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TOUGH CHALLENGE FOR WATER INDUSTRY

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A tough challenge was set for the Scottish water industry today when it was asked to deliver improved services to c...
A tough challenge was set for the Scottish water industry today when it was asked to deliver improved services to customers within a tighter financial framework.

Announcing the outcome of the Strategic Review of the revenue needs of the Scottish water industry, the minister for environment and rural development Ross Finnie said:

'The executive's over-riding aim is that customers get the best possible deal from the water industry. Massive investment needs - to improve drinking water quality and keep our rivers and beaches clean -means that charge rises are inevitable. But by accepting the water industry commissioner's advice on revenue needs, we will be keeping those increases as small as possible.

'Today's announcement is about how much a future Scottish Water's revenue will need to increase for it to fulfil its functions. It means that future charge increases will be very much lower than we have seen in recent years. Next year, I would expect domestic charges in the East and West to go up by around 10%, with no increase in the North.

'The review confirms that the move to Scottish Water provides the best means of achieving value for money for customers. It believes that without a move to Scottish Water, charges in the central belt would be substantially more than 10% higher by 2005-06, with charges in the North around one third higher.

Mr Finnie continued:

'Although we cannot say with precision what will happen over the 4 year period as a whole, I think the commissioner's own assessment that domestic charges in the East and West could rise by up to 25% in real terms over the period, with no significant change in charges in the North is a reasonable one.'

Ministers have accepted the advice on the revenue cap in the Strategic Review carried out by Alan Sutherland, the water industry commissioner for Scotland. The cap for the proposed Scottish Water in each of the next four years is as follows:

Projected Revenue 2001-02

2002-03

2003-04

2004-05

2005-06

£825.9m

7.5%

7.8%

4.6%

(1.3%)

Under the 1994 Local Government Act, the water industry commissioner provides Scottish ministers with advice on the revenue needs of the Scottish water industry over a period, in this case from 2002-03 to 2005-06. The main recommendation is on the increase in revenue needed each year - the 'revenue cap'. The Commissioner's advice is contained in his 'Strategic Review of Charges' which is being published separately today [website reference].

The advice which ministers have accepted is set out in the following parliamentary answer:

Question:

To ask the Scottish Executive what progress has been made on the Strategic Review of Charges in the Scottish Water Industry.

Ross Finnie:

Last month, the Water Industry Commissioner for Scotland, Alan Sutherland, submitted advice to me as a result of his Strategic Review of Charges. This advice is set out below.

After careful consideration, I have decided to accept the Commissioner's advice. The Commissionerhas also made a number of further recommendations, with which I am broadly content and on which I will take forward discussions with him. The Commissioner has a legal duty to publish his advice and Ministers' response to it and has made the full text of all the relevant material available in SPICe today.

The advice I have accepted is set out in the following Parliamentary answer:

i) Revenue Cap for the three Scottish water authorities

The revenue cap profile for the three Scottish water authorities in the event that the Scottish Parliament does not approve Scottish Water is given in Table 1.

Table 1: Revenue cap for the three Scottish water authorities

Water Authority

Projected Revenue

2001-02

2002-03

2003-04

2004-05

2005-06

Total Increase

Actual

Real

East

£249.3m

11.8%

10.3%

11.9%

2.7%

41.7%

28.4%

North

£232.0m

12.4%

11.4%

6.0%

2.5%

36.0%

23.2%

West

£352.2m

10.5%

11.9%

14.3%

2.3%

44.6%

31.0%

ii) Revenue cap for the proposed single authority, Scottish Water

The revenue cap profile for Scottish Water in the event that the Scottish Parliament approves this initiative is given in Table 2.

Table 2: Revenue cap for the proposed single authority, Scottish Water

Water Authority

Projected Revenue 2001-02

2002-03

2003-04

2004-05

2005-06

Total Increase

Actual

Real

Scottish Water

£825.9m

7.5%

7.8%

4.6%

(1.3%)

19.6%

8.4%

Projected 2001-02 revenue for the proposed Scottish Water differs from the sum of the projected revenues from the three existing authorities because of inter-authority trading

iii) Harmonisation of charges

Charges should be harmonised across Scotland for both the domestic and non-domestic customers, by no later than 2005-06.

iv) Cost reflective tariffs

Scottish Water should seek to develop tariffs that more broadly reflect the economics of the service provided. This will require that the fixed element of the charge faced by customers increases significantly from the current level.'

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