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ARTICLE 16[2006/2007]4 ULR MARKET LIBERALISATION & REGULATION IN SCOTTISH WATER SERVICES – HENDRY 153

Water for Sale? Market liberalisation and public

sector regulation in Scottish Water Services

Sarah Hendry

Lecturer in Law, UNESCO Centre for Water Law, Policy and Science, University of Dundee*

‘Water is not a commercial product like any other, but rather, a Scotland’s Water: Safe, Clean,
heritage which must be protected, defended and treated as such.’ 1
Affordable, Public
Introduction The mantra comes from a campaign led by Strathclyde Regional
Council to ‘Save Scotland’s Water’, and resist any ‘privatisation’
The first clause of the Preamble to the Water Framework of Scotland’s water industry under Mrs Thatcher and then
Directive (‘the WFD’) encapsulates the dual nature of water, John Major. It resulted in a referendum in 1994 in which 73
as a public and a private good, and reflects both Principle 4 of per cent of the population of Strathclyde Region, almost a
the Dublin Statement on Water, that water is an economic quarter of the population of Scotland, voted by 97 per cent
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good, and also the subtext, that ‘it is vital to recognize first the against the idea of privatisation. The referendum followed a
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basic right of all human beings to have access to clean water series of government consultations on options for the delivery
and sanitation at an affordable price’. To that subtext we might of water and sewerage services in Scotland, to accompany the
add the sustainable development goals of human society, the disbanding of the regional councils and their replacement by a
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ecological needs of the aquatic and wider environment, and single tier of unitary authorities. One option was full divestiture,
the cultural and spiritual dimensions of water. But it is in relation on the English model; but in the event, due at least in part to
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to water supply and sanitation that the tension between water’s the political and public pressure, the decision was taken to
commercial and non-commercial aspects is most acute. In the maintain public sector provision by the creation of three
developed and the developing world, few issues cause such regional authorities. 9
political and social controversy, with such economic complexity, Non-departmental public bodies such as these water
as the appropriate structures and means of control for the authorities were not considered, at least in the 1990s, to require
management and delivery of water services. as high a level of regulation as the private sector. Nonetheless
In Scotland, a devolved administration has responsibility a degree of formalised economic control was needed, along
for, inter alia, the environment, water and the implementation with a system of customer representation, and the Water
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of relevant EC law. This remit includes the provision of water Industry Act 1999 made provision for an economic regulator,
services, and Scotland has recently liberalised the water services the Water Industry Commissioner. The Commissioner did
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market by enabling licensed competition, for retail services, not have the same powers as the Director-General of OFWAT;
for business customers. This reform will allow business in particular, he did not set charges but rather advised the
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customers to choose their own suppliers, and has been Ministers. His office has now been replaced by the five-person
described as ‘probably the most significant change in the water
industry in Great Britain for some 20 years’ and ‘perhaps …
the most significant change ever to affect the industry in
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Scotland’. This article will assess these most recent 6 See the comments by Des McNulty MSP in the most recent debate
developments in the context of the ownership and control of on Scottish Water in the Scottish Parliament, http://www.scottish.parliament.
Scottish water services over the past 25 years, and consider uk/business/officialReports/meetingsParliament/or-08/sor0221-
whether such claims are justified. 02.htm#Col6153 last accessed 10 June 2008, at col.6156 ff.
7 Scottish Office 1991 The Case for Change HMSO Edinburgh; Scottish
Office 1992 Shaping the New Councils HMSO Edinburgh; Scottish Office
1992 Water and Sewerage in Scotland: Investing in the Future HMSO Edinburgh;
Scottish Office 1993 Shaping the Future: the New Councils HMSO London
* The author would like to thank colleagues at the UNESCO Centre, Cmnd.2267. the options were: the new unitary authorities; joint boards
especially Dr Michael Hantke Domas, for his advice on earlier drafts. of those authorities; ‘lead authorities’ amongst the councils; new
Any errors or misconceptions remain the author’s own. appointed Boards; a national water authority; joint schemes between the
1 Directive 2000/60/EC Establishing a Framework for Community authorities and the private sector; public limited companies (ie,
Action in the Field of Water Policy, (the Water Framework Directive, presumably, full divestiture); and a franchising system.
WFD) Preamble clause 1. 8 That is, a sale of the assets, to licensed providers, with regional
2 The Dublin Statement on Water and Sustainable Development, Dublin 1992, monopolies and ‘competition by comparison’; Water Act 1989 c.15; and
Dublin Statement on Water and Sustainable Development, Dublin 1992 (Dublin see generally http://www.ofwat.gov.uk/ last accessed 19 May 2008 for
Principles) available at http://www.wmo.ch/pages/prog/hwrp/ policies, licence conditions, reports and the periodic review of prices.
documents/english/icwedece.html last accessed 13 May 2008. 9 Local Government etc (Scotland) Act 1994 c.38 (‘the 1994 Act’);
3 Scotland Act 1998 c.46. water and sewerage were the ‘etc’.
4 Water Services etc (Scotland) Act 2005 (the 2005 Act) asp.3. 10 Water Industry Act 1999 c.9 Part II (‘the 1999 Act’); this Act was
5 Alan Sutherland, Chief Executive, Water Industry Commission for primarily English legislation, and one of the last pieces of Westminster
Scotland (WICS), Turning the Tide, The Future of Scotland’s Water The legislation to address Scottish water services.
Holyrood Conference on the Future of Scotland’s Water 3 March 2008, 11 Above, the 1999 Act section 13, inserting a new section 75A into the
Edinburgh. 1994 Act.

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