ࡱ> Root Entrynk. Such a business, of course, would not  F G|?@ӈ-y@ @r WiWordDocument@as Jim Matherdoc Shared\Textconv\WZRFTDCA, RFT-DCA, C:\Program Fi=on FCompObjred\Textconv\RFTDCA32.CNV, rftnMSWorksWir Windows , C:\ProgrjcrosSummaryInformationiMSWinWrite30, Window(Program Files\Common@Text !"#$%&'()*+,-./016789<=>ACFRoot Entrynk. Such a business, of course, would not  F G|?@ӈ-y@ @r WiWordDocument@as Jim Matherdoc Shared\Textconv\WZRFTDCA, RFT-DCA, C:\Program Fi>on FCompObjred\Textconv\RFTDCA32.CNV, rftnMSWorksWir Windows , C:\ProgrjcrosSummaryInformationiMSWinWrite30, Window(Program Files\Common@Text 2345:;?@BDEGwas Jim Mather, who has pursued this issue like a terrier these past three years, who came up with the best metaphorPreferred CustomerPreferred Customerܥhc eB> O./////0M/0000%0 0o=1/0/0(W0W0W0W0W0W00000=02.4=X=L4# /W0W0W0W0W0L4s0//W0/0s0s0s0W0/W0/W00@ӈ-y@'/5/////W00s0Hs0 It was Jim Mather, who has pursued this issue like a terrier these past three years, who came up with the best metaphor. Imagine, said Jim, that a businessman had taken over an old pub, which needed a lot of renovation. The normal approach would be to boܥhc eB= -M.M.M.M.M.?/.?/?/?/O/_/ ?/<1i/i/(//////////=401h3<X&=3 M./////3/M.M./i/////M./M.// \"y@a.o.M.M.M.M.///H/ It was Jim Mather, who has pursued this issue like a terrier these past three years, who came up with the best metaphor. Imagine, said Jim, that a businessman had taken over an old pub, which needed a lot of renovation. The normal approach would be to borrow the money to do the place up: and to pay back the debt and interest over several years. But this particular businessman decides to do without most of the loan, and to raise the money he needs for renovation by slapping a couple of extra pounds onto the price of every drink. Such a business, of course, would not last long in the real world. Ridiculous as it may seem, this is exactly what the Scottish Executive has done in the financial control of Scottish Water since 2002. Even though our water infrastNormalPreferred Customer13rMicrosoft Word for Windows 95@z@xx@@hl?@&+y@!՜.+,0,HPt|  Dell Computer Corporation& xIt was Jim Mather, who has pursued this issue like a terrier these past three years, who came up with the best metaphor FMicrosoft Word Document MSWordDocWord.Document.69qOh+'0 ,HT`p     xIt was Jim Mather, who has pursued this issue like a terrier these past three years, who came up with the best metaphor@Preferred Customer0rrow the money to do the place up: and to pay back the debt and interest over several years. But this particular businessman decides to do without most of the loan, and to raise the money he needs for renovation by slapping a couple of extra pounds onto the price of every drink. Such a business, of course, would not last long in the real world. Ridiculous as it may seem, this is exactly what the Scottish Executive has done in the financial control of Scottish Water since 2002. Even though our water infrastructure needs substantial renovation, (to deal with past underinvestment, and the effect of EU Directives), the Executive has decided to pay for the bulk of the required investment out of current water charges. On the basis of officially produced figures, of Scottish Waters investment programme of 1.85 billion over the period 2002-06, no less than 85% will have been funded from current water charges, and over the period 2006-10 the percentage will still be 75%. The implications of this policy are in their own way as disastrous for Scotland as they would have been for Jim Mathers hypothetical pub, and include: overcharging: over the period 2002-10, we estimate that water customers in Scotland, (that is, both homes and businesses), will have been overcharged by approaching 1 billion. This is equivalent to around 40 per annum in excess charges for the average household: the effect on the competitiveness of Scottish business has also been dire. A new tax for Scotland: because of the way the governments rules for controlling public expenditure work, any borrowing which Scottish Water undertakes counts against the public expenditure control limit for the Scottish Executive. But because the Executive has increased the charges customers pay for water, Scottish Water has had to borrow less than originally planned: so the Executive has been able to transfer money out of the water budget to spend on other priorities like schools and hospitals. There is, of course, nothing wrong with schools and hospitals: but it is wrong to use high water charges as a new form of stealth taxation to pay for them. We estimate that approaching 500 million will have been transferred out of the water budsget by 2010. Shortage of capital investment: because of the transfer of money out of the water budget, levels of capital expenditure are still inadequate, despite the high charges customers are paying. Would Professor Alexander have had to resign as Chairman of Scottish Water, over a dispute about the adequacy of waters investment programme, if the 500 million which had been transferred away from Scottish Water had still been available? As a result of this shortage of capital investment, sub-optimal sewerage schemes are being put in place in towns throughout Scotland, and vital local developments of homes and industry are being held up. Putting the future of the industry in jeopardy: after 2010, it is clear from the official figures that either water prices will have to rise steeply again, or the Scottish Executive will have to find significantly more money to put back into the water industry, (which it is doubtful the Executive will be able to afford), or Scottish Water will have to cease to be a publicly owned body. It is noteworthy that the current problems of high charges and poor investment have already led to a campaign in some quarters for water privatisation - even though this would be quite counter to the clearly expressed wishes of the Scottish people. So how did this disaster come about? The basic answer is that a number of crucial mistakes were made by the Executive in the implementation of a new system of financial control of the water industry in 2001. These mistakes had the effect of introducing fundamental distortions in the water review which set charges for the period 2002-06. These mistakes are clearly documented in a paper we have just published in the latest issue of the Fraser of Allander Quarterly Economic Commentary. It is highly significant that the Executive has not come up with a single substantive argument to rebut the evidence in our paper. In 2003, the Finance Committee of the Scottish Parliament looked at the much more limited information available on this topic - and split. Three members, Jim Mather, Fergus Ewing and John Swinbourne, produced a Minority Report, arguing that there had indeed been major errors and overcharging. This Minority Report can be accessed on the Water Customer Panel website. The majority took the Executive line, and that there was no overcharging. In February 2006, we asked th e Finance Committee, in the light of the latest evidence, to look again at the issue of overcharging, of how the errors had occurred, why normal principles of prudence were not being applied, of how much money had been transferred out of the water budget, and of the threat to the long term viability of the industry. The Convenor of the Finance Committee refused. This unilateral decision of the Finance Committee Convenor needs to be overturned and these issues given a proper airing. Until this is done, the EDocumentSummaryInformation8 \xecutive will be able to continue in its current denial mode, defending its stance by empty assertion: and the Scottish public will be able to draw the justifiable conclusion that our lavish new parliament is little more than an expensive puppet theatre. Above all, in our modern world, water is becoming an increasingly vital resource: and one where we in Scotland should have a major economic advantage relative to many other countries. We should be capable of harnessing that resource to make it work for all of us - both giving us clean water and cleaned sewage, and providing a vital tool in economic development. Instead, because of the Executives mistakes, we are currently in the position where we have a an unsustainable and poor quality water industry which is acting as a positive handicap to Scotland and her economy. .A PAGE  PAGE 2 that neededgpaying borrow only a littlemost of Ors investment programme of 1.93 almost5Obetween a yearisaswater chargesp| ;iBYZ[_abcdefjlmnopqrs!!!!!!"" "."/"7"<"A"E"F"G"Q"f"l"m"n""Q#R#Z#[#\#]#^#_#`#%$1$2$7$H$\$$$$}%%%%%UPaP uDPu^][\p ;'(BZcdepqrsm"]#$}%%%%%**+,-N.z z z z z z z z z z h`%(K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Numberxpenditure are still inadequatefallut back into the water industryEither way, this will lead to strong pressure for water privatisation - uarters for privatisation.e currentby usthen : (t),providing and expensive product: this 2 .AK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number in an position, 22K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberWater: A Suitable Case for TreatmentEven more than oil, in our modern world, and unlike oil, water is renewable. It is one of the few areas where 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number Jim Cuthbert and Margaret Cuthbert 4th March 2006 2 2ded haveedwereBasically,"f  0 mz z ructure needs substantial renovation, (to deal with past underinvestment, and the effect of EU Directives), the Executive has decided to pay for the bulk of the required investment out of current water charges. On the basis of officially produced figures, of Scottish Waters investment programme of 1.85 billion over the period 2002-06, no less than 85% will have been funded from current water charges, and over the period 2006-10 the percentage will still be 75%. The implications of this policy are in their own way as disastrous for Scotland as they would have been for Jim Mathers hypothetical pub, and include: overcharging: over the period 2002-10, we estimate that water customers in Scotland, (that is, both homes and businesses), will have been overcharged by approaching 1 billion. This is equivalent to around 40 per annum in excess charges for the average household: the effect on the competitiveness of Scottish business has also been dire. A new tax for Scotland: because of the way the governments rules for controlling public expenditure work, any borrowing which Scottish Water undertakes counts against the public expenditure control limit for the Scottish Executive. But because the Executive has increased the charges customers pay for water, Scottish Water has had to borrow less than originally planned: so the Executive has been able to transfer money out of the water budget to spend on other priorities like schools and hospitals. There is, of course, nothing wrong with schools and hospitals: but it is wrong to use high water charges as a new form of stealth taxation to pay for them. We estimate that approaching 500 million will have been transferred out of the water budsget by 2010. Shortage of capital investment: because of the transfer of money out of the water budget, levels of capital expenditure are still inadequate, despite the high charges customers are paying. Would Professor Alexander have had to resign as Chairman of Scottish Water, over a dispute about the adequacy of waters investment programme, if the 500 million which had been transferred away from Scottish Water had still been available? As a result of this shortage of capital investment, sub-optimal sewerage schemes are being put in place in towns throughout Scotland, and vital local developments of homes and industry are being held up. Putting the future of the industry in jeopardy: after 2010, it is clear from the official figures that either water prices will have to rise steeply again, or the Scottish Executive will have to find significantly more money to put back into the water industry, (which it is doubtful the Executive will be able to afford), or Scottish Water will have to cease to be a publicly owned body. It is noteworthy that the current problems of high charges and poor investment have already led to a campaign in some quarters for water privatisation - even though this would be quite counter to the clearly expressed wishes of the Scottish people. So how did this disaster come about? The basic answer is that a number of crucial mistakes were made by the Executive in the implementation of a new system of financial control of the water industry in 2001. These mistakes had the effect of introducing fundamental distortions in the water review which set charges for the period 2002-06. These mistakes are clearly documented in a paper we have just published in the latest issue of the Fraser of Allander Quarterly Economic Commentary. It is highly significant that the Executive has not come up with a single substantive argument to rebut the evidence in our paper. In 2003, the Finance Committee of the Scottish Parliament looked at the much more limited information available on this topic - and split. Three members, Jim Mather, Fergus Ewing and John Swinbourne, produced a Minority Report, arguing that there had indeed been major errors and overcharging. This Minority Report can be accessed on the Water Customer Panel website. The majority took the Executive line, and that there was no overcharging. In February 2006, we asked the Finance Committee, in the light of the latest evidence, to look again at the issue of overcharging, of how the errors had occurred, why normal principles of prudence were not being applied, of how much money had been transferred out of the water budget, and of the threat to the long term viability of the industry. The Convenor of the Finance Committee refused. This unilateral decision of the Finance Committee Convenor needs to be overturned and these issues given a proper airing. Until this is done, the Executive will be able to continue in its current denial mode, defending its stance by empty assertion: and the Scottish public will be able to draw the justifiable conclusion that our lavish new parliament is little more than an expensive puppet theatre. Above all, in our modern world, water is becoming an increasingly vital resource: and one where we in Scotland should have a major economic advantage relative to many other countries. We should be capable of harnessing that resource to make it work for all of us - both giving us clean water and cleaned sewage, and providing a vital tool in economic development. Instead, because of the Executives mistakes, we are currently in the position where we have a an unsustainable and poor quality water industry which is acting as a positive handicap to Scotland and her economy. .A PAGE  PAGE 2 that neededgpaying borrow only a littlemost of Ors investment programme of 1.93 almost5Obetween a yearisaswater chargesp| ;iBYZ[_abcdefjlmnopqrs!!!!!!"" "."/"7"<"A"E"F"G"Q"f"l"m"n""Q#R#Z#[#\#]#^#_#`#%$1$2$7$H$\$$$$}%%%%%UPaP uDPu^][\p ;'(BZcdepqrsm"]#$}%%%%%**+,-z z z z z z z z z z h`%'K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Numberxpenditure are still inadequatefallut back into the water industryEither way, this will lead to strong pressure for water privatisation - uarters for privatisation.e currentby usthen : (t),providing and expensive product: this 2 .AK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number in an position, 22K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberWater: A Suitable Case for TreatmentEven more than oil, in our modern world, and unlike oil, water is renewable. It is one of the few areas where 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number Jim Cuthbert and Margaret Cuthbert 4th March 2006 2 2ded haveedwereBasically,"f  0 mz z %%%%%%%%%%%%%%%%)))))*****+++p,r,,,,,,,,,,,,,,,,,--uPaUUh0K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number: and with the executive in denial, the effects of the mistakes live on.in an environmentally sustainable wayservice an %%%%%%%%%%%%%%%%)))))*****+++p,r,,,,,,,,,,,,,,,,,--N.O.uPaUUh2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number: and with the executive in denial, the effects of the mistakes live on.in an environmentally sustainable wayservice an 2 .AK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberE 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Numberhave en to Scottish Waterworth noting. .Untilare : and will 22 .AK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number 2K@Normala c"A@"Default Paragraph Font@2 .AK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page NumberE 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Numberhave en to Scottish Waterworth noting. .Untilare : and will 22 .AK@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number,  N %&JYZZ O | !0z z z z z z z z z z z z z z z z  z  %-- !!HPreferred Customer2C:\My Documents\Water\Scots Independent 040306.doc@HP DeskJet 870C SeriesLPT1:HPRDJC03HP DeskJet 870C SeriesHP DeskJet 870C Series7 d,,HP DeskJet 870C SeriesLPT1 ,,HP DeskJet 870C Series7 TOC 1a  @ Footer 9r )@ Page Number 2K@Normala c"A@"Default Paragraph Font@TOC 1a  @ Footer 9r )@ Page Number,  N %&JYZZ O | !/z z z z z z z z z z z z z z z z  z  %O.N. !!HPreferred Customer2C:\My Documents\Water\Scots Independent 040306.doc@HP DeskJet 870C SeriesLPT1:HPRDJC03HP DeskJet 870C SeriesHP DeskJet 870C Series7 d,,HP DeskJet 870C SeriesLPT1d,,HP DeskJet 870C SeriesLPT1 ,,U    $%&HIJKMNOXY'()EJLNYmt  %)01MVfg$(Z[hy$**/7j - F X s w ^     ] 2 > L M \ ] e | JO:>A|}-Oefglz~  !%.0DMN]Y~  &'45=>?IJPWX[^pvA$$A%$A1$A2$A7$@|%@A}%A%@%A%A%A%A%A%@%@AsAAAAAk,AAp,AAAA.A%AAAAAA%AA%A=A%@BAAAA ,,HP DeskJet 870C Series7 d,,HP DeskJet 870C SeriesLPT1 ,,U    $%&HIJKMNOXY'()EJLNYmt  %)01MVfg$(Z[hy$**/7j - F X s w ^     ] 2 > L M \ ] eAJAAA0AQAAbAAAA@A A%@>AAqAAAAAAK AA @ A0 AAp A AAA @ A!A{ ASAr,AlA!@AA!AA!A!A!AYA"AA,AAA"A "AX@A."A/"@A%AAA7 | JO9=@{|,Ndefky} $-/CLM\X} %&34<=>HIOVWZ]ouA$$A%$A1$A2$A7$@|%@A}%A%@%A%A%A%A%A%@%@AsAA"AUA,@&A<"A,AAAAAA"AOA[AE"AAAAdAA,AA,AA,AAA,A,A,A)A)A,A,A)@AH$A!A3ABA\$AfA)AAAAAAK#AAAQ#AR#AZ#A[#AG"AAA)AAQ"A)AT"Af"AA@AAAk,AAp,AAAA.A%AAAAAA%AA%A=A%@BAAAAAJAAA0AQAAbAAAA@A A%@>AAqAAAAAAK AA @ A0 AAp A AAA @ A!A{ ASAr,AlA!@AA!AA!A!A!AYA"AA,AAA"A "AX@A."A/"@A%AAA7"AUA,@&A<"A,AAAAAAA"AOA[AE"AAAAdAA,AA,AA,AAA,A,A,A)A)A,A,A)@AH$A!A3A@-AZA_A]#A,Aa@b@c@dAeAjAlA-An@o@p@q@r@A1Times New Roman Symbol &Arial"h$T,S, 8OO$wIt was Jim Mather, who has pursued this issue like a terrier these past three years, who came up with the best metaphorPreferred CustomerPreferred CustomerBA\$AfA)AAAAAAK#AAAQ#AR#AZ#A[#AG"AAA)AAQ"A)AT"Af"AA@@M.AZA_A]#A,Aa@b@c@dAeAjAlAN.An@o@p@q@r@A1Times New Roman Symbol &Arial"h$U,S, 9! && &$wIt