SCOTTISH WATER COMMITTEE
FUTURE STRUCTURE OF THE SCOTTISH WATER INDUSTRY
1.1 This paper sets out UNISON Scotland's initial
view on the Environment Minister's announcement that the forthcoming
Water Services Bill will include plans to merge the three Scottish
water authorities into a new water authority - Scottish Water.
2.1 The proposal to merge the three Scottish water
authorities has not been the subject of public consultation. Last
year the Scottish Executive published a consultation paper "Managing
Change in Water Industry". It invited views on how the
role and structure of water authority boards should develop given
the changing nature of the challenges facing the water authorities.
That paper also stated "It is difficult to argue that any more
radical restructuring options would clearly serve the public interest
better than the existing structure. The Executive's preferred approach
is therefore to provide the water authorities with the stability
they need to meet the considerable immediate challenges, while recognising
that, since they operated a rapidly changing environment, it may
be necessary to reconsider the position in the future."
2.2 UNISON Scotland therefore believes that "any
more radical restructuring options" ought to be subject to
proper public scrutiny through a consultation paper which sets out
the advantages and disadvantages of the various options available
for the future structure of the industry. In addition, the Scottish
Parliament's Transport and Environment Committee are in the middle
of a detailed enquiry into the Scottish water industry and such
a decision may well have benefited from their deliberations.
2.3 The absence of public consultation inevitably
means that the debate over the future structure of the Scottish
water industry will take place during legislative stages of the
forthcoming Water Services Bill. Whilst UNISON regrets the absence
of consultation we did welcome the Minister's decision to at least
give an early indication of its thinking to enable the industry
and the trade unions to give some initial thought to the consequences
of the reorganisation.
3. THE CASE FOR CHANGE
3.1 The case for one water authority is primarily
based upon efficiencies that economies of scale would bring through
common systems and shared services. There would be an important
sharing of expertise and scale of resources which would better enable
Scottish water authorities to compete with other providers under
the provisions of the Competition Act 1998. Business customers in
particular would benefit from the ability to
negotiate contracts across Scotland with the same provider. Domestic
customers in the north of Scotland would benefit from a cross subsidy
from the central belt resulting in a standard water charge across
3.2 The case against one water authority is that
a large Scotland wide body might be less responsive to the needs
of local communities. Water consumers in east and west of Scotland
would have to pay higher water charges to provide a cross subsidy
for north of Scotland customers. Whilst shared services and other
economies of scale might in the short term result in some financial
savings, there would undoubtedly be a lot of expertise that would
go with the inevitable job losses.
3.3 If we were starting with a blank sheet of paper
there would on balance appear to be a case for one water authority.
A £600million turnover, £16billion asset value, 6000 employee business,
would appear to put it on a level with the privatised water companies
in England and Wales. However, it has to be remembered that many
of those companies have large multi-national backers and associated
The Scottish water industry is not starting from scratch
and the strongest argument against one authority is the disruption
that such a large scale reorganisation inevitably causes. As the
Scottish Executive's consultation paper Managing Change in the
Water Industry stated:
"The Executive's judgement is that the immediate challenges
for the Scottish water authorities are clear: to implement urgently
needed ambitious investment programmes, improve efficiency, raise
standards of customer service and to respond to growing competition.
It is on these issues that Management's efforts need to focus."
Experience tells us that a major public sector reorganisation
will be more than a year in the preparation and between one and
two years to harmonise and bed down the new structure. During this
period the Management focus is distracted from the key issues facing
4. OTHER OPTIONS
4.1 There are those who, despite the experience
in England and Wales, still have an ideological preference for the
full privatisation of the Scottish water industry. At a time when
even the private sector is seeking to bail out of the ownership
of the water industry in England and Wales, this solution makes
no sense and UNISON Scotland strongly rejects any move in this direction.
4.2 The fallback position for those who favour
privatisation would be to break up the vertically integrated industry
in favour of a split between asset management and services. This
would leave the financial responsibility for the ownership of assets
with the public sector and provide profitable opportunities to provide
water and sewerage services with the private sector. This is a model
which has been favoured by the Gas and Electricity Regulator OFGEM
which has split up the integrated Scottish Electricity industry
into numerous parts. There is absolutely no evidence that this model
produces any benefits for the consumer other than having to pay
the additional cost of administering such a diverse system and the
loss of economies of scale. The only gainers are the design consultants
and sign writers together with the specialist legal firms and management
consultants who profit at the consumers' expense. UNISON Scotland
again rejects this option.
4.3 A further option which at least has somewhat
more public support would be mutualisation. Under this option, the
assets of the Scottish water industry would be transferred to a
not-for-profit company which would in theory be owned by the people
of Scotland, or at least those water customers who chose to participate.
This model has recently been approved in principle for Wales by
the Water Regulator OFWAT following
their earlier rejection of a similar proposal in Yorkshire. The
mutual company would have some directors elected by water customers
with the balance being made up of "credible" persons who
in practice would have to be acceptable to the financial institutions.
The problem with this solution is that to satisfy the financial
institutions that there was minimal risk, the structure would have
to include the privatisation of water and sewerage services by contracting
out the services to private companies. Alternatively in theory,
existing employees could form employee-owned businesses to compete
for this work. In addition, there would be some technical Treasury
objections which would need to be overcome. Whilst in principle
UNISON has no objection to mutualisation and co-operative ownership
in general, the special features of the water industry, coupled
with the provisions of the Competition Act 1998, means that this
solution is in effect privatisation with the façade of public
ownership. We, therefore, with regret could not support this option.
5. WHAT WOULD SCOTTISH WATER "LOOK LIKE"?
5.1 Announcing that there will be one Scottish
water authority inevitably raises more questions than answers. The
Water Services Bill will need to include a statutory framework for
the new authority including its structure, financing etc. There
will inevitably be questions around charge collection, membership
of the Board internal structure, powers, financing etc.
5.2 Possibly even more importantly there are questions
of culture and leadership. The current three water authorities have
different organisational cultures, management styles and industrial
relations approaches. The potential for conflict is considerable
causing further problems to an industry which is already facing
major change. It will be important, at as early a stage as possible,
to being to address these issues in partnership with the key stakeholders.
5.3 A key consideration in the formation and subsequent
operation of one Scottish water authority will be the treatment
of staff. This is a factor which has been noticeably absent from
every single Scottish Executive consultation paper to date. There
are important issues around staff transfer, pensions and terms and
conditions which need to be resolved again at an early stage. Let
there be no doubt that UNISON will take whatever measures are necessary
to protect its members should the establishment of one Scottish
water authority be enacted.
6.1 UNISON Scotland remains sceptical about the
benefits of one Scottish water authority at a time when Government
and managerial focus needs to be on the major challenges facing
the water industry in Scotland. Whilst moving structural boxes around
may give the impression of taking action, it is in reality simply
a distraction. On the day of the announcement, we likened it to
"re-arranging the deck chairs on the Titanic" and have heard
nothing since to change our opinion.
6.2 Many staff are sceptical that this proposal
is simply another step down the road of privatising the Scottish
water industry. These concerns will only be assuaged by a genuine
partnership approach to the establishment of the new authority with
the aim of creating a strong and vertically integrated organisation
which reaps the benefits of scale without losing the effective delivery
of services at local level. The Scottish Executive will have to
convince us and the other stakeholders by its actions that its plans
genuinely address the issues set out above.
Scottish Organiser (Utilities)
14 West Campbell Street, Glasgow G2 6RX
Tel: 0141 332 0006
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