“The Scottish Parliament, in what was a world first, introduced retail competition for non-domestic customers. Two thirds of business customers now have lower bills as a result.” Scotland’s Future, The Scottish Government, November 2013, on water regulation.
In late February this year, the press reported plans to let a substantial Scottish Government contract for providing water to large parts of the Scottish public sector to a private sector supplier, Anglian Water. The story didn’t stay long in the headlines, quickly submerged by election coverage.
Yet there was a time when water was the big Scottish political story, a defining issue of Scottish politics. The referendum on which a generation of campaigners cut their teeth was Strathclyde Regional Council’s anti-privatisation ballot in 1994. Many of the people involved are still active: some are in or currently standing for parliament.
So when it appeared that the nation’s schools and hospitals might be about to start contracting with Anglian Water, it’s no surprise there were protests. Under a headline neatly encapsulating objectors’ views, £350m Scottish Water deal could go to English supplier accused of tax avoidance, The National reported that the “English private water company” had been identified as one of “a number of English water companies using offshore havens in connection with their tax affairs” (Anglian defended its behaviour to the paper). Alison Johnstone, Scottish Green MSP, said that “any profits will flow out of the Scottish economy.” Referring back to 1994, Dave Watson, Scottish organiser at Unison, said: “Scots voted for a public water service. They didn’t vote for it to be managed by a private water company in East Anglia.”
Elsewhere, writers on Common Space challenged the move, while the Scottish Socialist Party’s co-national spokesperson noted that “in 1993 SNP activists occupied the headquarters of Anglian Water, protesting against water privatisation. Twenty two years later and it appears that the SNP has completely u-turned on this issue … I call on the Scottish Government to immediately stop this sell off of Scotland’s natural assets and keep control of our water in public hands.”
Faced with these complaints, many from those who had so recently been its allies, Ministers appear to have taken a step back, putting the contract into a longer than required “stand-still” period – until after the election, conveniently.
Not only does this case bring the Scottish Government up against many of its own supporters, it also cuts across some of the most powerful rhetoric it has used over the past two years, not least in relation to threats of privatisation in the NHS. Most intriguingly, it raises questions about how the SNP might use its expected new leverage at Westminster.
Powerless to effect change?
The immediate government line was to note tetchily that this contract follows on from the Water Services Etc (Scotland) Act 2005, brought forward under the Labour-Liberal Democrat coalition and, it added, supported at the time both by the SNP and the Greens. The response also noted that “under the current constitutional settlement, the Scottish Government cannot seek to repeal or change the procurement rules, which are determined by the EU” (see below) The upbeat position taken in the White Paper on the benefits of non-domestic retail competition was notably absent. Supporters have reflected the new position, with one below the line commentator in The National noting that “The SNP Government has no power to change this situation at present.”
The 2005 Act was introduced with the expressed aim of protecting the supply of water in Scotland from the emergence of an unregulated market, in the event of a successful challenge under the UK Competition Act 1998. The 1998 Act in turn was intended to tidy up UK competition law so that it was expressed in terms which corresponded better to the provisions of the (then) Treaty of Maastricht. In working out what’s going on here, this set of relationships is important.
The Act put a protective barrier round some aspects of the system: Scottish Water could not be obliged to share its infrastructure and there would be no competition in the supply of water to domestic properties. However, the then Scottish government concluded it could not justify wholly exempting the provision of non-domestic water from competition. The Act therefore set up a regulated market in “retail” to non-domestic properties.
The government insisted this did not mean that the supply of non-domestic water was being privatised and though the distinctions here can seem arcane to a new reader, they mattered at the time. Dave Watson summarised it recently thus: there is “competition in the provision of customer-facing activities such as billing, charge collection, meter-reading and complaints handling for non-domestic customers in Scotland. This means that Scottish Water levies a wholesale charge on licensed retailers for non-domestic customers. Licensed retailers can agree their own charges with customers, subject to them being no higher than a default tariff set by the Water Industry Commission Scotland (WICS). Scottish Water is also a retailer, through its own retail arm Business Stream, which provides a service to the vast majority of non-domestic customers in Scotland”. Keep up at the back!
SSP members of the Parliament challenged this model (as did some others, such as the STUC) but the other parties, including the Greens, accepted the argument that opening up to limited competition was the safest way to protect the remainder of the system. The Conservative challenge was that more competition was needed.
Reading the Bill documents and political speeches now, what’s most striking is how relatively little concern was expressed by the major parties about the concession of the principle of complete non-competition. As the Minister in charge said, “the bill’s passage through Parliament has been remarkably smooth.”
The relevant committee reported that “the Minister explained that his political preference was for no competition in the industry, and that the Bill was seeking to interpret the Competition Act in such a way as to minimise potential competition to Scottish Water”, and this line largely held. As one (SNP) opposition speaker put it, “this bill is about protecting the industry from competition, not about introducing competition to the supply of water to businesses and domestic customers,” (though opening up the market to competition would by definition mean that Scottish Water could never be entirely protected).
In other words, allowing some private sector activity into the Scottish water supply was less controversial among all the larger parties than might have been expected, whether looking backwards to the early 1990s, or forwards to battles now over the privatisation in the NHS. That the 2005 Act was going to open up to competition the selling of water to schools and hospitals, among others, was not dwelt upon. The language used on all sides was of “households” on the one hand and “business” on the other.
Up to now, Business Stream has been the body covering public sector work. However, back in August, the Scottish Government put out to tender a large contract for provision of water to public bodies. Under EU rules, it had to be advertised. And here we are, with Anglian Water apparently the winning bidder. Despite the White Paper’s celebration of Scotland’s “world first” in introducing “retail competition for non-domestic customers”, the government’s discomfort at the prospect of awarding a large contract to Anglian Water seems real enough. It appears almost to have been taken by surprise: even as she put out the contract last year, Nicola Sturgeon declared herself “determined to ensure that Scottish Water continues to be a public sector success story.”
What options are open to the government? Having advertised the contract, it would need some pretty serious reasons not to proceed to completion, and not to take the strongest bidder, certainly without facing claims for compensation. If the answer is “anyone but an English private sector supplier” that will somehow have to be achieved within the current rules of the game. The problem for the government is that some critics clearly believe that’s possible: a CommonSpace administrator argued that, “the government could give this contract to Business Stream … if they so wished. If they choose not to, they will have to answer for why”.
Perhaps a more interesting and difficult question for the Scottish government is: how stuck is it with these rules over the longer term?
To what extent the 2005 Act compels rather than enables a market is a question for lawyers: there’s a lot of “may” and not much “must” in its wording. However, with the legislation in place, there’s probably no practical or legally sustainable alternative to having a market and to bundling out the public sector work in larger contracts. Still, if the government is uncomfortable at having to let these contracts, defining exactly what the Act compels, plus the scope for amending it or the regulations made under it, would be the first place to look before doing so again.
What if amending the Act is not an option? The government says it is restricted by “the current constitutional settlement”, but which one does it have in mind? Following the thread back, the origin of the 2005 Act is not simply UK legislation, but European treaty obligations. Is it possible to be in Europe and have a legal framework for our water which would avoid all competition? If not, then the reference to “current” constitutional constraints is a bit odd, for as long as policy is to remain in the EU.
If, however, EU membership itself does not oblige us to open up any part of our water supply to competition, then the constitutional villain appears to be the Competition Act 1998. Did the UK over-legislate? If so, and the 1998 Act is the only constraint on the Scottish government doing what it would really like, then after 7 May the party of government in Scotland could be in a position to do something about it. Should it be technically possible to amend the UK Act, water in Scotland is run so distinctively that seeking a legislative tweak to recognise that looks like one of the easier concessions a large SNP block of MPs might seek.
Implications for the NHS
The underlying question of course is how deep the Scottish government’s discomfort really goes with the limited competition which already exists in the Scottish water market. The White Paper’s enthusiasm for the current arrangements was unqualified, but has been followed by a manifesto commitment to seek an explicit exemption from TTIP for Scottish Water, as well as the NHS, suggesting water and health are viewed similarly.
Yet, while anti-NHS-privatisation rhetoric has been pivotal to the party’s campaigning since last summer, the White Paper wording suggests it is less clear about whether what’s deemed fundamentally wrong in the provision of healthcare is equally insupportable when it comes to dealing with what comes out of a hospital’s taps or goes down its drains. The SNP is, after all, a party which has managed in practice a pragmatic relationship with questions of nationalisation and privatisation over time: it is not the SSP or the TUSC (Trade Unionist and Socialist Coalition). If Anglian Water is offering a cheaper deal to schools and hospitals, how unwelcome will competition be in practice? Times are hard, this is no time for costly principles, it may argue to its supporters. Moreover, if two-thirds of business customers have indeed seen their bills fall, what sort of conversations might it anticipate with their representatives, if the current regime is wound up? For all the leftwards repositioning of its leadership, the SNP as a movement remains a broad alliance, and its leaders are unlikely to want to fall out with Scottish-based businesses.
Water has seeped back into Scottish politics and the political plumbers in the Scottish government are no doubt hard at work. They may manage to ensure this is just a temporary leak, or it may turn out to be something more serious. Which of these is the case will tell us how far the political priorities of Scotland, and the SNP, have moved on in the past twenty years.
The illustration above uses an original shoal image by Peter Southwood.