Scottish Water
Good morning. The first item of business is a debate on motion S3M-1386, in the name of Derek Brownlee, on the future of Scottish Water. I invite members who wish to speak to press their request-to-speak buttons now. The debate is a little undersubscribed, so anybody who would like to speak would be welcome.
Mr Brownlee has seven minutes in theory, but we are a little relaxed about the time.
I open the debate with some trepidation, because the last time that I spoke in the chamber on Scottish Water half a ton of wood swung loose from the ceiling and hung above my head. Thankfully for me, I survived to be present for what—if the BBC is to be believed—is an historic day, when parties that have long opposed the mutualisation of Scottish Water will take their first faltering and hesitant steps towards it. Who would have thought that Fidel Castro would retire before the Labour Party and the Scottish National Party pensioned off their ideological antipathy to mutualisation? Only two weeks ago, who would have thought that a left-wing alliance would emerge? For the Labour Party, perhaps it is a case of, "If you can't beat 'em, join 'em."
I am keen to offer the Government some friendly advice. If it is preparing to support Labour's amendment, it might be worth checking whether the Labour Party proposes to do the same. I believe that I crafted a motion with which no reasonable person could disagree. As if to prove my point, only Des McNulty and Liam McArthur have sought to amend it.
The debate is not about the rights and wrongs of the service that Scottish Water provides; I make no apology for focusing on the structure and the governance model that we select for the organisation. Some might consider the debate to be dry, academic or arcane—I suppose that that is the stuff of dreams for Des McNulty—but the subject is important. Scottish Water costs taxpayers £182 million every year and we need to consider whether that expenditure is necessary. The debate is also about whether Scottish Water can obtain in a different manner the money that we all agree that it needs to invest in infrastructure.
The Scottish Conservatives' position is well known: we think that the model adopted by Welsh Water operates better for taxpayers and customers than does the model imposed on Scottish Water. However, my motion seeks consensus and does not prescribe the outcome; all that it seeks agreement to is the reasonable proposition that the Government should review the structure and, while considering the status quo, also consider a mutual model, among others.
Any change to Scottish Water's status would require fresh legislation—Alex Neil said that in the budget debates—so today's vote is not on the form that Scottish Water should take but on whether we should review the form that it could take. We all ought to agree that a review is long overdue. Whatever positions the Labour Party and the Liberal Democrats take today, the previous Government did not review Scottish Water's status—Sarah Boyack helpfully confirmed that in a parliamentary answer to me last March. The current Government had been in office for all of seven days when it ruled out changes to Scottish Water, so it could not have undertaken detailed consideration before it decided to retain the current status. As we know, the Howat review suggested that mutualisation should take place, but that was rejected out of hand last May. If we are about to see a change of heart today, we should welcome it.
As I have said, a review is not a commitment to change Scottish Water's status. If Scottish Water is best kept as it is, a review will demonstrate that. Those who are confident of their position have nothing to fear from a review. The Government cannot oppose a review on the ground that, as a matter of principle, it is against the ownership of infrastructure being outwith the public sector, because it proposes such a model for its Scottish futures trust, which will be, according to the consultation on the trust,
"a body which is private sector classified but which has a public interest ethos."
Such a body will own schools and hospitals. Surely the SNP cannot argue that private ownership is good enough for those vital public services but not for Scottish Water.
I have sympathy with much of the Labour amendment. Of course any review of Scottish Water's status and structure must take into account the regulatory regime in which Scottish Water operates. However, we must consider what the amendment means by "public ownership". After all, private companies are owned by the public, and a mutual in the purest sense—a co-operative, one might say—would be owned by the public. I worry that the Labour Party's amendment is too prescriptive. By insisting on public ownership as, I suspect, Labour would define it, Labour rejects the Welsh Water model, which works well.
In examining the nature of public ownership, would the member care to comment on the Conservatives' position on the Trustee Savings Bank, which was owned by trustees and customers but was sold off to profit a Conservative Government?
To profit the taxpayer.
As Mr Johnstone has eloquently said—he is an eloquent man at the best of times—the Government did not receive anything; the taxpayer benefited from that move.
If Labour rejects out of hand the Welsh Water model, it rejects something that works well. Rather than cost the taxpayer money, Welsh Water reduces its customers' bills with money that it does not want to invest in infrastructure. That is a helpful model to consider. The Welsh model would not mean privatisation in the sense that Scottish Water would be sold off to private institutions, although if that were best for customers and taxpayers no responsible Government would reject it. The model would not result in what happened to the English water companies. It would create, as the SNP would have it, a private company with a public sector ethos.
It might be possible to construct a mutual in the public sector, as the Labour Party might argue, and we would have no problem with a motion that sought to explore mutualisation options. That is hardly surprising, because that is precisely what my motion permits.
Scottish Water receives £182 million each year at the expense of public spending on other areas. Borrowing is constrained by Treasury rules. If Scottish Water were a mutual in the private sector, those constraints would be removed. It is far from clear that the same could be said for a public sector mutual, but we have no objection to considering the matter further.
All parties should be able to support my motion. The Labour amendment is flawed, but I give Labour credit for the fact that it represents significant progress on Labour's previous position. Members can tackle the challenge of improving Scottish Water by supporting my motion tonight, or they can—as is apt in a debate on water—choose to bottle it.
I move,
That the Parliament calls on the Scottish Government to establish a review of the structure and operations of Scottish Water with a remit to consider whether the current model delivers best value for taxpayers and customers, to consider alternative models, including mutualisation, and to report back to the Parliament on the conclusions of the review in such time as to allow any changes to the structure of Scottish Water to be in place prior to commencement of the next spending review period in 2011.
Des McNulty has about six minutes, but we can be quite generous.
Apart from being elected and re-elected to the Scottish Parliament as the constituency member for Clydebank and Milngavie, my proudest achievement in politics—in which I was greatly assisted by my colleague Charlie Gordon—was a successful campaign against Conservative proposals to privatise the water and sewerage industry.
Will the member give way?
Does David McLetchie not want to hear the numbers?
Will the member reflect on the fact that the proposal was to divide water services among three publicly owned companies, which his Administration subsequently amalgamated into one publicly owned company? No privatisation proposal was on the table. That was a gross misrepresentation by you and your colleagues.
I hope that I have not misrepresented anything, Mr McLetchie.
Mr McLetchie should go back over the history and remember the eight options that were proposed, which focused on privatisation. I remind him that in the Strathclyde water referendum, 1.194 million people voted against the Tory proposals for the industry's future organisation, which represented 97 per cent of voters on a turnout of just under 73 per cent. That was a crushing reverse for the Scottish Conservative party.
The Strathclyde referendum was followed by the annihilation of Tory representation in Scotland in 1997. Although there were many reasons for the Tories' dismissal, it is fair to claim that the water referendum was a key turning point. The Scottish Conservative party has not recovered either electoral support or political credibility, so one might have expected Mr Brownlee, in whose name the motion has been lodged, to shy away from the issue on which his party was routed. Mr Brownlee reminded us that, on the previous occasion when he spoke in a water debate, he was fortunate that the beam whose roof fixing sheared did not come down on his head. The auguries on this issue are not promising for the Conservatives.
However, I am pleased that Mr Brownlee has lodged his motion, because it gives me a chance to restate the firm commitment that Labour made in its manifesto last year to retain water in public ownership; to set out what was achieved over the past few years under the previous Administration; and to identify what needs to be done under the present Administration to ensure that a publicly controlled water industry is both accountable and efficient, in the best interests of domestic and business consumers.
Will the member give way?
I want to continue for a little while.
It may surprise new members to hear that the cause of mutualisation was first pressed from the Tory benches by Murdo Fraser. The idea that the most right-wing person on economic and social issues on the Conservative benches is in favour of shared ownership is implausible enough, but the idea that Mr Brownlee and Mr Johnstone are committed to walking in the footsteps of the Rochdale pioneers is even stranger. I point out to the happy-clappy bunch on the SNP benches that Fergus Ewing rivals Mr Fraser as the most right-wing member of the Parliament. I described Mr Fraser only as the most right-wing member on the Conservative benches.
The Tories are no prodigal sons, regretting and repudiating the errors of their past ways. They are deceivers who want to sugar the pill of privatisation that voters spat out so emphatically 13 years ago by embracing a peculiarly privatising version of mutualisation.
I welcome the fact that Mr McNulty's amendment mentions mutualisation. Does he agree with Unison that mutualisation is a smokescreen for privatisation? Is that the Labour Party's position, or does the member disagree with Unison on the issue?
I thought that I had stated my position, but I will repeat it. Many Labour members have demonstrated a strong commitment to the principles of co-operation. If mutuality offers a way forward in protecting and maintaining public control and meaningful shared ownership of any government or business organisation, Labour is naturally inclined to be sympathetic to and supportive of it. However, when mutualisation is used as a veil for the privatisation of public assets, as the Tories intend, Labour will oppose it strongly. Our position remains that the water and sewerage industry should remain firmly within the public sector. The risks and costs associated with mutualisation on the Welsh model would not be acceptable here in Scotland.
Over the past eight years, with the formation of Scottish Water, the implementation of four-year investment programmes, and the introduction of greatly improved regulatory arrangements and new responsibilities set down in legislation, significant progress has been made towards overcoming the legacy of chronic underinvestment that damaged the water and sewerage industries in Scotland under Conservative Governments in the 1980s and 1990s. Out-of-date plant such as the water works in Milngavie in my constituency have been replaced by modern, up-to-date treatment works, as part of a £500 million a year capital investment programme—the biggest such programme in the United Kingdom water and sewerage industry.
During consideration of the Water Industry (Scotland) Bill, I proposed that a sustainability duty be imposed on Scottish Water. It is vital that that duty and the role that Scottish Water must play in delivering the objectives of the water framework directive, as translated into the Water Environment and Water Services (Scotland) Act 2003, are fulfilled, especially given the emphasis that we all agree must be placed on addressing climate change.
The process of improvement on both the delivery and environmental fronts has not been entirely smooth. Mr Brownlee was a member of the Finance Committee in the previous session, which carried out a major inquiry into water and made robust recommendations. He will recall that the prospect of sharply increasing water charges triggered that investigation. However, if we compare Scottish Water with privately owned water companies elsewhere in the UK, we find that currently it has one of the lowest levels of charges for domestic customers, and soon its charges may be the lowest in the UK. That is a success for the Finance Committee, for the revised regulatory arrangements that we recommended and, to be fair, for Scottish Water.
Will the member take an intervention?
No, I will not.
There are issues that the industry must address: the unacceptably high level of leakages from transmission pipes, on which targets have been missed; issues relating to procurement and asset management; work on flood prevention, involving soft as well as hard engineering solutions; and the extent to which the industry is responsive to its customers. However, it is only fair that we also note the conclusions of the regulatory report that the water industry commissioner produced last year, which recorded substantial progress against industry benchmarks, in both absolute and comparative terms.
None of that will be welcome to the Conservatives, who find the urge to privatise when there is any glimmer of public sector success irresistible, especially when that success contrasts favourably with the performance of the private sector. Fortunately, Labour members do not have their ideological hang-ups. I note from the budget that the Minister for Transport, Infrastructure and Climate Change has moved on from the analysis of the Cuthberts that engrossed Mr Mather and Mr Ewing. We want to have a successful water industry. That is why Labour's amendment puts the emphasis on keeping Scottish Water under pressure to meet its delivery targets, while making clear the Government's responsibilities for overseeing good governance and the delivery of services that equal or exceed those that are available from comparable providers elsewhere. That is what the people of Scotland want, and that is what Labour wants.
I move amendment S3M-1386.1, to leave out from "calls on" to end and insert:
"supports the retention of Scottish Water under public ownership and in that context calls on the Scottish Government to keep under review the structure and operations of Scottish Water, the regulatory arrangements for the water industry to ensure that the interests of domestic and business customers are properly protected and alternative public sector models, including mutualisation, and to report back to the Parliament in due course."
This is a timely, if strangely undersubscribed, debate. We believe that the time is right for us to undertake a thorough review of Scottish Water, to consider whether the current model delivers best value for domestic and business customers and for taxpayers. I am encouraged that the call for such a review and for mutualisation appears to be gaining support throughout the chamber. However, as Mr Brownlee pointed out, we should not forget that when ministers published the Howat report last May, their only comment on the recommendations before burying them was to rule out any rethink on Scottish Water's structure and operations. Were it not for the recent climbdown on sportscotland, such a U-turn would almost merit the description "historic". However, given his repeated condemnation of mutualisation in recent months, I am bound to say that the decision may tax even the bottomless loyalty of Mr Neil.
Does the member not think that it would be much better to have a commission rather than a review on this matter? [Laughter.]
As I said, we are testing Mr Neil's loyalty to the limit.
The call to keep the situation under review, as the Labour amendment suggests, is insufficient—not because it is too prescriptive, as Mr Brownlee said, but because it lacks urgency and clarity. I fear that it could lead to the Government finding reasons—possibly even the much-loved, "We're just a minority Government"—for not taking action. Ministers must make clear their intentions on the nature and timeframe of the review that their spin doctors have been busy telling the BBC overnight is imminent. If nothing else, abolishing council tax and introducing a fairer local income tax will mean that the present arrangements for setting water charges and billing will need to be reviewed.
On charges, I state in passing that Liberal Democrats support the extension of the current exemption for some charitable organisations and bodies that serve a public function. I invite the minister to indicate his current thinking on the issue.
In the remaining time that is available to me, I will address two important points: the timing of the review and the nature of the changes that we wish to see. It is wrong for Mr Brownlee to suggest that mutualisation has not been considered before now: it was considered in the run-up to the Water Industry (Scotland) Act 2002, which merged the three former water authorities. The 2002 act was essential to providing a more efficient, consistent and high-quality product and service. However, at the time it was clear that mutualisation could be achieved only at a prohibitive cost to the consumer.
Over the past five years, under the previous Executive, there has been record investment in Scottish Water. That has helped to address issues ranging from development constraints to the higher quality and environmental standards to which Mr McNulty referred. Scottish Water has progressed to the point where conversion into a mutual company can be achieved in a way that is beneficial both to the consumer and to the taxpayer. We must recognise that the company operates in a highly technical and competitive environment and that attracting people with the necessary skills and expertise is increasingly difficult and costly. Performance and pay invariably are benchmarked against private sector companies.
Will the member give us his opinion on the Welsh Water model?
I am coming to that. Various mutual models are worthy of consideration. After an inauspicious start, the Welsh model has elements to recommend it. At this stage, we do not want to prejudge the review in terms of the available options. However, in order to meet the challenges that Scottish Water faces, we believe that it is not necessary to go down the route of privatisation as the Tories did south of the border. As I said in response to Mr Brown, we believe that a mutualisation model—of which there are a number—is the right way forward. Scottish Water would be owned entirely by the Scottish public and all profits would be retained for further investment in infrastructure or passed on as savings to the consumer. We would seek a legislative block on any future demutualisation or privatisation.
Given the political consensus, of sorts, that is emerging, a review is now required. However, public support for such a review will be possible only if reassurances are given that it is not about privatisation and if the benefits to the customer and taxpayer over the long term are clearly set out. I have pleasure in supporting the minor amendment in my name.
I move amendment S3M-1386.2, to insert after "mutualisation":
"but excluding privatisation".
In considering today's motion and amendments, we need to keep in mind the unique water industry model that we have in Scotland. The Tory press release of yesterday stated:
"If the Scottish Government is confident that a state-owned Scottish Water is the best option, then it has nothing to fear from a review."
We are confident and we do not fear a review. Indeed, to use a phrase that I have used before, such a review by a new Government would be normal, natural and necessary. We have, of course, examined the status of Scottish Water, and we are happy to examine it further if the motion or amendments are agreed to at decision time.
On 24 May, John Swinney said:
"We will not take forward the recommendation"
of the Howat report
"to turn Scottish Water into a mutual company … Scottish Water will retain its current status. That is our clear policy position."—[Official Report, 24 May 2007; c 134.]
Jim Mather then said that Scottish Water would not move towards mutualisation under an SNP Government. Is there a U-turn?
The member should listen to what I said, which was:
"If the Scottish Government is confident that a state-owned Scottish Water is the best option, then it has nothing to fear from a review."
I repeat: we are confident and we do not fear a review.
We have a system that combines the best parts of the privatised industry in England and Wales with, of course, the strengths and ethos of a public sector organisation. The result is a publicly owned water business that is subject to tough independent economic and quality regulation. The system ensures that ministers, not special interest groups, set the strategic direction for the industry on behalf of all the people of Scotland.
On regulation, is the minister happy with Scottish Water's current leakage rate? It failed to meet its target by 44 million litres a day, which is the equivalent of 17 Olympic swimming pools.
The leakage programme started a couple of years ago. The first target was missed by some 4 per cent, which was disappointing. However, Scottish Water has made substantial progress. Indeed, it is doing substantially better on leakage than many of the privately owned companies south of the border. I agree that leakage is an area for improvement, and improvement will be achieved. The public ownership of Scottish Water is a way of ensuring that the Government can act in the customer interest on leaks, as in many other areas.
I am struggling to understand the purpose of the review, given that the Government is committed to public ownership. Is not mutual ownership incompatible with public ownership? If so, what is the point of the review?
I am happy to review the status of Scottish Water because I am confident that the review will tell us that we are heading in the right direction. [Interruption.]
Mr Johnstone.
I am not afraid of a review and I know that others in the Parliament are not afraid of a review. I do not intend that we head towards mutualisation.
I turn to highlight a number of areas. First, average household water charges in Scotland are lower than the average in England and Wales. Furthermore, in Scotland, charges will rise by less than inflation, whereas in England and Wales they will rise by more than inflation. Secondly, in Scotland, we have a company that is delivering for its customers—Scottish Water is outperforming its regulatory settlement and rapidly improving its customer service performance. It is therefore of little surprise that, last year, Scottish Water was judged to be one of the top utilities in the UK by its peers. That is a superb achievement on which I congratulate it. We need only compare that with the situation in England and Wales, where several companies have been fined for lying about their treatment of their customers. The water industry commissioner said that "Scottish Water's achievement" in reducing its operating costs
"is unprecedented in the UK water industry."
The Government does not believe in the current model as a matter of dogma; we believe in it because it works. It is not hard to think of one or two private sector businesses that are not well run, but in Scottish Water we have a high-quality board with experience from the public and private sectors that has the right skills to take forward the organisation.
It is important that we do not take steps to undermine the progress that has been made in recent years. Scottish Water is six years old, which makes it quite a young organisation. In that time, it has made huge improvements, and it wants to make many more.
Will the minister give way?
I think that I am out of time.
Time allows it.
The minister referred to the quality of Scottish Water management and the progress that the company has made, which the Liberal Democrats do not dispute. However, in terms of attracting high-quality personnel and management going forward, does he agree that the current model constrains Scottish Water while mutualisation would set it free?
If I may, I will make a side comment. Standard Life—of which I was a huge defender—provides an interesting example of the mutual model. Ultimately, we found that the company had to go for a stock market listing because of the mutual model constraints. I accept that there is a variety of mutual models. Nonetheless, anyone who suggests that mutualisation is a panacea should examine matters more carefully, particularly when we have a successful model that is delivering for the people of Scotland.
We have tough targets for the future and we need to give Scottish Water space to rise to the challenge. We should, of course, keep an open mind and continue to review the options, but the clear consensus is that Scottish Water is doing well. The suggestion that we should change the model is not particularly robust. I am happy to support the Labour amendment, which strikes the right balance.
We move to the open debate. I ask for speeches of around four minutes, but—as I keep saying—I can be reasonably generous.
The minister says that he does not fear a review of Scottish Water, but he did not commit to one. I am happy to take an intervention from him at any point. He has neither committed to a review nor given a timescale for one. Perhaps he will intervene at some point and let the chamber know when the review will take place.
Mr Brown should listen more carefully to my remarks. The Labour member who proposed the amendment seemed to hear them. I have agreed that we will support the Labour amendment.
To be careful, perhaps the minister should read the Labour amendment, which calls on the Government "to keep under review" Scottish Water, as opposed to calling on the Government to constitute and hold a timescaled review.
We welcome the Government's slight change of heart. Following publication of the Howat report, it said "No, no, no" to any review or mutualisation. However, yesterday, we heard John Swinney on the radio practically running the four-minute mile along the road to Damascus, trying to find a way out of the hole in which the Government found itself.
The Labour Party is trying to take credit for getting the Government to change its position, despite the fact that, as Derek Brownlee pointed out, the Labour Party refused over a number of years to hold such a review or countenance any form of change. On 15 March 2007, Mr Brownlee asked on how many occasions the Executive had
"reviewed the current structure of Scottish Water since its creation."
The answer that he received from the then Deputy Minister for Environment and Rural Development, Sarah Boyack was, "None". He then reflected on the Executive's possible change of mind on the mutualisation of the company and asked:
"does it not seem rather odd that the Executive has not even considered changing the structure of Scottish Water?"—[Official Report, 15 March 2007; c 33317.]
Sarah Boyack answered, "No".
The party that has been absolutely consistent all the way down the line is the Scottish Conservative party. We recognise that there are issues with Scottish Water, most of which are linked to its structure. We have heard that almost 50 per cent of treated water ends up as leakage, and we have heard about the cost to the taxpayer to the tune of £182 million a year.
What we have not heard about—but what is particularly serious—is the holding back of developments throughout Scotland because of the lack of water infrastructure, particularly in West Lothian, Midlothian, Glasgow, Kilmarnock and Aberdeenshire. Ken Ross of Homes for Scotland said in 2006:
"We have a crisis. Scottish Water has failed to allocate sufficient resources to remove development constraints, they are putting housing and other projects in jeopardy at a time when we need to resolve the problems of affordability for key workers and first-time buyers."
When Stewart Maxwell was asked in September last year how many developments had been held up in the past few years, he replied:
"The … information requested is not held centrally."—[Official Report, Written Answers, 13 September 2007; S3W-4043.]
I note in passing that The Herald was able to report in 2006 that an estimated 8,000 developments had been held up by the lack of water infrastructure in Scotland.
Mr Stevenson seemed to suggest that Scottish Water was doing extremely well in the rankings and was well regarded by its peers, but the latest Office of Water Services rankings, produced in April 2007, ranked Scottish Water 22nd out of 22 companies. I suspect that Mr Stevenson was quoting from the Scottish Water annual report as opposed to any independent assessment.
The review needs to happen quickly. Although we rule nothing out, as we have said all the way down the line our preferred model is the Welsh Water model, which has run extremely successfully since 2000. It is mutualised, and it is a company limited by guarantee. Like any co-operative society—which I would have thought the Labour Party would support—it is privately owned by its members/customers as opposed to being publicly owned by the state. That model would give Scottish Water access on the capital markets to the money that it needs to speed up infrastructure work, and it would save the taxpayer £182 million a year.
Why did Standard Life, which was a mutual company, have to cease being one?
As far as I am aware, Standard Life does not produce water. That change was debated a number of years ago, and I note in passing that Mr Salmond was furious about it at the time, although he recently rightly praised Standard Life for its success in the FTSE.
Under the Welsh model, Scottish Water would have access to private capital and we would save £182 million a year. I note in closing that Welsh Water customers have each received a rebate of £20 this year, which means that they have been handed back more than £100 million since 2000.
At the outset, I refer members to my entry in the "Register of Interests of Members of the Scottish Parliament" as a Co-operative and Labour Party sponsored member.
Derek Brownlee spoke of the beam above his head. As I sat having a coffee this morning, I heard the almighty noise of a compressor going off directly above where I was sitting. I thought of him when that happened, and we said so to the staff, who immediately started investigations. Who knows what earth-shattering things are happening today?
It is interesting that, when I left the chamber last night, members were speaking about Supporters Direct, the mutual approach to football for supporters across Scotland. This morning, we again focus our attention on a debate about mutualisation of the water industry.
Water companies are not casino chips. They have a public duty to maintain a service to customers. A public company is a precious idea—a company that earns a licence to trade through accepting public obligations as the quid pro quo for the right to make profits in the society of which it is part. There is an explicit bargain: the company keeps its public promise to deliver the goods or service that it is in business to provide, and we accept its right to make maximum profits. It is publicly held to account by shareholders and stakeholders alike for non-delivery.
Some people may say that we have allowed the public part of the equation to wither by accepting the business lobby's proposition that profit is the only aim of a company. That proposition is wrong, and doubly so for a public utility. The aim of a public company is to prosecute its business vocation, through which it then makes profits. Scottish Water should regard its duty as being to deliver abundant water.
I understand Helen Eadie's point, but let us consider the Welsh Water model. Its primary objective is not to maximise profits because it has no shareholders to distribute them to. It is instead
"to provide high quality water and sewerage services at least cost to its customers".
Is not that a sensible model for Scottish Water to operate under?
If I have enough time, I will highlight the deficiencies of, and warnings about, the Welsh Water model. If, one day and for reasons that are unknown as we speak, Scottish Water as we know it had to come to an end, I would consider the Welsh Water model, but with some caution. We should have regard to the various reports and papers that have been published that provide analyses of the circumstances in which the Welsh Water mutualisation came about. One paper is especially relevant—"Welsh Water: role model or special case?" which was published by Dennis Thomas from the school of management and business at the University of Wales Aberystwyth. The abstract of that paper states:
"This paper examines the issues involved in the conversion of the Welsh Water utility into a debt-funded, not-for-profit company, owned by members and limited by guarantee. The separation of asset ownership from out-sourced service management and operations, combined with debt financing, provides a revolutionary package with implications for the restructuring of the privatized water sector in England and Wales. However, the Glas Cymru model currently remains untested and its particular features, together with the circumstances of the Welsh Water acquisition, prevent its presentation as a template for replication by other companies."
Derek Brownlee should also consider whether, given the global financial situation, this is the best time to undermine the confidence of Scottish Water.
Some say that the best structure for a water company is the mutual ownership that has been pioneered by Welsh Water—owned by its citizen consumers and with the best performance record in Europe. Some also say that Welsh Water has many problems that need to be highlighted, and the health warnings must be read carefully.
Because of how the Conservatives privatised water in England, we should not take lessons from them today. [Interruption.]
Order.
Labour's mission has always been to fight for the public component of public companies or a plurality of ownership structures. The Conservatives' aim is to ensure that most of the water industry is run by companies for whom profit is the main aim. Some Tories accept that they have wider obligations; others are less scrupulous.
There is a difference in the forms of mutualisation that the Tories and the SNP would have us accept. Murdo Fraser's assertion—in a previous debate on the water industry and price increases—that a mutual company is free from political accountability is simply not true. A people's company remains externally accountable to the democratically elected Government and develops systems of internal accountability to all its members. The Tories' motion on that occasion proposed that Parliament
"further believes that, as public ownership has failed customers in Scotland, the Executive should investigate models of private ownership."
In moving the motion, Murdo Fraser said:
"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'."—[Official Report, 19 June 2003; c 883.]
You should be closing now, Mrs Eadie.
That shows the dividing line between Labour members, who believe in democratically accountable co-operatives, and the SNP and the Tories, who want to run their mutuals as companies with appointed trust members. Trusts were not good for the health service so why should they be good for Scottish Water? That is the heart of the matter. There are many models of co-operative structure, and I would not accept the Tory version of mutualisation. As a public asset, water must be owned by every person in Scotland, free from the threat of privatisation.
You really should wind up now.
The industry should be democratically accountable to both Government and its members.
It is absolutely essential that we keep under review the water services that we receive. That could be done by committees or the whole Parliament, but it should be done all the time. In the previous session, a lot of attention was paid to various aspects of how Scottish Water was working and whether its governance arrangements were in order.
We are not comparing like with like. The English water companies have operated for much longer. Scottish Water has been expected to do a big catch-up job in a short time. Our public sector model has achieved a lot, as the minister said.
I understand that Scottish Water is a relatively new organisation and that it has perhaps not had time to develop in the way the English companies have. However, in 2005, Mr Gibson asked that Scottish Water be transformed into a not-for-profit trust in the public sector. It had had even less time then. [Laughter.]
There is no need for the Tories to laugh. There is a good reason why the former Environment and Rural Development Committee went to Wales to look at Glas Cymru—that is the bit that is mutualised, not Welsh Water. It was a disaster as a private company. At the time, it was suggested that mutualisation would be a good thing. However, when one digs deeper, one sees that the way in which Scottish Water and the privatised companies work means that subcontractors such as United Utilities—which are not mutualised—are making the huge profits. Until we dig into that and ask whether the subcontractors are causing customer charges to be higher than they should be, we will not properly review how water services work, or should work.
I suggest to those who are calling for a review—the Tories and Labour—that we should solve some of the problems from the past. We should consider that the charging regime placed on customers perhaps £1 billion of extra costs between 2002 and 2010. I know that the Finance Committee considered that in some detail in the previous session. A review will have to deal with that in the context of the regulatory capital value accountancy system that forced it, which is a model for the privatised utilities, not public companies. Current customers in Scotland have had to pay 86p in every pound for developments that should last for 50 years. That ought to be central to any review. The model of delivery is perhaps secondary.
I am concerned that developments in places such as the Highlands, where I live, rely on there being enough workers to carry them out. Scottish Water is always saying that it needs 40 per cent of the engineering workforce each year. The competition from the London Olympics and other things makes that difficult.
At the Transport, Infrastructure and Climate Change Committee, I questioned the regulator about the way in which Scottish Water underuses its borrowing requirements. He asserted that that is because it cannot complete its capital programme on time because of other constraints. We should consider such constraints, rather than the model.
Earlier this week, the Finance Committee considered the spring budget revisions, which included an additional amount for Scottish Water, principally on the basis that its capital programme is progressing much more swiftly now than it did in the past.
Mr Gibson, you should start to wind up now, please.
I will indeed.
There has been an exemption scheme for charities, which is one of the things that we can direct the regulator to look at. It is important that we consider charging not just in terms of giving customers bonuses; they deserve lower charges as a whole. All charities, whether existing or new charities, ought to be exempt from charges. We should ask the minister and those who are talking about a review to back such moves, rather than just consider whether the model should be mutualisation.
Members might notice that I have moved to the left during the debate, but that is only because my lectern is broken.
The Tories have form on Scotland's water. As Des McNulty said, in the mid-1990s, while the Tory Government was busy undermining, Balkanising and gerrymandering Scottish local government, it sought also to quangoise Scotland's water services as a stepping stone to privatisation. As Des McNulty said, he and I also have form on water services. As the then Strathclyde Regional Council's spokesmen, we organised the historic and successful Strathclyde water referendum. Although it did not prevent quangoisation, it certainly scared the Tory party away from privatisation. Members should never forget that the Tories cannot be trusted with Scotland's water.
I know that all that happened before Derek Brownlee's voice broke and before he ran away from the circus to join a firm of chartered accountants, so why do we still not trust him today? Take budget day for example, which brought out the beast in Brownlee—if members can conceive of such a thing. On that day, he proclaimed the demise of Scottish Labour, rather than support our fight to protect jobs in the tourism industry, as Alex Johnstone did at the Transport, Infrastructure and Climate Change Committee. Politically speaking, I am well qualified to ruminate on near-death experiences, so I say to Mr Brownlee that we know what it is like to be savaged by a dead sheep; today is his day to be skewered by an alleged corpse. Reports of Scottish Labour's death are highly exaggerated.
The original Tory-created water boards had a poor investment record because they were intended only as a stepping stone. That was certainly the case in Strathclyde, compared with the record of investment under local government. Scottish Water has improved greatly over the years, for example in relation to investment to release development constraints. I think that I can claim accurately to be the first Scottish politician to have blown the whistle on the potential damage to regeneration that development constraints were doing. I did so under the auspices of the Convention of Scottish Local Authorities in my time as leader of Glasgow City Council. The impetus for that came when Scottish Water sent every local authority in the country, in their capacity as planning authorities, a list of red, green and amber sites. The red designation meant that development could not take place for the foreseeable future. We have sorted that out.
We need to consider options to improve the effectiveness of Scottish Water, but privatisation should not be an option, not least because the people of Scotland would never stand for it. While we consider various other options, we must remain focused on the major challenges that Scottish Water still faces, such as leakages, sewage discharges, slippage in the capital programme and the disproportionate impact of even a modest increase in water charges on people on fixed incomes, such as pensioners.
Will the member give us one viable option for Scottish Water that the Labour Party thinks could be taken forward?
You should begin to wind up now, Mr Gordon.
I have some new ideas, but I do not intend to share them with Parliament today. Unlike the Tories, I do not go around saying, "Here's a solution. Now let's find a problem I can apply it to."
On the impact of increased water charges on pensioners, the Scottish Government sets great store by the popularity of a council tax freeze. However, when people open their bills shortly, the whit-aboot factor may emerge: the cry could be, "Whit aboot water charges?" In that scenario—or indeed any other—Labour will continue to fight for the early abolition of water charges for pensioners. We would even accept Tory support for that measure, but we will still never trust the Tories on water.
I start by stating an obvious fact. Water is a precious resource, without which life cannot exist. Communities overseas without access to clean water supplies are the subject of regular Oxfam-style appeals on television, in which people in affluent countries are asked to donate to the development of water supplies that are free from germs and parasites. We are all aware that we get nothing for nothing. Water is a precious commodity—so much so that it should not be up for grabs. Speculators should not be allowed to get their hands on something without which none of us can live. Water is a human right, the control of which is too important to be left to market forces. Let us be under no illusions: the Welsh model of mutualisation that the Tories are proposing for Scottish Water—
If water is a precious resource that must be in public control because it is essential to life, does that mean that the food industry has to be in public control as well?
I expected a wee bit of fatuous vacuity from the Tories.
Answer the question.
I am willing to reply to it. Water is a resource without which even food cannot be produced. It must be retained within the public system or it will cease to be able to be used by anyone, including the businesses that the Tories are always looking after. The Tories should want water kept in the proper hands.
To use the Welsh model of mutualisation for Scottish Water would be no more than a de facto move to privatise water and sewerage systems in Scotland. Where is the mutual benefit within mutualisation? The only obvious source of funding for a mutual water company in Scotland is the private sector.
I appreciate that Welsh Water is a private sector company. On the basis of what Bill Kidd is saying, is he against the Government's proposals for a Scottish futures trust, which would also be a private sector company?
I am in favour of the Government, as was stated by the minister—[Laughter.] Thank you. I am in favour of the Government allowing a review of all services in Scotland and considering whether better systems can be found. I am stating that there is no other, better system. [Laughter.]
The only obvious source of funding for a mutual water company in Scotland is the private sector. The water industry is capital intensive. Mutualisation capital funds would be sourced from financial institutions with high interest rates, which would insist that all the services that are provided by Scottish Water would be operated by private contractors with profit margins, high borrowing costs and correspondingly high charges to citizens and businesses. Further, who would control and effectively own the resources that the publicly owned Scottish Water maintains, such as Loch Katrine and the Mugdock, Craigmaddie and Bankell reservoirs?
Scottish Water, as a publicly owned body, recently funded a £120 million renovation of the Milngavie treatment works to improve the quality of drinking water for the greater Glasgow area. Would a mutualised company based on the Welsh model be willing to commit to such projects and to carry the costs, or would water charge payers face excessive prices in order to pay the borrowing costs for those works? Water and waste water are public health issues and are, by their nature, capital intensive. They must be funded by the cheapest means available in order that no one will be priced out of access to those vital resources. The Scottish Government has a duty to ensure best value in its provision of services to the people—it is their money, after all—but the Parliament's duty is to all the people. Scottish Water must be a properly regulated, publicly owned and publicly scrutinised operation that delivers a cost-effective service to the Scottish people.
The Tories' Welsh model of mutualisation is known in leading academic circles as being inherently unstable. It is dominated by large private companies with a veneer of public participation and would inevitably leave Scottish Water in private hands.
This has been a brief but undoubtedly important debate. The differences between the various positions seem to have moved outwards and backwards again as the debate has progressed. I confess that the positions of Labour and the SNP are as clear as mud. There have been some interesting speeches: Helen Eadie spoke well about issues surrounding mutualisation, Charlie Gordon talked about the challenges that are faced by Scottish Water and Rob Gibson talked about the sub-contractors and the investment challenges. Those were all significant contributions to the debate.
I am disappointed that we are not clear about the Government's position on the issue. It is to review the issue, but it will not have a review. It is to report back to Parliament, but it is not clear what it is to report back to Parliament about or when it will do it. We need some clarity, particularly given the spinning that was being done by the SNP Government's machine last night. The Government was busy spending the money in the Scottish block that it thought it would save by moving towards a mutual approach. If the SNP is going to make yet another U-turn on policy, could it at least be bold about it and do it with some style? There is no doubt that John Swinney is keen to put the £182 million from the block towards the pressures on his budget, but the Government gives no impression of a coherent or thought-out approach on that or a number of other substantial policy issues.
It was touched on earlier that there is something about water that lies deep in the psyche of many nations. In Scotland, the general view is that we have too much of it, and that it should be regarded as a human right or a gift of nature—or a curse of nature, depending on the circumstances. In fact, water is to some degree a manufactured product. It is a public good, which, in the view of most people in Scotland, should be provided under the aegis and control of the state. Water costs the average household £310 a year. Despite the enormous burden of modernisation of the tremendous Victorian legacy, in 2006 Scottish Water ran the business for more than 40 per cent less than in 2002. Considerable credit for that achievement is due to the ministers in the previous Administration, who came under some brickbats on the issue.
The traditional public ownership model has limitations. In our view, the business could deliver a better service for less if it moved to a mutual model, with profits retained for future investment to the benefit of customer savings. I stress mutualisation, not privatisation.
Why did the member's Government resist the mutual model while it was in power, until the most recent election?
That has been explained already. Everybody accepts that a change of model will take a little time to bring about. It was Councillor Christopher Mason, a Liberal Democrat, who suggested the Strathclyde Regional Council referendum that reaffirmed the public aspect of the issue. Liberal Democrats are totally opposed to the privatisation of water and would bar the possibility of any future demutualisation or privatisation in any legislation on the matter.
I shall touch on charity relief. As members know, and one or two have mentioned, the original exemption for smaller charities was extended to 2010 by Liberal Democrats in government. In my view, that was entirely justified, and the present Government should consider a further indefinite exemption. That should, there is no doubt, be examined. Perhaps the exemption should be reviewed and, if necessary, revised. There may be issues about whether the lost revenue should be recouped in some other way. However, what would be intolerable would be to impose further burdens on the most vulnerable part of the voluntary sector just as it will be threatened by service investment cuts following the pressures of the council tax freeze.
There was a sense in the pre-debate arguments that members were coming together on the issue. We should not disguise the fact that there is much basic agreement on the matter, such as the challenges to Scottish Water and the ways in which we have to move forward. Whatever the history may be, the Conservative motion provides a timescale and mechanism for moving forward and for building on Scottish Water's current successes. It closes down no options, although it should close down the option of privatisation.
Labour's amendment has all the signs of being cobbled together, perhaps to disguise the clear divisions in its ranks. To see those divisions, we need only examine past statements on Scottish Water from Lewis Macdonald on the one hand and Sam Galbraith on the other, or even some of the speeches today.
I urge support for a thorough review and would like some clarity from the minister as to what exactly the Government's position is.
A number of members have accepted that Scottish Water has made considerable progress in recent years. It has achieved the rigorous European standards on water quality while costs have been reduced by up to 5 per cent annually through major efficiency savings. Households have benefited from lower-than-inflation increases in water charges. In the current quality and standards programme cycle, which runs from 2006 to 2010, £2.446 billion—a huge amount—will be invested and plans are already in hand for the next Q and S programme, which will run from 2010 to 2014.
In that context of success, and given the requirement for stability, it makes far more sense to focus attention on delivering greater efficiency and on meeting performance targets than to set in train a review that would be focused primarily on ideologically driven options for changing the industry's structure. That is the fundamental difference between our position and the Conservatives', who want a structural review because they disagree fundamentally and in principle with the way in which Scottish Water is organised at present. They want it to be privatised; their whole record is one of wanting privatisation. We fundamentally disagree with that, as I believe other parties in Parliament do.
I certainly disagree with privatisation and mutualisation. I hope that I have misinterpreted the Labour amendment and I ask Des McNulty to explain the central problem that I have with it. The amendment
"supports the retention of Scottish Water under public ownership"
but goes on to describe
"alternative public sector models, including mutualisation".
In what way is mutual ownership a public sector model?
The point that needs to be made—which was made quite well by Stewart Stevenson, the minister—is that Scottish Water has developed through an evolutionary process that has enjoyed consensus across the bulk of the Parliament and in which the emphasis has been on continued public ownership.
Public ownership of Scottish Water should continue, but the issue is not mutualisation; it is about hitting delivery targets while making clear the Government's responsibilities for ensuring good governance and delivery of services that equal or exceed those that are available from comparable providers elsewhere. That is what people want. They do not want a debate about the structure—they just want better services. That is the reality. The focus is not on reviewing the structure. The emphasis is on the Government doing its job, which is to ensure that we get the best water and sewerage services possible. The Labour Party's view that that should be achieved through the public sector is clear.
I will clarify the difference between public ownership and mutualisation. In his opening speech, Des McNulty spoke eloquently about the Rochdale pioneers in the co-operative movement. Will he clarify whether a co-operative society or organisation is a publicly owned body—that is, owned by the state—or a private organisation that is owned by its members and customers? Is a co-operative public or private?
It is fair to say that there are significantly different public models, including community ownership, which is how the co-operative movement started out. Ultimately, the Conservatives are not credible when they talk about co-operation or mutualisation because they fundamentally disagree with both. At present, we are in favour of a public sector model—publicly owned and publicly driven. We believe that that works effectively but also that it is possible to improve it.
Let us consider the process of managing capital. On the one hand, we have Transport Scotland, an executive agency that manages the transport budget. On the other hand, we have an arm's-length body in the form of Scottish Water. There are advantages to both approaches and it is perfectly reasonable for the Government or Parliament to consider how the models can learn from the best aspects of each. That is a perfectly sensible discussion to have and one that the public would expect us to have.
We are not saying that advantages and new mechanisms should not be explored; we are saying that we support the retention of Scottish Water in public ownership. The amendment says that explicitly and it is the correct position. My party and the people of Scotland support it. I hope that we will continue with it.
The intervention that we have just had from the Conservatives was interesting. It seemed to focus on the minutiae of ownership of an organisation rather than—
It is the key to whole thing.
That is the point: it is not the key to the problem. The key to the problem is to ask what needs to be delivered for what public benefit. Ownership is only a mechanism that can influence that outcome. It is a sideshow to the real issue, which is whether Scottish Water is delivering for the Scottish people and whether there is more that it can do to do that.
In a sense, the ownership mechanism can be positive or negative, whatever its style. Northern Rock is an entirely different animal from the Royal Bank of Scotland: one is a failing organisation; the other is one of the world's leading banks. They followed a similar model of ownership, so there is a clear disconnect between ownership and achievement.
I am surprised that the party of pragmatism—which the Tories claim to be—should focus on ownership rather than outcomes and what is delivered. That is the heart of the debate, and I hope that we will address it.
The Government's futures trust consultation document says that its starting point is pragmatic. We are agreed on that, but the futures trust would be a private company that would deliver public benefit. Why could that approach not be considered for Scottish Water?
The private sector is a critical part of our economy. If we can find ways of reducing the cost of borrowing for public projects, which is what we are trying to do with the futures trust mechanism, we should of course pursue it. I am sure that we will have the support of all who examine the numbers.
Speaking of numbers, there were almost none from the Conservatives to back up the proposition that they laid before us. One would expect the party of money to be able to provide figures, but it signally failed to do so. Des McNulty commented that mutualisation appeared to be expensive. Substantial costs would certainly be associated with the conversion to a mutual model for no clear, pragmatic benefit for Scottish Water's customers and the broader community of Scotland.
Liam McArthur referred to meters and to the charitable exemption. There is a consultation on charging, which will close next week, if I recall correctly. I hope that all members will add their tuppenceworth—or their £400 million-worth, in the Tories' case—to that consultation. The exemption is a little more limited than was suggested, in that it covers charities only while they remain in their existing premises. There are some clear discrepancies and issues that will need to be examined when we get the results of the consultation, and members can be sure that the Government will examine them.
I realise that Helen Eadie probably came to the chamber with her speech already written, but I make it absolutely clear to her that we are not supporting mutualisation.
Will Stewart Stevenson give way?
I think that I am running out of time but I will let Patrick Harvie in if he is brief.
I will be brief in asking why, if the Government rejects mutualisation and the Labour Party supports public ownership, we are wasting time on a review of an option that has already been rejected.
There is an important point there: it is the Government's role to review continuously the operation of everything in government. The Labour Party amendment supports precisely that idea because it
"calls on the Scottish Government to keep"
the matter "under review". Of course we should do that. We would be roundly criticised if we did not keep matters under review, not just in relation to Scottish Water but across the public sector. I repeat that it is normal, natural and necessary to do that, so of course we will do it, in line with the Labour Party amendment.
Mutualisation is really a financial chimera that is simply a surrogate for privatisation. It is not about delivering the services that the people in Scotland want or about supporting Scottish Water and building on its success of recent years. Scottish Water has a high-quality board with a load of experience. It has the people on board to succeed. It is clear that we should keep the structure, personnel and financing of all public services under review, but that does not mean that we should take a radical shift into the sands of mutualisation.
It was interesting to hear the minister talk about the need for permanent revolution and continuous review. It left me wondering just how many brothers Fidel Castro has.
Oh yes.
Alex Johnstone may not be particularly familiar with the lexicon of Trotskyism, but permanent revolution was the approach not of Fidel Castro but of Leon Trotsky.
Excuse me for not knowing the history of socialism.
An interesting point about history is that, as we all know, history is written by the victors. We have been given a history lesson today by Des McNulty and other Labour members who, as victors, have been able to invent the reasons and justifications behind the referendum on the water industry that was held by Strathclyde Regional Council. They have been able to do that because they were the victors, but I warn the Labour Party that it is not winning any more. It will no longer be able to write history.
Many of us who did not want the situation that we face today opposed the process that created Scottish Water, but credit must given where it is due. Scottish Water's control of the Scottish water industry has served to bring together, and has begun to solve, some of the many problems that our water industry faced. The nature and scale of those problems dictated the direction that previous Governments took in managing Scotland's water industry. Mutualisation was perhaps considered at the start of that process, but it would have been very difficult when massive problems had to be solved and massive investment had to be directed. It is therefore only right that Derek Brownlee's motion proposes a review of the current position so that action can be taken in advance of the next spending review in 2011. That is a reasonable ask.
We need such a review because the different political parties present the Scottish water industry and Scottish Water in different ways in order to make different claims. However, one or two of the claims that have been made today must be questioned. On the efficiency of Scottish Water and on the extent to which water bills in Scotland are competitive, in comparison with those that are issued by companies elsewhere, some members fail to take into account the fact that the taxpayer pays to Scottish Water the equivalent of about £100 per household, which does not appear in those bills. Scotland's water bills are still significantly higher than those in other places, but that fact is hidden because the money comes out of the taxpayer's pocket rather than the water buyer's pocket.
Another myth is that Scottish Water has succeeded simply because it is a public company. Much of the work that has enabled Scottish Water successfully to overcome its infrastructure difficulties has been carried out by Scottish Water Solutions, which is a Scottish Water-run consortium that includes many private companies that work together to create a more efficient Scottish water industry. We already have the private sector working for the benefit of Scotland's water consumers.
Will the member take an intervention?
I will not take not any interventions at the moment.
We must remember that Scottish Water exists to deliver for consumers. I resent the remarks of Helen Eadie and others who suggest that only the public sector can deliver public services—
Will the member give way?
No, sorry.
The concept of a public service ethos has always existed within the private sector. That is a strong ethos in Scotland and across the United Kingdom. We should defend that and be proud of it. A body does not need to be a public company to provide public service.
Will the member give way?
Sorry, I must make progress.
The key to today's debate is what we mean by public sector or private sector. Conservatives have consistently asked for consideration to be given to running Scottish Water on a mutual model. We have done so for almost four years. We use the Welsh model as an example of mutualisation. What do we mean by mutualisation on the Welsh model? The key is whether Welsh Water is in public or private ownership. In his response to David McLetchie's question, Des McNulty suggested that the co-operative model involves public ownership, whereas I would define that same model as involving private ownership. That must be taken into account in the review. We want a broad review that will consider every possibility. Our aim is for mutualisation on the Welsh model.
The member must conclude.
I say to the Liberal Democrats that they must consider that issue as well. The Liberal Democrat amendment would eliminate the Welsh model from the review's consideration. The Liberal Democrats should reconsider their amendment before tonight's vote.
I ask for a review in the terms that are set out in the motion in the name of Derek Brownlee.