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by Alan Sutherland
10 November 2020
Associate feature: What price a resilient water service?

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Associate feature: What price a resilient water service?

The maxim that you can’t wash your hands without water has never been more apposite than during lockdown, when we each used around 30 litres more water in our homes every day.

The existential need for clean drinking water and properly treated wastewater was reflected in the Scottish Parliament’s decision to establish Scottish Water as a publicly owned company, so that every pound of customers’ bills is re-invested in ensuring a reliable service.

There’s much to invest in. Scottish Water manages 100,000km of pipes and around 2,000 treatment works, and is Scotland’s biggest energy user. The £1.2bn the industry spends each year supports livelihoods, creates jobs and cares for our natural environment. It is responsible for an asset base that would cost some £70 billion to replace.

Since its creation in 2002 customer service levels have increased significantly while bills have fallen by c.10% (after inflation). Drinking water quality is high and environmental impacts much reduced. So Scottish Water’s progress is a clear success story.

But these gains could all too easily be lost if we do not continue to invest. Climate change is making it harder to deliver services, affecting raw water quality and increasing sewer flooding, and Scottish Water’s infrastructure is ageing. At the same time Scottish Water now faces a challenging 2040 net zero emissions target.

The sector stands at something of a crossroads but decisions about the future direction can draw on evidence of customers’ priorities. Extensive research confirms that customers cherish their water, and want high-quality, value for money, services. They also want Scottish Water to provide broader public benefit and to help tackle climate change.

Our statutory role is to promote customers’ interests. As such we must allow Scottish Water the funding it requires to address the challenges it faces and to ensure that current and future customers enjoy the same high- quality and reliable services as we do today, at the lowest reasonable overall cost. Without sufficient investment, we face the prospect of a gradual deterioration of standards that will become harder to reverse, and substantially more costly, if allowed to gather pace.

There’s an important balance to be struck between charges and borrowing. And while it may seem attractive to increase the borrowing levels available to Scottish Water today, this will only lead to higher bills in future – which would be poor value for both current and future customers.

Our recent ‘draft determination’ allows for £4.5bn investment between 2021 and 2027, an increase of c.30% from the investment allowed in the previous six year period. That means charges need to increase by up to 2% above inflation on average each year, with the average household bill rising by a maximum of £9 above inflation each year.

To put that into perspective, bills would still be broadly the same (after inflation) in 2027 as they were in 2002, even if they increase by the maximum allowed.

We understand that many households and businesses face financial challenges, particularly at the moment. The Scottish Government plans to provide greater protection to those least able to afford water charges and Scottish Water is engaging with customers to understand the price profile they consider reasonable over the period.

We are playing our part in ensuring that bills are no higher than necessary by setting stretching efficiency targets for Scottish Water and expecting its investment decisions to take account of carbon, natural and social capital, thereby providing best all-round value.

Our proposals build on progress since 2002, doing the right thing for Scotland and for future generations. Where would we be right now without our resilient water service?

Alan Sutherland is chief executive of the Water Industry Commission for Scotland

This piece was sponsored by the Water Industry Commission for Scotland

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