Scottish Water is a public corporation, accountable to Scottish Ministers and parliament. It was created in 2002 by a merger of three regional water authorities. This contrasts with the privatised service in England, which has seen high charges and massive payouts to shareholders and executives - not to mention running out of water. Scottish Water's average household charge is £1 a day lower than the average for England and Wales, despite having higher costs due to geography and structure.
This public service status needs restating because Scottish Water does not always act as a public service.
Scottish Water bosses have a nasty habit, internally at least, of referring to ‘The Company'. This is not only factually inaccurate but reflects a culture and a desire (from some board members and senior staff) to become one. Efforts to privatise Scottish Water are rarely far from the surface. Commercial interests lobby for it and political support is not entrenched as various back door attempts have been made over the years. At times, only the inability to recoup the capital investment in the sale price, which in any case would probably go to the Treasury, has kept the service in public ownership. If Scottish Water were a company its balance sheet and gearing would make it an attractive takeover prospect.
Then we have executive remuneration. The 2017/18 accounts state that the Chief Executive received £92,000 in bonus payments on top of his £256,000 salary. The Chief Operating Officer got a £67,000 bonus to supplement his £186,000 salary, while the Finance Director took home £66,000. The £225,000 in bonuses amounted to a near 7% rise on the top up payments enjoyed by the same three individuals twelve months earlier. The Scottish Government scrapped bonus payments in its pay policy some years ago but made an exception for Scottish Water. Needless to say, 7% pay rises are not the norm in the public sector, and senior pay is already one of the highest in Scotland's public services.
The regulatory structure is also not appropriate for public service. Ministers set directions, but the regulatory cost system is very similar to the privatised system in England. The work of Jim Cuthbert and others have highlighted why this is not appropriate.
So, why does this matter and how would a different structure make a difference.
The Hydro Nation concept points to a much broader role for Scottish Water than only delivering water and wastewater services. Sadly, the high blown rhetoric at the launch was not translated into action act scale. A reformed Scottish Water could have a stronger international role, it could develop more significant economic spin-offs from our abundant water supply and expertise, support public health and have a more prominent role in renewable energy. It could also stop outsourcing critical services, developing in-house capability in Scotland as part of a broader industrial strategy.
The current governance structure would need to be changed. There are several options the simplest of which would be to create a Water Agency with a much broader remit, of which the utility function would be only one element. Under this structure, the regulatory role of the Water Industry Commission could be abolished with a considerable saving (£3.5m plus the mirror costs in Scottish Water). This approach would also eliminate the role of the Competition Commission and liberate its function back to Scotland. Retail competition in the non-domestic sector has resulted in few benefits, and the valuable water management role of Business Stream can continue to be delivered without so-called competition.
Another option some may argue for is a co-operative model, at least for the utility role and possibly other sub-streams. In the capital intensive water industry, any mutual body would in effect be controlled by the financial institutions. They would insist that to minimise risk to their money, services and jobs would be transferred to English and European private water companies. This is what happens at the only UK mutual model, Welsh Water. As a co-operator, if there were a viable co-operative model, I would welcome it. However, a mutual shell over a privatised industry is not a co-operative solution.
Across Europe, water services are delivered on a municipal rather than a national basis. In 2006, the STUC and water unions commissioned a paper from the University of Strathclyde and developed the ideas into a paper ‘It's Scotland's Water'. It argued for greater democratic oversight and citizen participation. Elements of this certainly could be delivered locally. Scottish Water was only created on a national basis because of the need to cross-subsidise the cost of providing services in rural areas. There are other ways of achieving this objective.
Water and wastewater services are something we take for granted. The right to water is a human right, and that right should be protected through democratic accountability. The current model of Scottish Water could be reformed to achieve much more economically with a governance structure that reflects a public sector ethos.
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