A Response to RISE’s Water Report
Much has been said in response to the recent announcement that Anglian Water has been awarded the retail contract for the supply of water to one hundred Scottish public sector organisations. Perhaps the most organised and in-depth response has been a report published by RISE wherein they allege this equals a new form of water privatisation, that if this is partly as a result of the Water Services etc. (Scotland) Act 2005 then the SNP should repeal the Act; and furthermore that EU laws ‘(are) not an excuse for this privatisation’. Let’s look at that.
RISE’s report states that EU rules regarding procurement decisions “makes it absolutely clear that protecting the environment and promoting social considerations is part of the procurement decision, not simply cost effectiveness”. However the EU quote they themselves provide makes it clear that this is only “as long as they are relevant to the product, service or work they want to procure”. Indeed anyone familiar with procurement legislation will know that such considerations can only be taken into account in the procurement process insofar as they directly relate to the service itself. As Scottish Water is still the water provider and Anglian are only providing retail services, the environmental issues RISE mentions with regards to Anglian cannot be taken into account as these have solely been in relation to their own water provision services. In fact Anglian likely scored well with regards to environmental considerations as a result of the green measures proposed in their bid.
With regards to ‘promoting social considerations’ none of the factors RISE mentions are actually relevant as none of them relate to convictions. Again to understand procurement legislation is to know that pay disputes, pay packages, tax avoidance, debt practices and suchlike can only be taken into account at all if there have been convictions as a result of illegal practices. Otherwise they can have no bearing at all on the procurement process. In fact it’s likely Anglian’s bid was strengthened in relation to wages as they have given a living wage guarantee.
Therefore once we take into account the correct and actual application of these terms and how they relate to the points system we can easily see that RISE have been completely wrong in their assumptions as well as how unlikely it is that Anglian would have been disadvantaged on either environmental or social grounds. Indeed it seems the difference very likely does come down to the fact that Anglian outbid Business Stream and that their green measures could potentially save public bodies up to a further £5 million per year.
RISE would have us believe, however, that there are other grounds on which Anglian’s bid could legally be rejected in favour of a publicly owned company, but this is where their report gets very confused. For example they speak of ‘plenty of legal wriggle room’ in relation to EU rules, and to explain this the report highlights the notion of ‘maximum flexibility’ from a quoted section of EU Directive 2004/17/EC. However this section simply relates to establishing “a framework for sound commercial practice”, highlighting principles for the purposes of fairness in light of the “opening up to competition of public procurement contracts”. There is nothing implicit or explicit in this section that would impact on the Anglian bid in any negative sense, yet RISE seem to think that ‘flexibility’ automatically means that somehow preferences benefitting publicly owned companies over private can become an aspect of the procurement process.
I would suggest they read a bit further on in said Directive, where it states the following: “To ensure a real opening up of the market and a fair balance in the application of procurement rules in the water, energy, transport and postal services sectors it is necessary for the entities covered to be identified on a basis other than their legal status. It should be ensured, therefore, that the equal treatment of contracting entities operating in the public sector and those operating in the private sector is not prejudiced”. In other words governments cannot in any way be prejudiced against private sector bids for water services open to competition as this would be unfair and contravene the very Directive RISE quotes from. Indeed it could not be clearer that it would be utterly illegal for the Scottish government to have any preference of public over private embedded within their procurement procedures.
Then we come to the Water Services etc. (Scotland) Act 2005.
The RISE report begins its analysis of this Act by conveying a misunderstanding of the criteria on licence provision when they say “the Scottish government may under s7(2) of the Act specify whatever criteria it deems appropriate in the awarding of licenses to water suppliers by making a ministerial order, without recourse to Parliament”. So RISE are basically saying here that the Scottish government can still make any demands it wishes with regards to criteria used in awarding licenses. Here’s what section 7 actually says: “(1)The Commission may grant a water services licence or a sewerage services licence only if satisfied that the applicant has the ability to perform adequately the activities authorised by the licence. (2) In assessing an applicant’s ability to perform those activities, the Commission is to have special regard to the following factors (in so far as relevant in relation to the performance of those activities)—(a) knowledge, expertise and experience; and (b) financial acumen and business viability, and such other matters as the Scottish Ministers may by order specify” (my highlighting). In other words the government can only add further criteria insofar as it directly relates to the ability of the provider to perform what they will be contracted for. Thus not only is it clear this section doesn’t in any way say the Scottish government can simply apply any criteria it wants (in fact it shows the reality is quite to the contrary); but the section itself actually relates to licenses provided by the Water Commission to companies providing retail water services to Scottish businesses, not the procurement process for awarding the retail water service contract for public sector organisations.
As for RISE’s assertion that the SNP should have repealed the Water Services Act, RISE again disappoint as they make no mention of the fact that the Act itself was in response to the 1998 Competition Act (UK) and that the opening up to competition of the retail aspects of non-domestic water provision was viewed as the best option available when it came to dealing with new constraints and threats presented by the Competition Act. Indeed during the first debate on the Water Services etc (Scotland) Bill Green MSP Mark Ruskell stated “The sale of water requires a licensed billing mechanism…that is the element of supply that I talked about and which represents an area into which some privatisation is being introduced. I am not condemning the Executive for that; I do not believe that it has any alternative, which is why the Green party is supporting the bill”. It’s why the SNP supported it too.
Indeed it’s clear that all Holyrood parties interpreted the Competition Act as opening the door to unregulated competition in relation to water services, and most agreed that without regulation this could not only adversely affect domestic water customers, but could also lead to water provision privatisation ‘through the back door’. Thus the then Labour/Lib Dem Scottish Executive brought forward water services legislation in order to protect both the Scottish public and Scottish Water. It was an effort to stem privatisation, not introduce it.
Green MSP Mark Ruskell summed the issues up nicely at the time “We must remain opposed to privatisation in principle. However, we must realise that we live in an age of globalisation and that there has been an erosion of public control of public services over the decades through the actions of the WTO and through the general agreement on trade in services…those actions have been supported over time by successive Tory and Labour Governments, which puts us in a difficult place in Scotland in keeping our public services in public control, especially given the provisions of the Competition Act 1998. That said, if the Executive had gone for a much harder line by putting in place a regulatory regime that would have pushed away any corporate involvement in the delivery of our water services in Scotland, there would have been an implicit danger, as I think that there would have been a legal challenge under that act to the legality of that regulatory regime. In itself, that would have put the future of our water services into the hands of multinational corporations, which would act through the courts to decide the future of our public services”. Perhaps also highlighting here the dangers of narrow idealism.
SNP MSP Richard Lochhead added “We welcome the fact that the bill is about protecting the Scottish industry. It is important that we support the bill so that we can have a statutory framework that will allow us to see off competition. We welcome…the fact that competition will not be introduced to the domestic sector”.
The Conservatives, of course, didn’t support the Bill precisely because it was an effort to minimise competition, and the SSP opposed the bill because they felt that the Scottish Executive should have asked the UK government for an exemption; their cited objections being that opening up some water services to privatisation would in their view inevitably lead to privatisation of water provision itself. This wasn’t viewed as credible by the other parties, and wasn’t consistent with the advice the Executive had been given on the matter. Indeed Labour MSP Lewis MacDonald commented that evidence given in committee together with the submission from the Office of Fair Trading had confirmed the Executive’s view on what was needed to meet the requirements of the Competition Act, and that they did indeed have to meet them; but also that Scottish Water would be protected as our national water provider (and it has been).
And still today it seems that no sitting MSP disputes that the Water Services Act was necessary and this includes critics of the Anglian procurement award. Green Co-Convener Patrick Harvie recently questioned whether Anglian was the kind of company we wanted to be ‘doing business with’, however he himself commented that the only kinds of options open to the Scottish Government would have been in relation to practical implementation considerations such as preferable contract size: “rather than offering one massive contract (for all public sector organisations), it could have been broken up into smaller lots”. However he fails to say how this would help when it would cost more money, wouldn’t prevent companies like Anglian being awarded contracts, and indeed it may well be the same company winning the different contracts anyway. He added that Green MSP Alison Johnstone had put forward a motion to prevent Business Stream losing the public sector contract, although hopefully they both realise it would be completely illegal to fix the procurement process (which incidentally has nothing in common with the legal situation around minimum alcohol pricing). Indeed the weaknesses of these responses simply help to make the point that there was and is nothing more the Scottish government can do to improve on the 2005 Act.
Thus the Water Services etc. (Scotland) Act 2005, created for the purposes of making sure that only the retail aspects of non-domestic water supply were opened up to competition protecting both the Scottish public and Scottish Water, was not repealed and came into effect in 2008; at which time Scottish non-domestic water supply became privatised.
There has been much confusion as to what this privatisation actually covers and how it works so it’s important to be very clear on this point: As has been touched on above Scottish Water has not been privatised, is protected from privatisation, and is responsible for all water provision in Scotland except for those who provide their own (3.5% of the population, mostly in rural areas). It is just non-domestic retail water supply services that have been privatised since 2008. No further water services have been opened up to competition since then. Thus the assertion by RISE that the Anglian award “breaks with previous SNP commitments to keep Scotland’s water public” has no basis in reality.
Business Stream, whilst owned by Scottish Water, is a for-profit company that is run completely independently and competes in the retail water market. Indeed they have been making inroads in the English market and were recently announced as the supplier for House of Frasers’ English stores from next year. Another important fact completely ignored by RISE and many others is that besides the contract for public sector provision, which is just one retail contract, there are 130,000 Scottish businesses being supplied with water through companies licensed by the Water Commission, who currently list 19 such licensed suppliers on their website, including Anglian Water, who have been providing retail water supply services to non-domestic Scottish customers since April 2008.
Thus the whole Scottish non-domestic retail water service sector is composed of for-profit companies, all of whom compete for business, and in Scotland have done so for years. Indeed there is nothing new to see here except the branching out of Business Stream to new markets.
Taking stock of all the above it’s very clear that the claims RISE have made in their report are either mistaken on their own terms or fail to stand up to scrutiny. They even failed to interpret their own EU advice correctly.
It’s clear that it wasn’t EU Laws that gave rise to this years-old privatisation of non-domestic water services, but rather it was increasing market liberalisation and subsequent UK laws that triggered the response of (most) Scottish MSP’s (including the Greens and the SNP) to take on board the advice parliament had been given and do what they could to meet the requirements of these laws, whilst minimising the privatisation introduced as a result of them.
This is why the legal advice cited by RISE is irrelevant; their expert on EU Constitutional Law, Marco Goldoni, states “The case for a legal obligation to compete retail aspects of water distribution rests on shaky grounds and it is certainly not mandated by EU institutions”. Well it’s clear that the EU isn’t forcing competition, but once services have been opened to competition their procurement procedures are subject to EU competition laws (much of which has been discussed here) and again procurement legislation makes this clear. Thus RISE’s assertion that Marco Goldoni’s advice demonstrates that “EU law is no constraint on the Government’s decision, even if Anglian were the lowest bidder” is not only not what he says in his quote, but more to the point is completely untrue.
As we have seen above, under EU laws the SNP cannot give preference to publicly owned companies and all considerations are clearly and tightly defined; indeed there is no room for creative interpretation. Thus companies like Anglian have been operating in Scotland for years and whilst many may not like it, there really doesn’t seem to be anything that can be done to change it.
Some people reflecting on all this may wonder whether bringing public water back into a municipal system could be a way to circumvent some laws. I can’t see how that might be the case, but even if it were a possibility I don’t imagine this ever happening or indeed being worthwhile.
Since water provision moved from regional authorities to a central water authority via the creation of Scottish Water in 2002, there have been enormous improvements. The quality of our drinking water has markedly improved, the Water Commission reports that Scottish Water has made efficiency savings equivalent to £3 million per week, and Scottish Water is widely understood as having greatly improved energy efficiency, innovation and investment and is generally cited as a huge success. Also I’m not sure of what the costs would be to regional authorities of bringing back privatised water services into public hands, but I imagine they would be substantial.
With all this considered it’s doubtful anything can or will change in the near future without some other external change first taking place. But even if you see a modicum of possibility within this situation, I say to anyone who says the Scottish government has ‘privatised water’, or ‘didn’t have to give Anglian the contract’ or ‘could have made sure the contract was kept in public hands’ that in making these kinds of statements, you belittle us all.