Investing in and Paying for Water Services

Investing in and Paying for Water Services

The Royal Society of Edinburgh (RSE) is pleased to respond to the Scottish Executive Environment and Rural Affairs Department’s consultations on Investing in Water Services 2006-2014 and Paying for Water Services 2006-2010. This response has been compiled by the General Secretary, Professor Andrew Miller and the Research Officer, Dr Marc Rands, with the assistance of a number of Fellows with considerable experience in this area.

The two documents raise important issues, many with strong social implications. Although potable water is no more essential than food, clothing or shelter it is endowed with values that put it in a special category. This is justifiable because access to potable water is vital to medical services and what happens in one household can have wide implications for community health. Although raw water is abundant in most of Scotland, treated water may not be so in some places and circumstances. Thus wastage or profligate use of treated water should be reduced to a minimum through leakage control, pricing and public education.

Under current regulations, if Scottish Water breaches regulations, fines may be imposed. As a result of the basis on which the body is founded, the customer will then be bound to pay in financial and service terms. This can result in cynical and hostile relationships between Scottish Water and its customers, not to mention difficulties for the Courts. In addition, if domestic customers are expected to pay higher prices for water services, they must see something for their money, such as a reduction in flooding or a decrease in odours from sewerage treatment works.

The specific points raised in the consultation documents are now addressed below.

Investing in Water Services 2006-2014

Many of the Standards discussed in this consultation paper are laid down in European Directives and are therefore mandatory. However, the key issue will be their prioritization, and one of the most important factors that should be taken into account in deciding priorities for action and funding should be the public health.

Objectives of Quality and Standards III

Consultation point 1: The key aim of Quality and Standards III is to produce a cost-effective, deliverable, affordable and sustainable investment programme.

The criteria are well chosen, but considerations of "quality of life" also need to be taken into account and much will depend on the interpretation of "cost-effective". In this context, many financial appraisals take inadequate account of extending infrastructure lifetimes.

Establishing Future Investment Needs

Consultation point 2: Do you agree that these are the correct questions each working group should use to assess each individual investment option?

The questions suggested, namely legitimacy, cost effectiveness, planning assumptions, flexibility and priority are the correct ones to use.

Maintaining Service Standards (Capital Maintenance)

Consultation point 3: Do you agree that maintaining serviceability levels should be an essential objective of Quality and Standards III?

Maintaining serviceability levels should be an essential objective.

Consultation point 4: What are the most important serviceability standards?

The serviceability standards selected seem suitable, but those that have the greatest influence on quality of life should be given the priority.

Consultation point 5: If you wish to see a higher level of serviceability, do you wish to see this benefit secured from a) higher charges or b) lower spend on other areas of capital investment?

This is a difficult area since investment decisions ‘knock on’ to serviceability. In general, it is a balancing process between a) and b).

Extending Public Water & Sewerage Networks

New Developments

Consultation point 6 (extending the network to accommodate new developments): We hope to be able to include provision within the forthcoming investment programme to fund the deeper elements of connection. Should this element be paid for by - a) higher charges or b) lower investment in other areas?

As with consultation point 5, a balance between higher charges and lower investment in other areas will need to be found.

Consultation point 7: Where there is a requirement made by local authorities for detailed modelling work to inform the viability of strategic sites in structure and local plan processes, who do you think should fund this work?

In principle it should be the local authorities, and/or the proposed developer that pays, not Scottish Water.

Investing in the Environment

Consultation point 10: What should the top environmental priorities be?

These priorities, and those of drinking water quality and other priorities are all concerned with the topics of affordability and prioritisation. As noted above, many of these priorities and standards are laid down in European Directives and are non-discretionary, but those that are discretionary need to be prioritised through a properly weighted decision making process, with quality of life and the ‘rate of spend’ being critical issues. There will be a range of stakeholder groups, including SEPA, CBI (Scotland), environmental groups and local authorities, and therefore proper methods and rules of consultation need to be laid down, with priority setting based on objective criteria.

In addition, we suggest that sustainability should be included as a priority as Scottish Water has an obligation in its Act to invest in sustainability.

Drinking Water Quality & Water Resources

Consultation point 12: What should the top drinking water quality and water resource priorities be?

Security of water availability and quality should be high priorities.

Other Priorities for the Customer

Odour from Waste Water Treatment Works

Consultation point 14: Do you think that the forthcoming investment programme should include provision for odour control at wastewater treatment works?

It seems likely that public pressure regarding odour control will continue to increase and accordingly a budget must be allocated to it.

Water Pressure

Consultation point 16: Do you think that the forthcoming investment programme should include provision to improve water pressure for those properties suffering from low water pressure?

The forthcoming investment programme should include provision to improve water pressure for those properties suffering from low water pressure.

Sewer Flooding

Consultation point 18: Do you think that the forthcoming investment programme should include provision to address sewer flooding in addition to that contained under capital maintenance?

The investment programme should include provision to address sewer flooding in addition to that contained under capital maintenance.

Paying for Water Services 2006-2010

Proposed Principles of Charging

Consultation Points 1 and 2: Where respondents do not agree that the principles suggested provide an appropriate basis for setting charges, they are asked to suggest principles that they consider would be appropriate and why.

The principles outlined are appropriate and we welcome in particular the emphasis on the public good in terms of the services to households.

Application of Principles

Cross Subsidies

Consultation Point 3: If it is established that there are significant cross subsidies between customer groups, should these be retained, or withdrawn gradually over time?With regard to cross subsidies, if Scotland’s water services are to be charged separately from the public purse as a commercial activity, then the charges should reflect actual costs and cross subsidies are not appropriate. However, if they are to be funded from a public purse, as a public service, then cross subsidies should be determined by political and social objectives determined by the Government, depended on its views about stimulating businesses, and public health interests.

Overall, we accept the principle that domestic supplies should be on uniform terms, and public health interests and affordability should be a key factor in the arrangements for charging households. In terms of commercial supplies, there is a case for a study into the implication of charging the direct costs for supply.

Household charging

Consultation Point 4: Should a new system of better targeted discounts for low-income households be funded from the savings that would be generated by abolishing the discounts currently granted to single adult households and in respect of second homes, or should the current system of discounts be retained?

Better targeted discounts should be developed.

Non-household charging

Consultation Point 5: Should the current arrangements for charging non-household customers for surface and highway drainage be retained, or should preparations be made to establish by 2010 banded charges in respect of these charges?

The charging system for surface drainage should be simple to understand and straightforward to operate. Whilst a fixed charge is attractive, a fairer system would be to base the charge on surface-areas drained. With regard to highway drainage, the highway authorities should pay Scottish Water for that service, as do industrial users.

Consultation Point 6: Should un-metered non-household premises continue to pay by reference to rateable value, or should they become metered, or should preparations be made to enable these premises to be charged by reference to a system of bandings to reflect broad consumption levels?

A banding system reflecting consumption levels would be fairer, but unmetered non-domestic properties should have at least the option of being metered. Ideally, the aim should be to have all non-domestic properties metered in the longer term.

The balance between charging and borrowing

Consultation Point 7: Do you agree that the Executive has identified the main factors that should have a bearing on the amount of borrowing provision made available to Scottish Water? If not, which other relevant factors should be taken into account.

Given the Scottish Executive’s requirements not to increase further the overall public sector borrowing requirement, Scottish Water will be financially constrained. Investment in recent years has been so low that it cannot now afford to fund everything that should be provided today and therefore some element of borrowing must be accepted. However, in this regard it lacks that advantage of a privatised company.

Having no increase in borrowing puts much more load on existing customers and may be unsustainable in economic, environmental and social terms. Given the scale of the work needed, there is a very strong case for giving greater flexibility to Scottish Water in its ability to borrow.

Funding expansion of the public networks

Consultation Point 8: Do you agree that developers should be expected to meet the cost of providing increased local capacity where this is necessary to take forward their proposed developments?

Developers should bear reasonable costs of extending their network to accommodate new developments, by paying for the infrastructure, while the cost of maintaining the expanded system should be borne by Scottish Water, taking account of the future revenues that will accrue to it.

Additional information

In responding to this inquiry the RSE would also like to draw attention to the following Royal Society of Edinburgh response in connection with water fluoridation: Towards Better Oral Health in Children (December 2002).

July 2004

Copies of the above publications and further copies of this response are available from the Policy Officer, Dr Marc Rands


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