2.5 The impact of the different investment plans on water charges is a matter initially for the Water Industry Commissioner. Water charges depend on many factors other than the investment programme including efficiency gains and the level of service provided to water consumers. For non-domestic consumers, charges will increasingly reflect individual agreements. However, the consultation paper identifies how much less than the central option, the minimum option would cost the average customer and how much more the enhanced option would cost. For the average consumer, the minimum option would be between £30-£60 lower and the enhanced option, between £50-£120 higher. It should be emphasised that these are only crude estimates and do not take into account the recently announced proposal to merge the three authorities which would have the effect of at least narrowing the range of price changes.
2.6 The consultation paper therefore seeks views on which option achieves the best balance of costs and benefits. In essence, the Scottish Executive is asking consumers whether they are prepared to accept a high risk of interruptions to water supply and waste water services or to enjoy a lower bill, at least in the short term.
3. WATER AND SEWERAGE SERVICES IN SCOTLAND
3.1 When considering options for investment it is important to start by considering the state of Scotland's water and sewage services.
3.2 Significant progress has been made in recent years in reducing pollution of Scotland's rivers, lochs, estuaries and coastal waters. However, there is still significant pollution of Scotland's water environment and in particular substantial investment is needed in the underground infrastructure to reduce the pollution incidents that appear after heavy rainfall. In addition, much of the infrastructure is now very old and there is insufficient data on the actual state of much of these facilities. It is inevitable that after years of patch and mend, a substantial backlog of investment exists, particularly in the underground infrastructure.
3.3 There is a widely held subjective view that Scotland benefits from very high water quality. Unfortunately, the objective evidence does not support this view. Whilst there have been fewer breaches of the Water Quality Standards in recent years the quality of water compares unfavourably with many regions in England. Cryptosporidium and the by-products of disinfection are particular threats along with prolonged exposure to lead from lead communication pipes serving individual properties. The new EC Drinking Water Directive will further tighten standards.
3.4 In addition to safety, the liability of underground water and sewerage systems are increasingly in need of replacement causing water bursts, low water pressure. Leaking or even collapsing sewers are a major problem particularly for those directly affected. Water leakage has been a major focus of attention south of the border and significant progress has been made in many areas there. Probably due to the abundance of rainfall, this has not been perceived as an issue in Scotland and very few statistics have been published. However, all water has to be treated and therefore there is a real cost to water leakage. There is some anecdotal evidence that this problem is not limited to older pipes and poor installation of new systems may also be a contributory problem.
3.5 It is encouraging to note that the public is not unaware of these difficulties. The Water Industry Commissioner has sought the views of a customer panel which saw sewage pollution and leaking water pipes as the major problem. That panel perceived that it was better to improve services than to reduce bills (84% compared to 16%).
4. INVESTMENT OPTIONS
4.1 It is difficult, given the limited information in the consultation paper, to reach an informed view on the best option for investment. There is very little detail on how the investment would be deployed and the cost benefit analysis is to say the least somewhat speculative. This is not necessarily a deliberate policy of concealment. The amount and quality of data given the inadequate investment in systems is a problem. However, we suspect that the more detailed programme of work to be undertaken has been omitted so as not to encourage parochial responses. UNISON believes that this approach is fundamentally wrong. All too often Scottish Executive consultation papers (whilst still a considerable improvement on the previous Westminster model) fail to truly live up to the open disclosure of information which ought to be the hallmark of the Scottish Parliament.
4.2 The investment options are based on an assumed constant public expenditure impact. This means that no additional public money will be put into the water industry and therefore the costs will largely have to be met by water charges. It is important to recognise that the Scottish Executive has reduced the real level of expenditure on the Scottish Water Industry in recent years. Given the decades of under-investment in the Scottish water industry, there is a case for significant public investment to at least bring Scotland up to levels achieved south of the border. 25 years of additional investment and most importantly the cancellation of debt at the time of privatisation have benefited water consumers in England and Wales.
4.3 The investment options in the consultation paper do not specify how this investment is to be delivered or financed either by conventional public borrowing or through private finance. The Scottish water industry has been a major bonanza for companies involved in the private finance initiative. £654million of capital value has been made available through ten PFI schemes across Scotland. The companies concerned are making significant returns on capital invested well above the cost of public borrowing. This additional contribution to their profits are being financed by water consumers through higher charges. Whilst the pace of water PFI schemes has slowed somewhat in the last year, there has been a burgeoning use of looser public private partnerships (PPP) with their attendant costs. Not only is all this poor value for money, it also contributes to the gradual privatisation of the industry.
4.4 If we put to one side the issue of how the investment programme is to be financed and look at the investment options themselves, UNISON would argue strongly against the minimum option set out in the paper. Simply patching and mending the existing infrastructure is a poor use of resources and would simply pass on the problem to future generations. UNISON also has some doubts as to whether or not this level of investment would achieve the minimum legal standards.
4.5 The enhanced option is not surprisingly attractive to staff within the industry as this would enable serious inroads into the backlog of investment and begin to provide Scotland with a modern water and sewage system. However, unless there was additional public expenditure such a programme would have a significant impact on the level of water charges in addition to the increases implemented over recent years. This would inevitably lead to consumer resistance and the loss of public support for the industry. In addition, due to staffing cuts in recent years, there is some doubt if this level of investment could be delivered within the existing water authority structures. This would lead to further expensive and inefficient use of contractors and/or further use of PPP/PFI schemes, the additional cost of which would have to be borne by the water consumer. Increased charges for non-domestic customers would inevitably make off-network schemes more attractive which, coupled with the impact of the Competition Act, could result in a loss of revenue. Due to the fixed costs of the water and sewerage system the loss of non-domestic customers will have to be met by the poorer domestic and small business consumer.
4.6 UNISON therefore believes that on the basis the albeit limited information provided, that the central option, or a version of it, is probably the best intermediate solution for the Scottish water industry. It would provide significant investment to repair the existing infrastructure and begin to make an impact on the major problems identified above.
5. OTHER ISSUES
5.1 Any consideration of the investment options for the Scottish water industry has to be seen in the context of the wider changes being proposed. These include the implementation of the Competition Act, merging of Scotland's three public water authorities and the Water Industry Commissioner's proposed efficiency cuts.
5.2 In our response to the Scottish Executive consultation paper ‘Managing Change in the Scottish Water Industry' we identified the threat to the water industry in Scotland by opening up the industry to competition. In the absence of a strong regulatory regime the results would be further privatisation of the industry leading to higher charges, poor accessibility and damage to the environment and economic development. UNISON Scotland believes that the Scottish Executive should apply for the exclusion or phased introduction of competition under the Competition Act regime, introduce comprehensive regulations which place safety before the promotion of competition, and halt the gradual privatisation of the Scottish water industry.
5.3 A key part of the financial framework for the Scottish water industry is the proposed "efficiency" savings proposed by the Water Industry Commissioner totalling some £134million over 5 years. This is likely to take more than 2000 experienced workers (one third of the workforce) out of the industry. Experience in the gas and railway industries in particular have shown that cuts of this scale will result in poorer levels of customer service and compromise water and sewage safety.
5.4 The previous Environment Minister, in his evidence to the Transport and Environment Committee, gave an indication that the forthcoming Water Services Bill would include a proposal to merge the existing three water authorities into one Scottish Water Authority known as Scottish Water. This proposal was not the subject of public consultation and therefore the advantages and disadvantages have not had the benefit of public scrutiny. Whilst one Scottish water authority does have some merits, UNISON remains sceptical that these override the very major disruption it will cause the industry over the next three years at a time when the industry needs to focus on investment and competition issues. In addition, the merging of ministerial responsibility for the water industry with other demanding portfolios does not fill us with confidence that the industry will receive the ministerial attention it requires. UNISON Scotland will therefore reserve its position on the merits of the merged authority proposal until we consider the detailed structural proposals in the Water Services Bill proposals paper.
5.5 Whatever final structure the industry takes and whichever of the three investment options are adopted, it is certain is that the industry will be undergoing a further upheaval. If safety is not to be further compromised this level of change requires to be managed carefully and appropriate financial resources provided within the financial framework. Experience in other utilities would indicate that this level of change has a significant financial cost and this needs to be specifically identified and financed within the overall financial framework.
In this paper we have set out UNISON Scotland's response to the Water Quality and Standards 2002-2006 Consultation Paper. Recognising the major shortfall in investment over many years, we broadly favour the central option as an inevitable compromise between the investment needs and the cost to the water consumer. However, the overall financial framework also needs to take into account the level of public investment into the system, the method of financing the programme and the need to provide an overall financial framework which recognises the major changes the industry will face in the coming years.
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