Investing and Paying for Water Services
UNISON Scotland's response to Scottish Executive Consultations on investing in and paying for water services
- UNISON is the largest trade union in the Scottish Water industry. We welcome these consultations as a positive contribution to a better informed public debate on the challenges facing the water industry.
- Any response has to be seen in the context of the massive structural change in the industry, the partial privatisation and the improvements achieved in the first two investment programmes.
- The investment requirements are fairly set out in the paper at over £1bn per year. The sums are massive just to meet mandatory standards. The constraints on the construction industry in being able to deliver this level of investment cannot be understated.
- The paper says nothing about cost effectiveness and the wasted millions through the use of PFI and the newer PPP arrangements.
- UNISON supports a structure of charges based on the current council tax bands with harmonisation across Scotland and support for low income households. Any change to charge levels should be phased in gradually.
- Cross subsidies should be as transparent as possible and there may be a case for some public policy considerations being funded by the Executive. Historic debt should be written off as it was in England prior to privatisation. However, those who argue for a substantial increase in revenue support from the Executive are generally less clear which other public services should be cut to meet this cost.
- UNISON therefore agrees that most of the cost will have to be met by the water charge payer. This can be mitigated by the sensible treatment of debt, development charges and the Executive meeting some of the public policy costs.
- There are no simple alternatives or quick fixes. Those who argue that privatisation is the solution have yet to explain how the additional cost of private finance and the need to generate profits for shareholders will reduce the bill.
UNISON is Scotland's largest trade union representing over 150,000 members working primarily in the public sector. As the largest trade union in the Scottish water industry, UNISON members are both providers and users of water in Scotland. UNISON Scotland welcomes the opportunity to comment on the Scottish Executive's consultation on Investing in Water Services 2006-2014 and Paying for Water Services 2006-2010. This response needs to be seen in the context of our previous submissions to recent Scottish Executive consultations on the water industry and the Water Services (Scotland) Bill.
These consultations have to be seen in the context of a water industry that has undergone substantial change. The creation of Scottish Water was in itself a major structural upheaval at a time when the industry is trying to implement the largest investment programme in Scotland's history. Substantial numbers of jobs have been lost chasing efficiency savings targets that are rooted in unrealistic comparisons with the privatised industry south of the border. The introduction of private finance and private partners' has resulted in the partial privatisation of a public service. A process that will be accelerated through the competition provisions of the Water Services (Scotland) Bill that has been presented to Parliament.
This is the third investment programme for the water industry in Scotland since 2000, formally known as Quality and Standards III. It follows a £1.8bn programme that ends in 2006, the equivalent of £192 per household per year. There was significant criticism of the consequential increase in water charges together with the lack of consultation and transparency as highlighted in a recent critical Scottish Parliament Finance Committee report. Whilst charge harmonisation, debt and the cost of private finance could have been managed better, the reality remains that Scotland's water and sewage infrastructure needs substantial investment. The main issue remains how to build and pay for it.
Investing in Water Services
Quality and Standards I and II have delivered substantial improvements to Scotland's water and sewage infrastructure. The quality of drinking water has improved by 28%, our rivers are 15% less polluted and our coastal waters 53% cleaner. This level of investment now exceeds that of England and Wales, a partial catch up for years of neglect.
The proposed new programme will cover an eight year period. The numbers are massive. It would cost £32bn to replace all of Scottish Water's assets. Whilst we can be grateful that all of it does not need replacing the costs of maintaining, expanding and replacing the older parts are still huge.
The capital cost of maintaining the current system alone will cost £2.2bn over the eight year period. There is a demand to extend the system to accommodate new developments, particularly new housing. 8,600 sites providing 230,000 houses need to be connected to the system and that has to be paid for at about £1bn. A further £800m is needed for first time connections to properties not currently connected to water or sewage systems. Then there are environmental improvements needed to meet new EU standards and correct the legacy of under-investment. These costs range from £2.5bn for mandatory improvements to £3bn if we are to show some movement towards guideline standards.
To improve drinking water quality dealing with pollutants such as lead, trihalomethane and cryptosporidium will cost £1.3bn to meet mandatory standards and up to £2.6bn to approach the guideline standards. Smaller sums are also needed to provide greater security for water supplies (£120m to £260m) and to meet water abstraction standards (£260m to £540m). Other priorities include tackling the odour from sewage works, water pressure and sewer flooding total £258m. These figures are broad estimates and recognises that the impact of new legislation, government policy and customer demand are difficult to predict. However, on these estimates the total bill over the eight year period could range from £8.5bn to £10.7bn.
The Scottish Executive has adopted four guiding principles for determining the next investment programme. It should be cost effective, affordable, deliverable and sustainable.
There is very little mention in the consultation paper of cost effectiveness. The massive PFI programme cost millions more than conventional borrowing before it was abandoned in 1998. Many of these sewage plants did not meet their discharge consents and odour problems have blighted many communities. The chapter in the consultation paper on odour control fails to mention that the newer plants built through PFI are causing problems that should have been limited to the older systems. Scottish Water has now moved on to broader Public Private Partnerships. Hundreds of experienced staff have been paid to leave the industry to be replaced by expensive private companies who are gradually privatising Scotland's water.
Affordable is the major constraint and is covered in the next consultation. This is closely linked to sustainable. The main constraint under deliverable is construction industry capacity. It is estimated that the total capacity of the industry in Scotland is £1bn per annum. The current investment programme uses about 50% of that capacity. The lower level of investment required as set out above exceeds £1bn per annum. Effectively taking the nation's total construction capacity at a time when the Executive alone has a large programme of new schools, roads and hospitals planned.
In essence the Investing in Water Services consultation helps to explain the investment needs of the industry. There are few options available to reduce the requirement to upgrade the systems. The real issue is how to pay for it and find the capacity to build the infrastructure needed.
We have therefore not responded to each consultation point. UNISON supports the criteria for the investment programme and the investment requirements set out in each chapter. The scale over and above the mandatory requirements will depend on affordability and capacity as set out above. The questions on higher charges or lower investment are largely a false choice in this context.
Paying for Water Services
This consultation sets out the Executive's proposed principles of charging and how these might be applied in practice. The Executive argues that despite Scottish Water's wider public service role its main function is serve customers. It therefore proposes that customers should continue to meet all the costs of providing water and sewerage services. There are many others who argue that at least the public policy elements should be provided from general taxation. However, they are less clear which other public services should be cut to meet this cost.
UNISON therefore believes that charges should largely be set to recover most costs. There may be a case for Executive support for some public policy elements of water charges. UNISON has consistently argued that historic debt should be written off as it was in England at the time of privatisation. If the Treasury can fund the write off of housing debt in support of stock transfer, then they can do the same for the water industry.
The main driver for the creation of Scottish Water was the harmonisation of water charges across Scotland. Effectively a cross subsidy from urban to rural areas. The paper proposes the retention of national charges and retains that principle in its competition plans in the Water Services Bill. Fixed and variable costs being reflected in the charges for each group. UNISON is not convinced that fixed and variable costs have to be recovered in proportion to the actual costs.
The paper suggests that business users are paying proportionally more of total costs in Scotland than in England, although more research is needed on this point. That would involve an increase in charges for domestic users. It may be appropriate to allow some cross subsidy on public policy grounds or to reflect uncertainty over actual proportions. But if so this should be as transparent as possible.
UNISON believes that a harmonised charge across Scotland is the right approach as is support for low income households. Discounts for second home owners should be abolished but we would caution against the total abolition of discounts granted to single households. This may result in substantial increases in water charges for relatively low paid workers who fall above the support level for low income households.
Low water users currently pay the same charge as high volume users. Whilst this discourages conservation and is not cost-reflective it does reflect the industry's high fixed costs. There are also few domestic meters in Scotland and the capital and maintenance costs would be significant quite apart from the risk of water poverty through self disconnection. A flat charge is therefore likely to continue with relative incomes reflected in the Council Tax bands. These bands likely to be reformed following the independent review of the council tax to make them more progressive.
Following criticism of the recent sharp charge increases the paper commits the Executive to introduce any changes to charges more gradually. UNISON was highly critical of the WIC's recommendations to increase standing charges etc. over a very limited timescale. We would therefore strongly support a much longer phasing of any structural change to charges.
On borrowing UNISON and others have criticised the low level of debt carried by Scottish Water with most enhancements to the system being met by current users. The paper seeks views on the balance of borrowing but still proposes maintaining the current level of debt. UNISON believes that Scottish Water could reasonably carry a higher level of debt to spread the cost over future users as well as current charge payers. Writing off current debt as set out above would assist this.
The question also obliquely raises the issue of the treatment of public expenditure. UNISON believes that this requires a radical overview of the way expenditure is treated in Scotland in relation to the block grant. In effect the current Treasury rules encourage the pursuit of off balance sheet treatment of expenditure, largely through PPP/PFI schemes, at enormous extra cost to the taxpayer.
On funding new developments there is a welcome recognition that developers should pay for additional capacity for specific local developments, not charge payers as a whole. There may be public policy considerations for not doing this in certain areas or for certain types of projects. If so, this should either be funded by the Executive or be a transparent cross subsidy. Scottish Water should not be the de facto planning authority for Scotland. It is not, as some have argued, a choice between development or environmental priorities. The environmental improvements are largely mandatory. We therefore have to find other means of funding most development constraints.
The consultation paper unsurprisingly offers no easy solutions. The investment needs are substantial and charge payers will have to meet most of this cost with some shifting of the burden between different groups. The burden can be mitigated by the sensible treatment of debt, development charges and the Executive meeting some of the public policy costs.
There are those who will argue that privatisation is the solution. However, they have yet to explain how the additional cost of private finance and the need to generate profits for shareholders will reduce the bill.
UNISON Scotland welcomes these consultations as a positive contribution to a greater understanding of the challenges facing the water industry in Scotland. All too often Scottish Water is attacked for decisions that it rightly has not made.
The investment requirements are massive and there are few options other than recovering the costs largely through charges. There are no quick fixes and it is to be hoped that the debate in future will recognise this fact.
For further information please contact:
Matt Smith, Scottish Secretary
14, West Campbell Street,
Glasgow G2 6RX
Tel 0845 355 0845Fax 0141-331 120