The Financing Of
The Water Industry In Scotland, Utility Pricing, and PFI.
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Did Flaws in the Application of
Resource Accounting and Budgeting Distort the Strategic Review of Water Charges
in Scotland
Cuthbert, J.R., Cuthbert, M.: Fraser of Allander Institute Quarterly Economic Commentary, Vol 28,
No 4: (December 2003).
Our original paper on water, which, on the basis of the limited data then
available, hypothesised that things had gone very badly wrong with the Strategic
Review of Water Charges 2002-06, leading to substantial overcharging. Much more
evidence has emerged subsequently, (see later papers), all of which confirms our
original hypotheses.
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Deep Water for the Scottish Executive
Cuthbert, J.R., Cuthbert, M.: Scottish Left Review, Issue 21: (March/April 2004).
Summarises the position on water charges in early 2004.
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paper
How the Strategic Review of
Charges 2002-06 Casts a Long Shadow over Future Water Charges in Scotland
Cuthbert, J.R., Cuthbert, M.: Fraser of Allander
Institute Quarterly Economic Commentary, Vol 30, No.4: (2006).
Uses the considerable amount of information which has emerged since our
original paper to give a definitive account of five significant errors in the
strategic review 2002-06: and assesses likely implications for overcharging in
2006-10.
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See also
accompanying chart.
Water: A Suitable Case for
Treatment
Cuthbert, J.R., Cuthbert, M.: Scots Independent, Issue no. 927, May 1,
2006
Popular summary of position on water charges.
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Risk and Profit: Unanswered Questions about the Strategic Review of Water Charges 2006-10
Cuthbert, J.R., Cuthbert, M.: Fraser of Allander Institute Quarterly Economic Commentary, Vol 31, No.1: (2006).
This paper shows that the application to Scottish Water of unmodified OFWAT financial ratios and targets, (as was done in the strategic review of charges for 2006-10), is unjustifiable: the result was significant overcharging of customers. Also identifies an apparent inconsistency with the conventions used by OFWAT, in the projected current cost profit and loss account in the strategic review. The result is that projected profits of Scottish Water are likely to have been significantly understated.
How the RCV Method Implies Excessive Returns on Capital Expenditure.
Cuthbert, J.R.: response to OFWAT/OFGEM discussion document on "Financing Networks", published on OFGEM website: (August 2006).
This paper contains financial modelling indicating that there is a fundamental problem with the Regulatory Capital Value (RCV) method of setting utility prices. This leads to overcharging of consumers, excess profits, and distortion of the capital investment programme of the utility. This has significant implications, since the RCV method is employed by utility regulators worldwide.
Water: The Birth of a Cash Cow. Why water privatisation in Scotland is inevitable unless we rethink the basis of utility pricing.
Cuthbert, J.R., Cuthbert, M.: talk given at conference on "Neo-liberal Scotland: Rethinking Scotland in a Global Context", at the University of Strathclyde, 20th May 2006.
This paper identifies a key issue in the campaign to prevent water privatisation in Scotland: this is the requirement to mount an effective challenge to the RCV method of utility pricing, (as currently implemented in Scotland, and by OFWAT).
Drowning in Self Interest: the Key Battleground in the Coming Struggle to Prevent Water Privatisation
Cuthbert, J.R., Cuthbert, M.: Scottish Left Review, Issue 36: (September/October 2006).
This paper develops some of the themes of the preceding talk. (Note that the version of the paper published in the Scottish Left Review lost a few sentences in editing. The version of the paper given here is the original version.)
A Rejoinder to Midwinter and Simpson: and how their notes raise further concerns about the financing of the water industry in Scotland.
Cuthbert, J.R., Cuthbert, M.: Fraser of Allander Institute Quarterly Economic Commentary, Vol 31, No.3: (2007).
This paper is a rejoinder to criticism of earlier papers of ours on water made by A. Midwinter and D. Simpson. The paper contains outturn figures from the accounts of Scottish Water for the period 2002 to 2006, which show that we were absolutely right in our prediction that there had been serious errors in setting water charges, with customers being potentially overcharged by approaching £600 million in total over this period. Also of particular interest is a copy of an internal Scottish Executive memo, which we obtained under the Freedom of Information Act, and which is reproduced in this paper.
Fundamental Flaws in the Current Cost Regulatory Capital Value Method of Utility Pricing
Cuthbert, J.R., Cuthbert, M.: Fraser of Allander Institute Quarterly Economic Commentary, Vol 31, No.3: (2007).
This is our definitive critique of the current cost RCV method of utility pricing, as widely used in water and other utilities in the UK, and also in other countries. This paper was sent to Ofwat for comment after publication: Ofwat's response can be accessed here, as can our reply to Ofwat, which shows there is no substance in Ofwat's attempted rebuttal of our criticisms.
Overcharging for Water: Fundamental Flaws in Utility Pricing in the UK
Cuthbert, J.R., Cuthbert, M.: Powerpoint presentation of seminar given at University of Edinburgh, Centre for Public Health Policy, 30th April, 2007.
Seminar given at University of Edinburgh on ground covered in previous paper.
A Rejoinder to Jo Armstrong's Critique of Our Paper on Utility Pricing
Cuthbert, J.R., Cuthbert, M.: September 2007.
In the Fraser of Allander Institute Quarterly Economic Commentary, Vol 31, No.4, Jo Armstrong published a critique of our paper in volume 3 of the same commentary, (see above), which had argued that there were fundamental flaws in the current cost regulatory capital value method of utility pricing. This is a rejoinder to Armstrong. We would normally have published our rejoinder in the Fraser of Allander Commentary: but the Commentary has, very unfortunately, ceased publication following a recent decision by the University of Strathclyde. The Fraser of Allander Institute have, however, published our rejoinder on their website. As regards her critique, Armstrong accepts the technical aspects of our criticism of CCRCV: but then goes on to argue that special circumstances in Scotland justify the continuation of CCRCV pricing in the water industry in Scotland. As we explain in detail in our rejoinder, we find Armstrong's position on this unsustainable.
The Fundamental Flaw in PFI? The Implications of Inappropriate Indexation of that Element of the Unitary Charge Covering Finance Costs
Cuthbert, J.R.: this paper will be published shortly by the STUC.
A technical note, suggesting that a fundamental flaw with PFI, leading to excess profits for PFI providers, is the inappropriate way that the non-service element of the unitary charge is uprated for inflation. Subsequent work we have undertaken, looking at some of the detailed financial projections for PFI schemes now becoming available because of the Freedom of Information Act, very much confirms the analysis in this note: we will report on this subsequent work in due course.
PFI: The Need for an Urgent Enquiry
Cuthbert, J.R., Cuthbert, M.: Scots Independent, Issue 944, October 1st, 2007.
This article suggests that a thorough enquiry into the PFI scheme is now required, in the light of the findings outlined in the previous note, and other concerns about the operation of PFI.
Scottish Water Solutions: is this what we want from a Public Corporation?
Cuthbert, M., Cuthbert, J.R.: Scots Independent, Issue 945, November 1st, 2007.
This article highlights the unsatisfactory situation as regards Scottish Water Solutions, the special vehicle set up to deliver a large part of Scottish Water's investment programme, and points out some of the adverse consequences for Scotland.
Cuthbert, J.R., Cuthbert, M.: Scottish Left Review, Issue 43, November/December 2007.
This article is intended to be an accessible account of the errors in PFI, and shows how, in the light of additional information now becoming available under the Freedom of Information Act, PFI can truly be described as providing "one for the price of two".
Rejoinder to Partnerships UK on their Comments on the Paper 'The Fundamental Flaw in PFI?'"
Cuthbert, J.R.: December 2007.
The above paper on "The Fundamental Flaw in PFI?" was copied to Partnerships UK by the Scottish Government. Partnerships UK came back with comments, which can be accessed here. This paper is a rejoinder to Partnerships UK's comments. The fundamental weakness in Partnership UK's comments is that they are largely based on a description of how PFI should work, rather than being founded on an evidence based analysis of how PFI actually works.
The Need to Review the ONS Approach to Including PFI Liabilities in the Public Sector Net Debt
Cuthbert, J.R.: paper SESCG2008/1/1, discussed at Scottish Economic Statistics Consultants' Group, January 9th 2008.
This paper discusses the implications for the way in which the Office for National Statistics treats PFI schemes in the national accounts, of the new information on the operation of PFI which has recently become available under Freedom of Information. The paper argues that ONS needs to review its test of whether PFI schemes appear "on the Government's books", with the likely implication that more schemes would come onto the books.
Cuthbert, J.R., Cuthbert, M.: Scots Independent, Issue 948, February, 2008.
Report on a meeting held at Scotland House in Brussels, as part of the international campaign to reclaim water for public ownership.
The Implications of Evidence Released Through Freedom of Information on the Projected Returns from the New Royal Infirmary of Edinburgh and Certain Other PFI Schemes.
Cuthbert, J.R., Cuthbert, M.: paper given as evidence to the Finance Committee of the Scottish Parliament, in connection with their inquiry into the methods of funding capital investment projects: paper also available on Finance Committee website, (March 2008).
Analyses the financial projections now available for six PFI schemes, and gives performance measures indicating the high costs, and high levels of profit, projected for these schemes. This evidence is entirely consistent with the hypothesis about the effects of inappropriate indexation, as put forward in the paper above, titled "The Fundamental Flaw in PFI ?".
The Royal Edinburgh Infirmary: A Case Study on the Workings of the Private Finance Initiative.
Cuthbert, M., Cuthbert, J.R.: paper given as evidence to the Finance Committee of the Scottish Parliament, in connection with their inquiry into the methods of funding capital investment projects: paper also available on Finance Committee website, (March 2008).
Based on a study of the nine thousand or so pages of supporting documentation on the New Royal Infirmary of Edinburgh contract, now released under Freedom of Information. This paper identifies a number of problems with the procedures of PFI: the effect of these problems would be to largely invalidate the standard value for money and affordability tests in PFI.
The Scottish Futures Trust: What we should be looking out for.
Cuthbert, J.R., Cuthbert, M.: Scots Independent, Issue 950, April, 2008.
In the light of what we now know about PFI, this paper suggests various questions which will need to be asked about the Scottish Government's proposals for a Scottish Futures Trust, if the problems with PFI are to be avoided.
Response to Scottish Government Consultation on Scottish Futures Trust
Cuthbert, J.R., Cuthbert, M.: also available on Scottish Government website: submitted March 2008.
Builds on our research on the behaviour of past PFI schemes to make a number of suggestions about the Scottish Futures Trust. In particular, that radical improvements are necessary in monitoring, and in public sector expertise: that the handling of risk needs to be greatly improved: that the Treasury needs to be tackled on a number of issues, like the capital charge and VAT, which currently adversely affect PFI: and that there would be significant advantages in unbundling PFI schemes into smaller components.
The Capital Charge: Problems Arising from the Misapplication of Current Cost Accounting
Cuthbert, J.R., Cuthbert, M.: paper to the Finance Committee of the Scottish Parliament, in connection with their inquiry into the methods of funding capital investment projects: paper also available on Finance Committee website, (May 2008).
We were invited to submit this note following our appearance at the Finance Committee on 29th April. The note explains how one of the factors contributing to the observed problems with PFI has been the implications of the government's capital charge rules: this in turn relates to a more basic problem concerning the misapplication of the principles of current cost accounting.
Cuthbert, M., Cuthbert, J.R.: paper submitted to the Finance Committee of the Scottish Parliament, in connection with their inquiry into the methods of funding capital investment projects: paper also available on Finance Committee website, (May 2008).
This note provides a description of PFI refinancing, and highlights a number of issues which have arisen in refinancing deals.
Analysis of the Financial Projections for Two Non-Profit Distributing PFI Schemes: and Implications
Cuthbert, J.R., Cuthbert, M.: paper submitted to the Finance Committee of the Scottish Parliament, in connection with their inquiry into the methods of funding capital investment projects: paper also available on Finance Committee website, (September 2008).
The Non-Profit Distributing model is a variant of PFI which is likely to play an important role in the Scottish Government's proposal for a Futures Trust. This note analyses the financial projections for two of the first NPD schemes, and identifies a number of issues that need to be addressed.
An Opportunity Waiting to be Grasped
Cuthbert, J.R., Cuthbert, M.: Scots Independent, Issue 956, October, 2008.
This paper proposes a new approach to setting water charges in Scotland, under which capital formation financed from customer charges would be regarded as a notional loan from the customer base to Scottish Water. This would be a fully sustainable approach, which would have the advantage of ultimately delivering much lower water charges.
A Recommendation on How the Method of Setting Water Charges in Scotland Should be Changed: Customer Financed Capital as a Notional Loan to the Utility
Cuthbert, J.R., Cuthbert, M.: Fraser of Allander Economic Commentary, Vol. 32, No.3, February, 2009.
This paper sets out the analysis underlying our proposed new method for setting water charges in Scotland, (which was the subject of the article immediately above).
The Need to Change Water Pricing in Scotland
Cuthbert, J.R., Cuthbert, M.: Sunday Herald, 1st March, 2009.
A popular version of the previous paper.
A Comment on Martin Kellaway's response to Paper SESCG 2008/1/1
Cuthbert, J.R.: note discussed at Scottish Economic Statistics Consultants Group, 7 May 2009.
This is a follow up to the earlier paper, "The Need to Review the ONS Approach to Including PFI Liabilities in the Public Sector Net Debt", which appears above. ONS responded with a comment on that earlier paper: that comment can be accessed here. This note is a response to the ONS comment, and argues that the ONS position on accounting for PFI liabilities remains unsatisfactory.
Submission of Written Evidence to House of Lords Economic Affairs Committee: Inquiry into Private Finance Projects and Off-balance Sheet Debt
Cuthbert, J.R., Cuthbert, M.: submitted 21st September 2009.
Our evidence brings together various strands of our research on PFI, including the question of how PFI schemes should be reflected in the national accounts.
The Danger to Scotland's Water from Flawed Utility Pricing
Cuthbert, J.R., Cuthbert, M.: article published in Julie Hepburn's blog "destiNation", October 2009.
This is the first of what is planned to be an occasional series of contributions to Julie Hepburn's blog, "destiNation". A link to destiNation is given in the "Useful links" section of this site.