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Draft Water Services (Scotland) Bill

UNISON Scotland's response to Scottish Executive Consultation on Proposed Provisions for the Water Services (Scotland) Bill

January 2004

Executive Summary

  • UNISON is the largest trade union in the Scottish Water industry.

  • UNISON rejects the view that competition in essential utilities brings benefits to consumers. We believe that the Scottish Executive approach to the Competition Act should be based on the general exclusions as set out in Schedule 3 of that statute.

  • UNISON supports the prohibition on common carriage in the draft bill. We have previously highlighted the technical problems, environmental and public health consequences of allowing even regulated access to the water and wastewater systems.

  • UNISON also supports the prohibition on retail competition for households. The loss of charging based on ability to pay and the inevitable ‘cherry-picking' of high-banded customers negates even the alleged benefits of competition.

  • UNISON does not support licensed non-household competition. Business separation, billing, marketing and the associated bureaucracy will place a further burden on the hard pressed water charge payer for little benefit. Smaller high street businesses will be disadvantaged as the out of town and larger businesses become the focus of competition.

  • Unlike the privatised utilities the water industry does not have the regulatory infrastructure to operate a competitive framework. To introduce such an infrastructure would divert resources from improving the physical networks to bureaucratic information systems.

  • UNISON believes that Scottish Water needs a period of stability to focus on the key tasks of updating Scotland's ageing infrastructure. Business separation in particular is an unwelcome disruption that benefits no one other than the signwriters.

  • The introduction of limited competition is a further step on the road to the full privatisation of Scotland's water.


UNISON is Scotland's largest trade union representing over 150,000 members working 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 proposed provisions for the Water Services (Scotland) Bill. This response needs to be seen in the context of our previous submissions to recent Scottish Executive consultations on the water industry.

The Draft Bill

This is the latest of a number of legislative developments affecting the water and sewage industry in Scotland including the establishment of a public water corporation, Scottish Water and a revised regulatory framework. This bill focuses on the development of competition in networked water and sewage. Competition already exists in off-network services.

The driver for this legislation is the UK Parliament's Competition Act 1998 that seeks to prevent the restriction or distortion of competition and the abuse of a dominant market position. UNISON Scotland water briefings have previously highlighted the danger of this ill thought out legislation for essential public services. In essence the draft Water Services (S) Bill seeks to implement the provisions of the Competition Act whilst minimising the adverse impact on Scotland. It should however, remind the Scottish Parliament to be vigilant about other international competition initiatives that impact on public services. In particular, reforms of the EU internal market and GATS.

The draft Bill seeks to create a structure that balances the alleged benefits of competition with the obvious risks to what is an essential public service. The Executive is therefore proposing the following:

  • Prohibiting common carriage on the public networks. In response to previous consultations UNISON highlighted the technical difficulties in allowing third party access to the water and sewage networks. In addition we pointed to the risk to public health through contamination and interruption of supply. The Executive has concluded that the risks to public health and the environment outweigh any possible benefits from competition.

  • Prohibiting retail competition for households. The Executive has again concluded that retail competition would not develop in a way that would benefit all customers. In particular the risk that new entrants would ‘cherry pick' customers in high banded properties at the expense of the remaining customers.

  • Licensing non-household retail competition. With Scottish Water remaining the wholesale supplier through its control of the networks the Executive is proposing that new entrants could retail non-household water and sewage services. In effect the system would operate like the energy market with different suppliers selling the service from networks operated by a regulated operator. It is argued that this would provide competition and an additional spur to efficiency. Scottish Water can continue to supply alongside the new entrants who would be licensed by the Water Industry Commissioner (WIC). The WIC would have the power to regulate the wholesale charge based on a fair and proportionate share of total network costs. Scottish Water will be directed by Ministers to place its retail activities into a separate retail subsidiary. The licensing regime will come into effect on 1 April 2006.


UNISON Response

Risks and benefits of competition

The policy basis for this section of the consultation takes a more realistic view, than the original Water Services Bill consultation in 2001, on the alleged benefits of competition. Experience in other utilities has shown that the alleged benefits are more apparent than real and comes at a significant cost to the consumer.

UNISON rejects the view that competition in essential utilities brings benefits to consumers. There is no evidence to support the contention that competition "encourages efficiency, keener prices, greater customer responsiveness, innovation and improved standards".

The Competition Act 1998 introduced a new framework for competition bringing into domestic law (this is a reserved power to the UK parliament) provisions which enact European law on this issue. In particular it introduces new sanctions for anti-competitive behaviour. The Act applies to Scottish Water and is enforced by the Director General of Fair Trading (DGFT) as the WIC in Scotland does not have the same powers as the water industry regulator in England and Wales, OFWAT.

The Act includes provisions for exemptions and exclusions on a number of grounds. UNISON believes that the provisions of Schedule 3 (7) remain a sound basis for an exclusion under the Competition Act. Water and sewerage is an essential service in a civilised society and competition puts that service at risk, particularly for disadvantaged customers. The public policy grounds could relate to rural, economic and social exclusion strategies under this heading. In addition the Executives environmental objectives will be difficult to achieve in a competitive framework and this provides a further public policy basis for an exclusion.

Prohibiting common carriage on the public networks

UNISON Scotland agrees that the risks to public health and the environment outweigh any foreseeable benefits from allowing access to public water and wastewater systems.

In our response to the original Water Services Bill consultation we highlighted some of the many technical difficulties in achieving common carriage including:

  • Many existing mains have no spare capacity for additional water
  • The Fraser Report (Burncrooks) recommended the zoning of water from different sources as a precaution against contamination.
  • Arrangements for proving and compensating for mains pipes fractures caused by third party supply e.g. pressure surges.
  • Responsibility for boosting disinfectant residuals.
  • Backflow protection to stop accidental or fraudulent back-syphonage
  • Allocation of the cost of leakage or lost water e.g. misuse of fire hydrants.
  • Pipe size incompatibility when new sources are attached to the mains.

Scottish Water would have to be responsible for managing a comprehensive access code to ensure that there was adequate supply. This code would be enormously complex covering all possible situations including seasonal demands, bursts, drought provision etc. There would also have to be costly physical systems in place to isolate new entrants supply and provision for ‘last resort' supply.

The consequences of common carriage even with costly systems intervention could include at worst contamination of water supplies or at best interruption and damage to the water and sewage infrastructure. The public health consequences are obvious and therefore the provisions in the draft bill prohibiting common carriage are welcome.

Prohibiting retail competition for households.

UNISON Scotland agrees that retail competition poses risks for households.

For household customers water charges, linked to Council tax bands, reflect broadly the ability to pay. The current arrangements include a discount for single adult households. UNISON supports revisions to the current banding system being considered as part of a wider review of local government finance. Competition would bring separate water charges and the loss of the essential progressive charge basis, which is in our view a requirement for an essential public service. There is no practical alternative to piped water and sewage disposal.

The arrangements in place in other competitive utilities for disadvantaged consumers are generally very limited. For example fuel poverty still impacts on one in six Scottish households despite the excellent measures taken by the Scottish Executive to address this issue.

The consultation paper rightly identifies the serious risk that new entrants to the market would ‘cherry-pick' high-banded properties. UNISON highlighted this risk in the original Water Services Bill consultation. This has also been the experience in other utilities where existing suppliers have been forced, because of competition, to chase ‘high value' customers at the expense of other consumers.

Not only would charges increase for most consumers but Scottish Water would be left with stranded assets brought about by off network provision.

UNISON Scotland therefore agrees that competition would develop in a way that would not benefit all customers and welcomes the provisions in the draft bill prohibiting this form of competition.

Licensing non-household retail competition

UNISON Scotland does not support the introduction of retail competition in non-households. The 160,000 premises covered by this competition are a significant part of Scottish Water's operation. Business separation will be a further and unwelcome disruption to the corporation, which is attempting to address the long-standing problems facing the industry.

Some of the main problems include:

  • Experience in the energy industry shows that business separation is an expensive business. The loss of integrated operations, economies of scale, rebranding etc all add to the costs charged to customers.

  • A whole new industry is created with new customer service, billing, marketing and sales operations, all of which divert resources which could be more effectively deployed improving our water and sewage networks.

  • Further systems will have to be established to allow switching between suppliers. This has caused chaos in the energy market and will inevitably do the same in water and sewage.

  • As Scottish Water will have a statutory obligation to supply everyone they will be left with disjointed retail operations. Many of the cherry-picking arguments set out above also apply to non-household competition. Most of the 160,000 properties are small businesses in high street locations. New entrants will inevitably focus on larger consumers or those in geographically concentrated areas such as out of town estates in urban areas. Again it will be the disadvantaged consumer who will suffer.

  • The WIC will gain further powers to directly set wholesale charges. Current experience indicates that this may not be wholly beneficial to either customers or the industry. Unlike other utilities the water and wastewater systems are not organised into a cohesive network. The industry has not diverted essential investment resources into management information systems that are an integral part of a regulated market. This is reflected in the WIC's reports on Scottish Water's alleged performance. Despite the apparent detail the judgements are based on limited data. In the privatised utilities the companies establish extensive regulatory functions to engage with the regulator. Again all of this would be recharged to the customer.


UNISON Scotland broadly welcomes the provisions of the draft bill as being a more realistic recognition of the realities of the industry that those set out in the original Water Service Bill consultation in 2001.

The major problem relates to the proposals for non-household retail competition. We suspect that this more modest proposal reflects a concern to be seen to provide an element of competition in accordance with the philosophy inherent in the Competition Act. However, the proposals still constitute a major upheaval for little value to the consumer. It is also a further stage along the road to the full privatisation of Scotland's water.


For further information please contact:

Matt Smith, Scottish Secretary
UNISON Scotland
14, West Campbell Street,
Glasgow G2 6RX
Tel 0141-332 0006 Fax 0141 342 2835

e-mail matt.smith@unison.co.uk


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