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Water Industry (Scotland) Bill
UNISON Briefing

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The Water Industry (Scotland) Bill is the first of two water bills in this legislative session and follows the Scottish Executive consultation paper earlier this year. It has three main parts. The first two cover the functions and powers of the Water Industry Commissioner for Scotland and the Drinking Water Quality Regulator. The third and main part of the bill creates a new public corporation to be called Scottish Water that will take over the functions of the three current water authorities in Scotland. This briefing sets out UNISON Scotland's initial consideration of the Bill.

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Water Industry Commissioner

The Water Industry Commissioner (WIC) was established under the Local Government etc (Scotland) Act 1994 and the Bill's provisions do not appear to radically change his powers and functions. The WIC's functions are similar to the UK utility regulators although not so extensive or as independent of government. Given the poor track record of utility regulators, particularly their grasp of the wider economic and social ramifications of their decisions, UNISON would not support any further widening of the WIC's powers.

The WIC will have a general function "of promoting the interests of customers of Scottish Water" (s1(2)). In an increasingly competitive environment this could be interpreted as promoting competition and the interests of private water companies who wish to cherry pick services. UNISON would prefer to see this explicitly excluded in the Bill to avoid any potential conflict with wider customer interests.

The Bill establishes in principle Water Customer Consultation Panels (s2). The Bill does not however require Scottish Ministers to establish them. Given the nation-wide coverage of Scottish Water UNISON believes that "may by order establish" (s2(1)) is insufficient. There may be an unspecified number of panels covering different parts of the country and they will have a general consultative and representational function. There will be a Convenor of the Water Customer Consultation Panels who will be a member of each panel. Scottish Ministers will appoint him/her but the Convenor will have the power to appoint all the other members, subject to certain consultation requirements (Schedule 1 Pt2). UNISON believes this is an extraordinary power for one person.

The specific functions of the WIC are set out in s3. They include investigating complaints by "potential" customers. This would be reasonable in respect of domestic customers but could again be widened to promote the interests of those who wish to cherry pick profitable services.

S6 requires Scottish Water to pay the Commissioner's expenses whereas Scottish Ministers "may" make grants towards his/her expenses. There are no provisions in the Bill for private water companies to contribute towards these expenses. UNISON believes the Commissioner's role is a public interest one and therefore the cost should be borne by the Scottish Executive.

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Drinking Water Quality Regulator

The Drinking Water Regulator will be responsible for regulating the public water supplier i.e. Scottish Water. Private supplies are the responsibility of local authorities under the Water (Scotland) Act 1980. Here will need to be a review of that provision to ensure that local authorities have equivalent powers and that they are adequately resourced to monitor what is likely to be an increasing use of private supplies.

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Scottish Water

UNISON has always been sceptical about the balance of benefit in creating one body to administer Scotland's water and sewerage functions. We have regarded the creation of Scottish Water as a distraction from the major challenges facing the industry. The bill proposes very broad statutory powers with the prospect of regulation through secondary legislation.

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S20 (1) establishes Scottish Water as a public corporation. As a creature of statute its powers and functions are the responsibility of Parliament although as we will see it is proposed to give this corporation very wide powers to regulate itself. Under current Treasury rules expenditure and borrowing would be on the public balance sheet. However, this status might change if (or when) the UK government adopts the rules set out in the Maastricht Treaty, known as the GGFD.

S20 (2) Schedule 3 makes provision for the constitution of Scottish Water. Para 2(1) of this schedule allows for the possibility of more executive than non-executive members and the power of appointment for executive members both in numbers and personnel remains with the board. UNISON believes there should always be a majority of non-executive members. In addition there should be an employee director.

The corporate governance provisions of the bill and Schedule 3 are very limited. For example there are no provisions for the publication of minutes, public access to meetings etc.

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Para 6(3) gives the board the power to appoint staff and set terms and conditions with the approval of Scottish Ministers. This is a somewhat muddled clause, as there needs to be clarity as to who is responsible for bargaining pay and conditions.

Para 6(5) states that Scottish Water "may" establish "one or more pension schemes". There is no transfer provision for pensions in s23 of the bill as TUPE does not at present cover pensions. Para 52 of the explanatory notes to the bill makes reference to the powers in s24 that "could" be used in relation to staff pension rights. Staff pensions rights are too important to be left to chance.

There needs to be a specific statutory provision for the transfer and maintenance of pension rights. It is also unclear if the necessary amendments have been made to secondary legislation to ensure that Scottish Water remains a public authority for pension transfer and redundancy modification.

Staff of the existing water and sewerage authorities transfer to Scottish Water under the provisions of TUPE "whether or not they would so apply apart from this section" (s23). The TUPE regulations are the subject of constant legal interpretation and the UK government has been conducting a review of the regulations for some time. This provision means that there can be no dispute over the applicability of TUPE. However, there could still be difficulties over specific application of sections of the regulations, particularly for functions that may be reorganised. UNISON would therefore prefer a comprehensive staff transfer order in addition to s23.

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General Powers

The powers of Scottish Water as set out in s25 are very widely drawn. It can do anything which "it considers is not inconsistent with the economic, efficient and effective exercise of its core functions". The whole structure of the industry in Scotland could be changed with no democratic approval. Scottish Ministers will have the power to issue directions but their approval would not be required for such major change. The contracts could be signed before any directions could be issued. For example, Scottish Water could turn itself into an enabling authority with all services to the public privatised using the powers in s25. This includes the widespread use of PPP/PFI schemes (without ministerial approval) using powers in s25(3) and (4). Ironically there are the usual restrictions on the far more cost-effective conventional borrowing. UNISON believes that the powers of Scottish Water need to be drawn more tightly. For example, significant organisational change should require democratic approval.

Whilst the Bill repeals most of the provisions of Part II of the Local Government (etc. (Scotland) Act 1994 which established water authorities, it does not repeal s65(1) which requires the Secretary of State (now Scottish Ministers) to "Promote the conservation and effective use of water resources of, and the provision of adequate water supplies throughout, Scotland …". It is unclear why this important duty is being retained in other legislation instead of being codified in the Bill.

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Code of Practice

S26 and s27 requires Scottish Water to prepare a code of practice covering its performance standards etc and submit it to the WIC. If the WIC does not approve it Scottish Ministers have the final say.

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S28-37 deals with charges and gives Scottish Water slightly wider powers than exist at present. S29 for example anticipates partnerships with private companies for the supply of services, giving Ministers the power to set maximum charges. The charges for core functions follows existing provisions under which the WIC advises Ministers on the charges schemes. The provision that domestic customers cannot be disconnected for failing to pay charges remains. It does not stop self-disconnection through metering and the metering provisions have not been amended by this Bill.

Scottish Water will have the power to collect charges itself or use the current local authority system. Given the huge level of uncollected debt this is something Scottish Water is likely to look very carefully at. Ministers also have the power in s37 to establish a scheme of reduced charges for certain groups.

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S38-42 covers the financial functions of Scottish Water. There are the usual requirements to achieve a rate of return on assets (s38) and this can be different for specified functions. Scottish Water will require ministerial consent for borrowing.

Ministers will have the power to make grants to Scottish Water. There is no requirement to make good any shortfall under a reduced charges scheme under s37. This means other customers could be asked to cross subsidise or the corporation's ability to compete with other suppliers could be undermined. It would seem reasonable that the Scottish Ministers should finance charge reductions for public policy purposes.

There is no reference to existing debt other than all liabilities transferring to Scottish Water. UNISON has consistently argued that existing debt should be cancelled as happened in England and Wales at privatisation.

The financial memorandum to the bill estimates that transition costs will be in the region of £3m to £5m of which the Scottish Executive will contribute £3m. This seems a very modest estimate and anything above this level will have to be found from further cuts in service over and above those already planned.

The general level of "operational efficiency savings" (between £100m and £168m) has little to do with the establishment of Scottish Water. Whilst a level of savings can be achieved through new technology and new methods of working the rest will simply result from cuts in customer service and reduced levels of public and staff safety. The lessons from similar "savings" in the rail and gas industries have not been learnt by the Scottish Executive.

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Land Transactions

Scottish Water will retain its statutory undertaking powers in relation to land acquisition and this is extended in s44(1) to allow others to provide services. In effect to allow private companies to compulsorily acquire land. Under s45 it may dispose of land "to whomsoever and for whatever purpose it wishes" so long as it does so at market value. Whilst this is broadly the same as the current provision, Scottish Water will have far less democratic accountability. Scottish Water will be a major Scottish landowner and has social obligations in that regard. It should not be able to asset strip this heritage without some element of democratic control. The environmental protections in s47 are meaningless if the property is disposed of.

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S49 gives ministers general powers to issue directions to Scottish Water, although as indicated above given the boards extensive powers this may be a case of shutting the stable door…..

Democratic accountability is minimal. S50 simply requires two reports a year. There is no requirement for any representative non-executive directors or any other provisions to make Scottish Water accountable to the Scottish people.

S55 excludes from the Register of Trade Effluents "commercially confidential information". In our response to the Bill's consultation paper we drew attention to the need for a full review of the 1968 act and increasing the powers and resources of SEPA in this area. UNISON is concerned that this new clause could be used to avoid public scrutiny of effluent discharges.

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The Bill establishes a public corporation that will have extensive powers to operate Scotland's water and sewerage services with minimal democratic control. Whilst UNISON supports some commercial freedoms this should not enable Scottish Water to change the essential structure of the public service provision without the approval of the Scottish Parliament.

The staffing provisions of the Bill are inadequate and reflect the minimal attention given to these issues in the consultation papers. The finances of Scottish Water also need to be addressed by Ministers to provide something closer to a level playing field, given their support for competition.

There is a real concern amongst staff and the public that Scottish Water could become a public façade for a largely privatised industry. We call upon the Scottish Parliament to ensure that the Bill is amended to stop the gradual privatisation of Scotland's water.

Dave Watson
Scottish Organiser (Utilities)
UNISON Scotland
October 2001



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