A Glide Path for Water Reform – Scottish Water

Previous papers have examined the history of the privatisation and reforms of the water industry in England and Wales. Drawing on the experiences and learnings which might be applicable to the New Zealand water industry. 

This year we take the journey a step further to look at a country with many more similarities to New Zealand, the proud nation of Scotland. Like New Zealand, Scotland is a small country with a low population and an abundant water resource having similar populations and GDP. 

Scotland’s population density is 67.5/km2, much closer to our own 16.8/km2 than England’s 407/km2. The proportion of New Zealand covered by water is 1.6%, while Scotland’s is 1.9%. As we are assessing a water industry on a similar scale and facing similar issues to our own, it is easy to draw parallels and take learning from their water reform journey. 

Scotland took a very different approach to water reform than England and Wales, which may have been due to the political environment of the time and jurisdiction. The England and Wales water sector was privatised during the third term of the Conservative Thatcher Government. Water reform in Scotland was at the end of the first term of the Labour Blair Government and was following the levy of a Windfall Tax on privatized companies. 

In 2002, a single publically owned water corporation was formed through the merger of the West, East and North Scotland Water Authorities. This statutory authority was named Scottish Water and is 100% owned by the Scottish Government. 

Scottish Water operates in close consultation with the Scottish Government. National policy and guidance to the industry is provided by the Scottish Government through the “Quality and Standards” planning process. This process provides targets for improvements in the industry expressed as “Ministers’ Objectives”. 

Funding for achieving the targets is provided through water rates and long term loans from the Scottish Government. Economic regulation is provided by The Water Industry Commission for Scotland (WICS) who establish the “lowest overall reasonable cost”, benchmarked against the private water companies in England and Wales. The Drinking Water Quality Regulator for Scotland and the Scottish Environmental Protection Agency (SEPA) provide drinking water quality and environmental regulation. 

Scottish Water has achieved similar drinking water quality and environmental performance gains as England and Wales as well as lifting customer service levels and at a lower cost to the consumer. 

Key lessons are presented as New Zealand embarks on its own water reform discussion.