28 January 2010: A new source: Finding a better way to fund investment in Scotland's water industry
Graham Bell and Tom Miers
Scottish Water’s performance is improving within an industry that is increasingly dynamic. But as a publicly owned company it is saddled with a major disadvantage: its investment finance is provided from the annual budget of the Scottish Government. This is inconvenient and expensive, and fraught with political risk at a time of budgetary contraction. The usual solutions to this problem are unsatisfactory. Privatisation would work, but is a political taboo in Scotland. Mutualisation is a flawed compromise. And using public private partnerships to raise finance ultimately faces the same restrictions as government borrowing.This paper proposes an alternative: A new structure for Scottish Water similar to that of Network Rail. The result would be a company accountable to the Scottish people, but able to arrange its own funding through access to the capital markets. It would also mean a substantial annual saving to the Scottish Government of up to £350m. Now is a good time to consider such a change because reform of Scotland’s devolved institutions is likely, and restructuring Scottish Water could be accomplished as part of this