.95 billion written off, but the Westminster Government invested £1.5 billion to kick-start all the improvements that are necessary. Should privatisation go ahead in Scotland and that amount of subsidy not be available, there would be even more asset stripping than in England. How could a privatised Scottish Water make any profit with the improvements that are needed, the huge salaries that would have to be paid to the directors, and the dividends that would be required to keep the shareholders happy?

The member makes some interesting points, but the water industry in England is privatised and yet is delivering better quality water, better quality infrastructure and better investment at a lower cost to the consumer. Given that that is the case, how can all the things that the member says are wrong with privatisation be true?

When we look into the matter we find that things are not quite as straightforward as Murdo Fraser suggests. It has been pointed out that the water authorities in England and Wales have had 10 years. I hope that we will be able to achieve improvements without going down the dangerous road of privatisation.

Is the member saying that her priority, for political reasons, is to retain water services in the public sector regardless of any advantages that may or may not accrue from any other model?

We want to ensure that people can use the water resource without it costing them too much. We have to consider what privatisation actually costs in the long term.

Look south.

I do not accept that. Everyone knows about statistics and damned statistics, and that we can interpret figures in different ways. The Conservatives are not mentioning the amount of misery that was caused in England when some domestic customers' water supplies were cut off.

Will the member give way?

Blooming 'eck!

The member asks us to remember instances of people being cut off, but is she aware that in Scotland it is illegal to cut people off? Is she aware that some £700 million of regional water debt was in fact written off by the Treasury when the English water companies were privatised?

I am sorry—I did not follow that point. Does the member mean that £700 million was written off for Scottish Water?

Yes.

I am pleased to hear it, but obviously we still have things to do, and I might make a few suggestions later.

The water industry in England and Wales is as heavily regulated by the Office of Water Services as Scottish Water is by the water industry commissioner for Scotland. With privatisation, there would be no real competition in the accepted sense. Consumers would not be able to change their water supplier, but would be tied to the company that supplies water in their area. To privatise the water industry at this stage would cause major disruption and do nothing to address the real issue that many businesses face, which is high water bills that cause businesses to consider closure.

Small businesses are the backbone of the Scottish economy. I feel that the Executive's role must be to take an overview, to consider causes and effects, and to take action if one area of its responsibility is suffering because of actions in another. Could the Executive consider ways of creating a more level playing field? The most important thing would be to remove the cap on public funding so that the burden of years of debt and poor investment is not funded simply by higher and higher water bills.

Another practical solution would be for the Executive positively to encourage incorporating the idea of reuse of waste water for industry when facilities are being upgraded, and to incorporate water-saving devices in new-build homes as well as encouraging their use generally. [Applause.]

I call Elaine Murray. Elaine Murray?

I am sorry. I did not hear because I was too busy clapping.

I, too, am familiar with the problems of small businesses. A fairly small number of small businesses have come to me about their water charges, but I have been a bit disappointed in the actions of Scottish Water in looking into their problems: responses have been standard responses rather than individual responses. However, we must not forget Fergus Ewing's point that Scottish Water inherited significant problems from the three quangos that were set up by the Tories when they took water out of local authority control. We must also not forget the 18 years during which the Conservatives starved local authorities of cash. As Des McNulty said, the current situation is the result of a long period—

Will the member give way?

No, I want to get on. I am not even one minute into my speech.

It was considered locally that the council in Dumfries and Galloway provided a good service, although it might be debatable whether the council could have dealt with some problems that have arisen since to do with compliance with European legislation. However, that is more than could be said of West of Scotland Water, which was unpopular throughout Dumfries and Galloway. My experience of Scottish Water is that it is more responsive than was West of Scotland Water—David Mundell could confirm that following discussions that we have had about the sewage treatment works in Langholm. Scottish Water seems to be more willing to discuss those problems and more willing to discuss matters with the Scottish Environment Protection Agency than was West of Scotland Water, which described SEPA as the Taliban and did not want anything to do with its recommendations. I am therefore prepared to give Scottish Water a bit of time to demonstrate its capabilities.

We must not forget that the Conservatives voted for Scottish Water less than 18 months ago. If they were so opposed to the idea of Scottish Water, why did they not vote against it? Why did they not come out and propose privatisation at that time? Is it not actually the case that they were aware, and continue to be aware, that privatisation of water is extremely unpopular with the Scottish electorate? The Conservatives knew that a Scottish parliamentary election was coming over the horizon, so they did not dare to talk about their plans for privatisation.

During the past six years, when has the Labour party given the people of Scotland the opportunity to choose between massively expensive water services and an alternative structure that could deliver a more efficient service?

We have given them two such opportunities—in May 1999 and on 1 May 2003.

The Labour party lost seats at the 2003 election.

We did not lose as many seats as the Conservatives did.

The Tories are simply dressing up their desire for privatisation in the clothes of mutualisation. That represents an extraordinary conversion from Conservatism to the Co-operative Party, which I simply do not believe has happened. Mutualisation was discussed extensively before the passing of the Water Industry (Scotland) Act 2002, which brought Scottish Water into being. Mutualisation was not at that time considered to be suitable because we felt that it would not be able to address some of the industry's significant problems.

The Tories' real agenda continues to be privatisation of the water supply in Scotland, so let us examine what the results of privatisation might be.

Does the member agree that Standard Life is a private company and a mutual, and that making Scottish Water a mutual company—returning it to private ownership—is, by definition, a form of privatisation? Is the member not splitting hairs?

I am not splitting hairs, because a mutual company would still have major infrastructure difficulties and would have to borrow money on the private market.

Privatised water companies might well be interested in the densely populated areas of the central belt, where a lot of money could be made, but I do not believe that they would have any interest in sparsely populated rural areas such as Dumfries and Galloway, where we have many problems. In my area, we need investment to address infrastructure issues and we have planning blight because our sewerage system is insufficient to cope with new development. No private company would have the slightest interest in resolving those issues.

If Scottish Water were to be broken up into smaller private companies, we would have no guarantee that the jobs that we have tried to keep in Dumfries and Galloway through cross-party co-operation—unfortunately, those efforts have been unsuccessful—would even remain in Scotland and not go elsewhere, as has been the case with some of the companies that the Conservatives privatised, such as BT, whose jobs we see going to India. The Tories' plans would offer no such guarantee to my constituents in Dumfries and Galloway.

The issue of higher water charges by Scottish Water first came to my attention in late April, when I took a call from a silversmith in Mull who told me that his water bill had increased by 300 per cent to almost 1 per cent of his meagre £50,000 turnover. He was angry about having to pay out a far larger proportion of his profit and he communicated his message well. Since then, the increased charges that have been imposed by Scottish Water have united opinion along the whole spectrum of Scottish life into a single voice of condemnation and a single cry for help, which the Parliament cannot ignore.

Normally moderate people—such as Bill Anderson of the Forum of Private Business and John Downie of the Federation of Small Businesses—are taking a strong and vehement stance on the matter. Bill Anderson calls for transparency; he questions the openness of the Government and voices genuine resentment about what he calls another stealth tax. John Downie seeks a full inquiry into the water industry in Scotland. That gives us some indication of the messages that they are getting from their hard-pressed members. Although such messages send a clear signal, which is backed by hard data, that smaller businesses are being hit disproportionately hard, it should be noted that large organisations are still being asked to pay significantly more than are similar entities in England and Wales.

Scottish Water is attempting to cope simultaneously with the amalgamation of its constituent parts into one organisation, with many years of material underinvestment, with high interest payments, residual organisational inefficiencies, limited borrowing powers, compliance with the water commissioner's directions and with the rapid move to harmonised billing. In making that attempt, it would appear that Scottish Water is able neither to provide the necessary investment, nor to buffer its customers from the resultant costs.

As we know, those costs are considerable and are damaging the Scottish economy. They are deterring and limiting future investment by loading the dice even more against inward investment; by making the expansion of existing businesses less attractive; by reducing Scottish Water's spend with contractors and cutting back on many local projects—for example, primary sewerage treatment systems are being cut back to secondary sewerage treatment systems; and by limiting local commercial and residential development as a result of the failure to upgrade infrastructure, which inhibits growth.

The privatisation route is incapable of transforming the situation, because it would give up control of a monopoly utility without ensuring that our charges would converge with those elsewhere. It would offer no guarantee that the appropriate level of investment would be forthcoming or that the private owners would care about the impact of their service and charges on jobs and growth in the wider Scottish economy.

The member referred to the problem of there being a monopoly. Does that mean that he supports competition between water companies and common carriage over the network?

I support competition across the board, but it is wrong when, as in the present case, we are talking about a monopoly service. Another example of such a monopoly service is a service provided by a single ferry, such as that which Western Ferries provides and which David Petrie—the Conservative candidate in Argyll and Bute—adamantly opposed, as did I.

I will not give way, because my five minutes are running out quickly.

Our preferred solution is to use the vehicle of a not-for-profit trust, which would avoid the creation of a private sector monopoly utility provider, which could operate without providing the beneficial effects of competition. It would maximise the chances of meeting the convergence, investment and economic growth criteria and it would remove the cost of dividends and profit distribution. A not-for-profit trust would focus on infrastructure maintenance and development and in developing an infrastructure that fosters, rather than inhibits, growth it would be working towards goals that are a subset of those of the Scottish Executive.

I would be interested to hear the member expand on his idea of a not-for-profit trust. I invite him to set out what advantages a not-for-profit trust would have that a mutual company that was owned by its customers, all the profits of which were reinvested for the benefit of its customers, would not.

As we have seen with Standard Life, mutuality is permanently under threat from the desire to create a private company or to create a monopoly, which I am firmly against.

It is important to reflect on the urgency of the current situation, which is affecting growth in business and is making the position more difficult.

I thank Mr Mather for giving way in his final minute. We share his concern about the impact on small businesses. Will he explain how the Scottish National Party's model can deliver help for those businesses without having to borrow more money?

The member should close.

The key issue is that our proposal would open up the situation and would create a much crisper position. At the moment, the debt is £2 billion and we are paying £135 million on that, which—according to my calculations—amounts to an interest rate of 6.72 per cent. It is possible to get a mortgage for 4.5 per cent, which would give us a saving of £45 million a year for starters. Our proposal would push matters into the real world and would take the issue forward.

We must have an inquiry to open up the situation. There must be a comprehensive review of the financial make-up of Scottish Water and Scottish Water must be benchmarked against other organisations. That would let in some light and give us some fresh air on the subject.

I have an announcement to make. This morning, the Presiding Officer has agreed to a request from the First Minister to make a statement today on the Holyrood building project. That statement will be made at 2 pm. A revised daily business list will be issued shortly.

Sarah Boyack and John Scott will both have three minutes.

The debate has proved, once and for all, the extent to which the Tories are obsessed with privatisation. They are obsessed with the ownership of organisations rather than with what those organisations do in practice. Murdo Fraser provided no historic context and did not accept the fact that the investment in the English water industry was made a decade ago.

That investment was made because the companies were privatised.

They were privatised by the Government, which gave them a huge subsidy. The Tories came up with no solution for us at that time, because people in Strathclyde said that they did not want a private water industry in Scotland. We had decades of underinvestment as a result of the Tories' restriction of local government finance and they offered no solution for the Scottish water industry, so it is a bit rich for them to criticise us and to demand privatisation.

Will the member take an intervention?

I thank Mr Fraser, but he has said enough this morning.

It is a bit rich for the Tories to criticise and demand privatisation when the massive investment that is being made is beginning to make a difference to water quality after decades of underinvestment. There is a challenge to be faced in that Scottish Water and the three previous water authorities have a huge investment to put in place in a relatively short time.

The water industry commissioner is on the side of the domestic charge payer and the big business charge payer. We have to consider the impact on small companies, but the money has to come from somewhere.

Will the member take an intervention?

I have only three minutes.

If the money does not come from the taxpayer through Executive subsidies, it must come from the users. During the debate, no one has said where else that money could come from.

The Tories have an ideological obsession. The Scottish water industry is using private sector skills and investment on major projects where that is appropriate. We must ensure that that investment is made so that there is an increase in the quality of the water that we receive.

It is untrue to say—as Alex Johnstone said—that there have been no improvements. The Tories have given members the false perspective that privatisation—which no one else in the chamber wants—would be a simple fix that would solve the problem of people having to pay for investment. That does nothing to clarify how the Tories would change the reality of having to pay for that investment.

Efficiency savings are coming through—we need only compare the number of staff who are being laid off by Scottish Water with the number who were laid off by the three previous water authorities. There have already been efficiencies of scale and that must now be driven through the whole process of the £2 billion investment. It gives a false perspective to pretend that it would be better to have a private company than it would be to have a public company using private sector skills running that process.

Members throughout the chamber agree that Scottish Water faces a massive challenge, but the solution that is proposed by the Tories would be a diversion from the task at hand, which is to invest efficiently £2 billion throughout Scotland as soon as possible.

In speaking in the debate, I intend to communicate to ministers the strength of feeling about increased water charges that exists in Ayrshire and, indeed, across Scotland.

In my constituency, there is huge dissatisfaction with increased charges to households and businesses alike. Householders' water bills have risen by an average of 10 per cent, but the real outcry has come from the small business sector, where charges have doubled, trebled and, in some cases, quadrupled in the space of one year. I am talking about small businesses such as Stanley and Aileen Kaye's St Meddan's Store in Dundonald Road, Troon. It is simply not good enough that, in the past year, water bills in Ayrshire have risen so dramatically. That is why the Tories demanded to have today's debate.

Looking back in time, we acknowledge that there has been underinvestment in our water industry structure. That is why we agreed to Scottish Water being set up. As predicted, the merger of NOSWA, East of Scotland Water and West of Scotland Water produced cost savings of £100 million in July 2002. Those savings were not used to benefit the consumer or the business sector. Instead, that £100 million was returned to the Scottish Executive and the consumers received no benefit. Instead of putting charges up to current levels, the Executive could have used the £100 million partly to defray costs to small businesses at a time when it is trying hard to encourage small businesses and get the economy moving.

That is the trouble with Executive policy. On the one hand it maintains that a key priority is the creation and development of small businesses. On the other hand, it increases water charges and business rates, which continues to drive investment out of Scotland. Constituents often ask me why the business start-up rate is so low in Scotland. The simple answer is that the business start-up climate is oppressive and increased water charges are another nail in the coffin of that sector.

Big businesses also face crippling costs. BP appears to be threatening to bring court action over its £12 million water bill for the Grangemouth plant. Charities are also facing additional burdens, with the hospice in Ayrshire facing a fivefold increase in water costs as relief is phased out.

What is to be done? A good start would be to put the consumer first. Competition should be introduced into the industry, as Jim Mather—a late convert—suggested. However, the Executive has shied away from allowing competition because it says that it is afraid that Scottish Water would not be able to cope with it.

A new business structure must be created to replace the nationalised industry that Scottish Water, in effect, is. We propose that mutualisation of Scottish Water would deliver those goals and I welcome Nora Radcliffe's view that mutualisation is a good idea.

The CBI and the FSB take the view that the present system is unworkable and that a rethink of public ownership is necessary. Instead of the Scottish Government siphoning off profits or merger dividends, as has happened in the past, a mutual company would reinvest every penny of its income on behalf of its customers. It does not matter whether the business model is mutualisation, co-operation, or a not-for-profit trust; we must find a different structure that can deliver for its customers, withstand the rigours of competition, raise capital on the market for much-needed investment and, I hope, make a profit some day.

I urge the minister and members to support our motion.

Scottish Water's introduction of standard charges across Scotland is a central problem facing businesses and voluntary organisations in my constituency as in others. Many businesses point out that the 50 per cent cut or £300 to £400 benefit that they received from the Executive through the small business rates relief scheme has been lost because of the introduction of standard charges. They are no better off financially.

No one could seriously argue that there should not be standard charges across Scotland—I do not believe that I have heard any member argue against the proposition. What causes me concern is the way in which those standard charges were introduced. It is reasonable to argue that the charges should have been phased in over a period of time. The water industry commissioner or Scottish Water should at least have conducted proper consultation with small businesses and the voluntary sector.

In April, instead of that, bills containing huge rises in charges dropped through the doors of all such businesses. There was no letter to explain the difference between last year's bill and this year's. There was no justification for the rises in the charges. Even worse, there appeared to be a clear attempt to reduce the payment options to direct debit only. No one would disagree with the proposition that everyone should pay by direct debit, but customers should be offered all the options.

All that is an unacceptable way for a business that is owned by the Scottish Executive to deal with its customers. I seek an assurance from the minister that he will examine how the process unfolded over the past 12 months, and that he will deal with and speak to Scottish Water and the water industry commissioner to ensure that what happened is not repeated. At the very least, proper consultation might have taken some of the sting out of the rise in water charges.

This morning, we saw lots of wringing of hands from the Opposition parties about the concerns of business. Every member shares those concerns—we all have small businesses and voluntary organisations in our constituencies that face the same challenges. However, when it came to the hard question about how much extra the Opposition parties were willing to put on the table to soften the blow to business, there was a deafening silence. They offered not one penny more in the manifestos on which they fought the election. Let us have less of the hand wringing and indignation unless parties are willing to put money on the table to soften the blow to businesses.

Scottish Water was set up less than a year ago. As Shiona Baird so rightly said, it is ridiculous to suggest that we should break up the organisation before it has got into first gear. It is essential that it be given time to work and that the efficiencies demanded by the water industry commissioner come into play.

I support the amendment in Allan Wilson's name.

The water supply situation is not just an issue for Scotland; it is an issue for the whole world. In my e-mail inbox this morning, there was an announcement of a speech entitled "The world water crisis: a Scottish initiative" to be given by a prominent individual to the Scottish Parliament's international development group. It made me think that perhaps the minister's opening speech should have been entitled "Scotland's water crisis: lack of initiative".

The Executive's amendment is extremely complacent and seems to tell those small businesses whose plight we have been discussing that they must grin and bear it and everything will be all right on the night.

Des McNulty's speech illustrated that the lead minister Ross Finnie's diary contains no meeting with Scottish Water, yet when Elaine Murray, the minister's colleague, stood up and said that she was unhappy with Scottish Water, the Deputy Minister for Environment and Rural Development nodded his head. We know that, at this time, ministers are taking no action whatever to hold Scottish Water to account. That is far from satisfactory.

Since the Parliament was set up in 1999, it has wrestled with the water problem. The background to the issue is that, for the first time in about 50 years, we are looking to invest in infrastructure that was neglected for about 100 years. I say to Des McNulty that it was neglected not only by Tory Governments in London, but by Labour Governments, which he conveniently forgot to mention. The issue is another one on which London has let down Scotland for decades. At last we have a Scottish Parliament that can try to improve matters.

Of course, investing in sewerage and water is not particularly sexy, which is why local councils, Labour councils and UK Governments did not invest in them. However, if there is one revelation from this debate, it is that we have found an issue that brings Des McNulty alive. We had the most passionate speech from Des McNulty that I have ever heard. We must have more debates on the future of the water industry in Scotland so that we can see Des get passionate.

The issue that we are discussing has led to an increase in household bills and bills for non-domestic premises. The situation has been so dire in recent years that we even saw the Executive trying to withdraw water rates relief for charities, although, thankfully, we managed to stop the Executive doing that completely. Today, the debate has been largely about the impact on small businesses. As constituency representatives, we all have examples from our own areas of local businesses that have been hit hard by huge rises. I know about the fish processors in north-east Scotland, which are operating with 1 per cent profit margins yet have seen their bills go up by several hundred per cent. John Farquhar Munro and Fergus Ewing gave other examples.

The difficulty is that my party and other parties in the chamber supported a merger of the water authorities to improve matters, yet although the Minister for Environment and Rural Development said in the stage 3 debate on the Water Industry (Scotland) Bill that one of the reasons why the Executive was merging the water authorities was because it did not want rises in charges that were "out of the ordinary", today we are talking about increases of several hundred per cent. Clearly, there is more work to be done.

We must have a financial review. The debate should not be about the ownership of Scottish Water; it should be about the financial arrangements for Scottish Water, so that we can change them. It should also be a debate about scrutinising current expenditure, because we are not scrutinising hundreds of millions of pounds of expenditure by Scottish Water each year. We know that the Executive is not scrutinising that expenditure, because it does not even speak to Scottish Water. We know that there is no appointment in Ross Finnie's diary to meet Scottish Water.

We are constrained by the United Kingdom Treasury's spending rules, which is another illustration of why this Parliament should have more financial powers, so that we can take decisions about how our public authorities are financed. At the moment, borrowing is limited because of UK spending rules, so we cannot do what is best for customers in Scotland.

Will the member give way?

If the minister had been earlier, I would have let him in.

We must hold Scottish Water to account. We must ask the Alan Alexanders of the world whether they are doing a good job for customers. If they are not, we must do something about it.

Westminster never showed any leadership in relation to the water industry in Scotland. It is about time the Executive showed some of the leadership that has been lacking.

First, I congratulate Richard Lochhead on getting a reference to fish into a debate on the water industry—it was the pièce de résistance—but he is fundamentally wrong. The debate is a retro debate that reminds me of the 1980s and the bleak 1990s. We are talking about the public-versus-private position. I am grateful to the Tories for reminding the Scottish public just what they are missing without a Tory Government.

I listened with interest to members' comments, and to the different proposals from members of my party and others. Of course I am concerned for the environment generally and that the people of Scotland should receive good-quality water for drinking. Of course we are concerned that people should pay a reasonable price for service delivery. That is why we are investing in our water infrastructure.

Why is the Executive forcing Scottish Water to finance its investment programme with a public-private partnership, instead of allowing it to borrow public money? That means that Scottish Water is borrowing private finance, which is more expensive, and that the charges are being placed on water consumers. Why will the Executive not allow Scottish Water to borrow public money from public bodies?

We could not have a retro debate without a contribution from the Revolutionary Socialist League, for which I am grateful. Nobody answered the question that I posed: how could a mutualised or a privatised model, or a public sector trust, borrow money more cheaply from the Executive? They could not. It is impossible.

The minister is right to pose that question, but it is the wrong question. The question is not whether the money can be borrowed more cheaply, but whether the cost of that dearer borrowing can be offset by efficiency savings. In England and Wales, the cost is being offset, but up here we have not yet had that advantage.

Efficiency savings can be made in either the public or the private sector. It is not the prerogative of the private sector to argue that efficiencies cannot be made in the public sector. It is straightforward.

I argue that replacing the current public sector model with a mutual or a privatised model—and I accept that they are essentially the same thing—would be highly disruptive, would add to Scottish Water's borrowing, and would increase customer costs and charges.

Will the minister give way?

Such a model would also need to be financed by payments to bond or dividend holders, at additional cost to customers.

Will the minister give way?

With respect, Alex, I would like to develop the point.

I am grateful to my colleague Sarah Boyack, who mentioned that, in England and Wales, privatisation meant that some Government-funded debt was written off and the rest was replaced by shareholder equity, which the companies have to remunerate by paying dividends. Alex Johnstone and Murdo Fraser argue that competition in England and Wales has resulted in lower prices for customers, so we should use the water services bill that we intend to introduce to increase competition, but I argue that that is a misunderstanding of the situation in England and Wales. The water companies in England and Wales are, in effect, regional monopolies. They are not subject to direct competition. As Des McNulty said, effective regulation in England and Wales by the Office of Water Services—Ofwat—has led to lower prices there.

The minister seems to be saying that the reason why Scottish water charges are so high is that we do not have effective regulation in Scotland, so what is he going to do about that?

That is why the water industry commissioner for Scotland benchmarks Scottish Water's position against the performance of the Ofwat-regulated companies in England and Wales. That is the purpose of the exercise. That is why we have to increase the efficiency of Scottish Water, so that charges will come down.

Will the minister give way?

Will the minister give way?

I give way to Alex Neil.

I appreciate being allowed to intervene at the second chance, minister.

We heard that under the current private finance initiative-type arrangements the average rate of interest that is being paid by Scottish Water on moneys borrowed is 6.72 per cent. What would the percentage be if the money was borrowed at the current rate from the Public Works Loans Board? What would the difference be?

This is the mythical model that Alex Neil's colleagues propound, under which, somehow or other, Scottish Water's £2.2 billion debt could, like a credit card debt, be taken to another loan provider to secure a lower rate of interest. Which one? Who would provide that?

Last year, the Parliament considered in detail the best way to structure the industry to suit Scottish circumstances and to ensure the best deal for Scottish people. We decided then—correctly—that there should be one public corporation covering the whole of Scotland. We decided that Scottish Water would be held to account by drinking water, environmental and economic regulation and that it would be answerable to the Parliament. Nothing that I have heard today has convinced me that that structure, set up by Parliament only last year, does not remain the best way to deliver water services to the people of Scotland.

I urge members to reject the motion and to accept the Executive amendment.

Before I call Brian Monteith to wind up, I thank him for agreeing to cut back his time to allow other back benchers in. You have just about six minutes, Mr Monteith.

The debate has been interesting and entertaining in some respects and it has shown the main parties' true colours. It has shown just how wet or dry, economically, some of the parties are.

The SNP is certainly a wet party. It has shown in its amendment and in its members' speeches that it still bitterly hates the profit motive. Not for profit is the solution to everything with the SNP. We also found out that private monopoly is bad, but public monopoly is good. There is clearly a dislike of profit, except, of course, the profits of Brian Souter, which the SNP would certainly welcome, even though he makes them from a privatised industry.

Then we have the Liberal Democrats, who are not so much wet as saturated. Nora Radcliffe said that we get what we pay for.

And we have to pay for what we get.

And we have to pay for what we get. We have poorer-quality water, poorer sewage compliance, and a poor leakage record in Scotland. Nora Radcliffe tells us that we should remember the health scares. What about the 116 people in Grampian who contracted cryptosporidium in 2002? What about the cryptosporidium in Mugdock and Edinburgh? What about the diesel fuel allowed through Burncrook reservoir, which affected the water of 60,000 people and which was the worst case of water pollution in the UK in recent years under a public water company?

Is the member telling us that changing the organisation would have done anything to prevent those cases?

Certainly, the evidence for the report into Burncrook was damning about work practices that allowed diesel fuel into the water, which workers did not report until a day and a half later, after customers complained about having diesel in their water. The whole escapade is a damning indictment of a public company and shows that safety is not predicated on whether a company is private or public.

Even though we get what we pay for and we pay for what we get, the charges for domestic and business water services are higher in Scotland, despite the fact that things are worse. We certainly do not get what we pay for.

I turn to Labour. It was interesting to see Des McNulty become so animated for once, but he still did not have the confidence in his arguments to take interventions. It was clear from those arguments that he has a selective memory of why we are paying higher prices for water, both domestically and in business.

I have listened patiently and I have not heard one word about senior citizens. Council tax took away one third of the most recent rise in their pension. They spend a disproportionate amount on water rates all the time. That situation is far more important to them than is the percentage increase in small business rates, because they are living on a tiny fixed income. Something should be done in the Parliament to alleviate their position.

That point is well made and it helps to explain why older people generally are more disposed to vote for the Conservatives, knowing that our policies would deliver cheaper water.

I return to Des McNulty's point. I agree—mea culpa—it was the Tories' fault that we have dearer prices. What did we do wrong? We lost our nerve in the 1980s and the 1990s when we did not deliver the privatised water that we should have delivered. That is the mistake that we made. Of course, members of other parties were the very ones who created the climate that ensured that three secretaries of state ran scared from privatising Scottish water.

We recall the Strathclyde referendum. Lord Ewing—the former Labour MP, Harry Ewing—told the House of Lords, with a straight face, that if water were privatised, church ministers would have to conduct mass christenings, because they could not afford more water. That was the standard of debate back then.

If that was the strength of the argument, how come all the Tories, who must have been much younger in those days, did not win any support in the Strathclyde water referendum?

There is absolutely no doubt that the mood of the public was against privatisation. There were higher water charges in England and scare stories, so the outcome was no surprise.

Having taken interventions, I shall move on to my conclusion. It is clear that a large amount of public debt had to be written off. Some £3.9 billion of public debt was written off in England, but then the water companies went out and borrowed £52 billion to start improving. Debt is not the issue; the efficiency savings and returns are the issue. Profit motives can drive companies to deliver what customers want.

I come to my conclusion, having cut out even more of my speech to accommodate members. It is clear that there are alternatives. We should look to the dry alternative of ensuring that the profit motive delivers companies that produce what customers want—safe and cheap water when they need it. Mutualisation is an admirable beast. It has been adopted in Wales and there is no reason why it should make a difference to standards; in fact, we believe that standards, and the price, could become better.

I support the motion.