Scottish Parliament, 6 December 2001

394 contributions from 75 members. The official report.

Introduction

Water Industry (Scotland) Bill: Stage 1

Murray Tosh (Conservative, South of Scotland)

The first item of business this morning is a stage 1 debate on motion S1M-2276, in the name of Ross Finnie, on the general principles of the Water Industry (Scotland) Bill.

Tommy Sheridan (SSP, Glasgow)

On a point of order, Presiding Officer—it is unfortunate that you happen to be in the chair, Mr Tosh. Several times I have raised the issue of the non-selection of amendments for debates and I have been told consistently that when the larger parties lodge amendments they are selected in preference to amendments lodged by smaller parties. That is hard to accept, but it is tough and we have to get on with it. Can you confirm that no amendments to the motion that we are debating were lodged, apart from the one that I lodged? If no other amendments were lodged, why was that amendment not selected?

Murray Tosh (Conservative, South of Scotland)

I confirm that no other amendments to the motion were lodged. As Mr Sheridan is aware from previous experience, the selection of amendments is a matter entirely within the Presiding Officer's discretion.

Ross Finnie (Liberal Democrat, West of Scotland)

I am very pleased to debate this issue. This is the first opportunity that the Parliament has had to debate the Water Industry (Scotland) Bill.

Before I set out my vision for the water industry and how this bill will achieve that, I place on record my thanks to the Transport and the Environment Committee. Since its inquiry into the water industry started in November 2000, the committee has devoted a great deal of time to the industry and to the condition of water in Scotland. The committee will continue to have considerable interest in and involvement with the water industry. The committee will deal with this bill when it proceeds, as I hope it will, to stage 2, as well as with the forthcoming water environment and water services bill.

I thank the committee for the speed with which it completed its stage 1 report. I welcome its recommendations in support of the bill's principles and am glad to note its endorsement of the timetable to which we are working to ensure that Scottish Water can vest on 1 April 2002. My depute Allan Wilson and I look forward to working with the committee at the forthcoming stages of the bill to ensure that the parliamentary process is completed on time.

Although today I will not be able to comment on all the points that are made in the committee's report, I hope to deal with as many of them as possible. We will pursue them in more detail at stage 2, if the bill proceeds to that stage.

I want first to focus on the big picture. Sometimes it is easy to lose sight of why a piece of legislation is before us and whom it will benefit. The bill is about serving the customer well, putting customers before producers and giving customers a high quality of service at the lowest sustainable price. That means having a single, more efficient water authority. The creation of Scottish Water is the surest way of delivering improved services and of keeping charges under control.

The argument in favour of Scottish Water was set out most graphically in the water industry commissioner's recent strategic review. In proposing revenue caps for the next four years, he advised that significant increases in revenue were required. However, he spelled out clearly the effect of having one water authority rather than three. With Scottish Water, the commissioner's advice will mean that an aggregate revenue increase of 19.6 per cent over the next four years is required to fund necessary improvements to the service. With three separate water authorities, revenue would have to rise by between 36 per cent and 44 per cent to fund the same improvements.

Tavish Scott (Liberal Democrat, Shetland Islands)

Will the minister confirm that if the merger did not take place water charges for consumers in the North of Scotland Water Authority area would rise by something like 35 per cent over the next three years?

Ross Finnie (Liberal Democrat, West of Scotland)

I confirm that charges would rise across the piece. In the north they would rise by some 35 per cent, whereas in the east and west they would rise by between 36 and 44 per cent. The creation of Scottish Water would reduce that increase to 19.6 per cent over four years.

Tommy Sheridan (SSP, Glasgow)

As the minister will be aware, since 1996-97, water industry revenue has increased by 57.2 per cent. The problem is that domestic customers have had to fund that increase through a 102 per cent rise in charges. That compares with an increase of only 16 per cent in charges for non-domestic customers. Does the minister think that that is a fair division of costs?

Ross Finnie (Liberal Democrat, West of Scotland)

Tommy Sheridan raises two important issues. First, the water industry commissioner uncovered clear evidence that there was a cross-subsidy from non-domestic to domestic customers, which in a competitive industry had to be unwound to some extent. Secondly, we need to consider how that process impacts on lower-income and other groups and to deal separately with the issue of the charging regime. As Mr Sheridan has pointed out on many occasions, it is difficult to argue that there is a close correlation between water consumption and rateable value. The charging regime is not a matter for the bill, but it is a matter for Scottish Water. I hope that, once we have established Scottish Water, the authority will address that issue as a matter of urgency.

The difference that the creation of Scottish Water will make to charges and the other advantages that it will have for customers should be clear. There will be a uniform water supplier across Scotland and charge harmonisation by 2005-06. That is relevant to Tavish Scott's question.

The water industry commissioner will continue to work for the customer to drive down costs in the industry. The new convener of customer panels will be charged with ensuring that customers have a distinct and clear voice.

Scottish Water will be fully in the public sector. Ministers will be responsible for board appointments, will exercise powers of direction over the authority and will lend to the authority through public expenditure.

The bill provides the flexibility and commercial powers that will enable Scottish Water to survive in a competitive environment. Scottish Water will have much the same power to outsource as the existing water authorities have. Those powers are compatible with and, in our view, are essential for a successful and sustainable public sector water authority. Only further primary legislation could alter the public sector position and clear accountability of the industry. I assure the Parliament that that is neither my intention nor the intention of the Executive.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

I will address the issue of primary legislation later.

Section 60(2) talks quite clearly about the functions of Scottish Water. In a letter to the convener of the Transport and the Environment Committee, the minister argued that section 60 would rule out privatisation of the industry and would prevent the new organisation from forming itself into a private company. However, section 60 excludes specifically all functions of Scottish Water

"under subsection (1) of section 25 of this Act and subsection (2) of that section so far as relating to subsection (1)."

In the light of what he has just said, will the minister tell us how he interprets that provision?

Ross Finnie (Liberal Democrat, West of Scotland)

The core functions of Scottish Water as defined in section 60(2) include the whole gamut of what Scottish Water does. Most outsourcing in the current water authorities relates to the placing of capital contracts for construction. That work is not done internally. I am making a point about how certain services are provided and about the ownership of assets. It is my intention that Scottish Water should operate in much the same way as the existing water authorities operate. I am not minded to give direction to permit the company to engage in a wider range of activities.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

rose—

Ross Finnie (Liberal Democrat, West of Scotland)

I must move on.

As I undertook to do, at stage 2 I will present to the Transport and the Environment Committee a draft of the directions that I intend to issue. It is important for the committee to be able to consider those at stage 2. In recommending the bill to the chamber, my purpose is in no way to extend privatisation to the Scottish water industry.

As I said, Scottish Water will be subject to a series of directions, supported in some cases by detailed guidance. Principal among those will be a direction setting out the tight rules under which Scottish Water will be allowed to exercise its general powers under section 25. That addresses the point that Bruce Crawford made. As I said, I have promised to present the draft directions to the Transport and the Environment Committee. Further directions and guidance are being developed that will make clear Scottish Water's more detailed finance and accounting obligations.

The framework that I have outlined will aim to provide a governance structure that, in words endorsed by the committee's report, will

"Make it more commercial, give it a proper board and the proper powers, then let it get on with using those powers, subject to regulation."

I turn briefly now to the detail of the bill. I hope that I have covered much of part 3, which establishes Scottish Water, and made it clear how that advances the customers' interest.

The committee's stage 1 report seeks action and reassurance from the Scottish Executive in relation to the public accountability of the proposed Scottish Water board. I assure members that the Executive's intention is that the non-executive directors on Scottish Water's board will continue to outnumber the executive directors. However, I acknowledge the committee's point that schedule 3, whose intention is to make the total number of directors flexible, allows for the possibility that the balance will be in the other direction. I will consider whether an amendment should be lodged to put beyond doubt the intention that the non-executive directors should always be in the majority.

I also confirm our agreement with the committee that we should give board members, especially non-executive members, a clearly defined role. At stage 2, I intend to share with the committee the draft direction setting out the roles and duties of the Scottish Water board. I hope that that will allay the committee's concerns that board members might not be properly empowered.

As I have said, it is our intention to increase Scottish Water's accountability to Scottish ministers, the Parliament and the public. The bill provides for Scottish Water to provide both annual and interim reports to Parliament, which offers a clear means of regular scrutiny. The chairman designate and chief executive designate of Scottish Water clearly expect that Parliament's interest in Scottish Water will continue beyond its creation and that it will be held to account through the six-monthly reports.

The other parts of the bill are equally about advancing the interests of the customer. Part 1 confirms the role of the water industry commissioner as the industry's economic and customer service regulator, and establishes customer consultation panels, which will give a direct local voice to customers. The panels will be chaired by an independent convener, who will be able to publish reports and whose views the water industry commissioner will have to take into account.

Interest has been expressed in the make-up of those panels. I welcome the committee's agreement that the individual members of the panels should not represent particular sectoral interests. The independent convener will be appointed by ministers under guidance from the Office of the Commissioner for Public Appointments. Naturally, that process will include scrupulous regard for equal opportunities legislation and other equality issues—a point that was raised in the stage 1 report from the Equal Opportunities Committee. Similar care will be taken to ensure that panel members are appointed in a transparent and fair manner.

Part 2 establishes in statute a drinking water quality regulator. Since the drinking water quality regulations were introduced in 1990, good progress has been made and we have a very good story to tell—the number of microbiological quality failures has fallen from around 2,300 in 1991 to just 252 in 2000. However, comparisons with other parts of Britain are still not good.

Reducing the level of failure even further to ensure that water of the highest quality is delivered consistently to all the people of Scotland will require a redoubling of effort. It is in the interests of the customer, Parliament and the industry to secure the place of quality regulation within the statutory framework.

The drinking water quality regulator's role will be to monitor and ensure compliance with drinking water quality regulations, investigate possible breaches of the regulations and enforce compliance where necessary. The establishment of the regulator will ensure that the execution of that work is open, transparent and accountable. I think that everyone welcomed those proposals during the consultation for stage 1.

I will deal with specific issues arising from the Transport and the Environment Committee's stage 1 report. I welcome the committee's recognition that it is not feasible to continue with the current reduced water charges for the voluntary sector, and the committee's acknowledgement of the Executive's argument that proper funding for the voluntary sector should not be substituted by service suppliers meeting the sector's water costs. I acknowledge the strength of feeling on that issue, but we have to bear in mind what we are asking Scottish Water to do. We want it to deliver a massive programme of environmental and public health improvements, while driving out substantial efficiency savings. We want it to be more responsive to all its customers and to meet their needs by acting more commercially, as any other utility supplier would.

We cannot reasonably do that and ask Scottish Water to manage a system of reliefs to a particular group of customers—especially as that system targets assistance at members of the group that occupy high-value premises, rather than by referring to the value of their efforts, and as the size of the group increases by about 1,000 each year.

Reliefs must be considered in the context of the Executive's record direct and indirect funding of the voluntary sector. I understand why the continuation of reliefs appears attractive, but I do not share that view. It is important that people are clear where we stand on that issue.

Richard Lochhead (Scottish National Party, North East Scotland)

In light of the minister's comments—which will be extremely unpopular on his benches and throughout Parliament and the country—will he confirm whether he has undertaken an impact study on the effect on the voluntary sector of carrying out the policy?

Ross Finnie (Liberal Democrat, West of Scotland)

There is a legitimate argument for charitable relief, but I sustain that a particular industry should not provide that relief. We must remember that the issue has become quite complex. We have received the McFadden report, which proposes substantial relief across the board for charities. I am in no doubt that Parliament will wish to discuss and consider that.

Among the 1,000 new charities that are created every year are charities that are created by local authorities putting their sporting facilities—including major swimming baths—into charitable trusts. Although that is not the impact that the member talked about, it represents a considerable impact on charitable relief. I have much more sympathy with smaller groups of genuinely charitable organisations that add to the public sector through civic engagement. I have not closed my mind on that issue, but I am making clear what I believe Scottish Water's core function ought to be.

I recognise that the stage 1 report is helpful in identifying the kind of organisations that the Transport and the Environment Committee is keen to help. We can consider further what help we could give to the narrow group that is identified in that report.

Another concern that the report raises is the sustainable development duty. That was raised by the Scottish National Party's spokesperson. I am in no doubt that Scottish Water should have regard to sustainable development in everything that it does. Section 47(4) will ensure that it will in most circumstances. Scottish Water's core business—which ultimately requires a secure supply of clean water and the effective disposal of waste water—is about sustainable development. It is highly unlikely that Scottish Water will find itself in conflict with those basic principles. I will discuss with the committee whether guidance or direction should be provided at the outset to Scottish Water to ensure that the committee's concerns are fully met. I feel that guidance rather than amendments will be the right way forward.

The Equal Opportunities Committee raised the specific concern that the bill does not provide additional safeguards to protect current employees during the structural changes in the water industry. I assure the Parliament that Scottish Water will be subject to all relevant equal opportunities legislation, whether on job losses, changes or other staffing issues. The existing water authorities are working closely with the unions on the move to Scottish Water. All appointments and transfer procedures are appropriately equality proofed. If I can offer the Equal Opportunities Committee any further information on those processes, I will be happy to do so.

The essence of the bill is straightforward. Scotland requires a single, efficient, publicly accountable and locally responsible water authority to keep down charges and manage the investment that will ensure that we have first-class drinking water and cleaner beaches. That is the object of the bill.

I move,

That the Parliament agrees to the general principles of the Water Industry (Scotland) Bill.

Murray Tosh (Conservative, South of Scotland)

I invite any members who wish to speak in the debate and who have not so far pressed their request-to-speak buttons to do so.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

On a personal note—because I was not here yesterday afternoon—it is good to see you in the chair, Mr Tosh.

Today is an important day for the future of Scotland's water industry. The Water Industry (Scotland) Bill is a key piece of legislation that will provide a window on the direction that the Executive intends to take on Scotland's public services. The SNP has generally supported the move to establish Scottish Water. Many of the bill's provisions are laudable and will find support among SNP members. We also support the principal objectives that are set out in the policy memorandum.

Ross Finnie has told us several times that the restructuring plans in the bill will pave the way for the industry to face up to the rigours of competition. People are anxious that opening up the water industry to future competition will lead to back-door privatisation. Ross Finnie has approached the challenge with his usual gusto and vigour. His determination is noteworthy, but the Executive's plans to open up the industry to competition will make water a commodity and place it in the marketplace.

Tommy Sheridan (SSP, Glasgow)

Will the member confirm that, if it were in power, the SNP would use schedule 3 to the Competition Act 1998 to exclude the water industry from competition?

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

I will deal with that matter in a minute.

Determination alone will not keep the private sector out of the water industry and no minister—unless very foolhardy—can say that private operators will be kept out. No such pledge can be delivered, because ministers know that in the short or long term, it is inevitable that a private sector operator will gain entry. That will mean only one thing: the beginning of back-door privatisation, whether we like it or not.

I will now deal with Mr Sheridan's point. We are all aware that the legislation has been driven by European Community directives. However, some of the major utilities in Europe have gained an opt-out to stop competition in their areas, or when they have not done that, bonds have been required that are so big that it is impossible for the private sector to gain entry. The Executive must examine those issues carefully to ensure that we can stop the private sector from gaining entry.

That is the backdrop to the debate. The SNP supports the general principles of the bill, but has legitimate concerns about some of the Executive's proposals. I will explore some of them today, because at stage 2, I hope that the Executive will take on board much of the thrust of our argument.

As the minister is aware, concerns were raised at the Transport and the Environment Committee about the bill's wide-ranging powers—which the minister touched on—and particularly the general powers in section 25, which says that Scottish Water will have the power to

"form or promote (whether alone or with others) companies (within the meaning of the Companies Act".

MSPs and witnesses were concerned that that power could open the door to the de facto privatisation of the industry. Dr John Sawkins from Heriot-Watt University said:

"However, as I understand the bill, if they wanted Scottish Water to become a ... limited company, it could become one. That is the bottom line. If the chief executive and chairman change, the new people will be able to do anything they want."—[Official Report, Transport and the Environment Committee, 24 October 2001; c 2150.]

Ross Finnie (Liberal Democrat, West of Scotland)

Does Mr Crawford accept that the basic thrust of the bill is that Scottish Water is a company—I mean, not a company, but a public corporation and that the powers vest from that? Does he accept that the bill makes it clear that the creation of companies is a direction within the principal purposes? The whole company cannot be privatised without a change in primary legislation.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

I do not accept the minister's premise and I will explain why. Unison does not accept that premise either. Yesterday evening, all members received a briefing from Unison that said:

"UNISON therefore remains of the view that Scottish Water could turn itself into an enabling authority with the 'delivery' of services to the public privatised using the powers in s25. Nothing in s60(2)"—

that is the key provision that the minister said would put a break on privatisation—

"could halt this. UNISON therefore believes that the powers of Scottish Water need to be drawn more tightly".

Nothing could be clearer.

On 14 November, Ross Finnie told the Transport and the Environment Committee that he intended to issue directions, as laid out in section 49, to ensure that no serious diversification was made that could lead to privatisation. The minister leans heavily on directions to control Scottish Water. That all sounds fine and dandy, but a major flaw requires to be addressed, and I hope that the minister will respond satisfactorily.

Section 49 contains no requirement to secure the Parliament's agreement to any ministerial directions to Scottish Water. The bill will give the Executive a blank cheque to decide the fate of the Scottish water industry. There is no way on God's earth that the SNP will sign up to any blank cheque—under the current minister or a future minister, under the current Executive or a future Executive. God knows what would happen if the Conservatives got their hands on the bill.

Fergus Ewing (Scottish National Party, Inverness East, Nairn and Lochaber)

The Conservatives would sell off the industry.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Exactly.

The Executive will not have carte blanche from the SNP to privatise Scottish Water by simply issuing a ministerial direction under section 49. If the Executive wants to secure SNP support at stage 3, the bill must be made much clearer.

David Davidson (Conservative, North East Scotland)

To save time in the chamber, I ask Mr Crawford to explain his fears about privatisation, the use of limited companies or the input of new finance.

Tommy Sheridan (SSP, Glasgow)

Railtrack.

David Davidson (Conservative, North East Scotland)

Surely if the water is delivered in the correct form, efficiently, to the right quality and at the right price, the manner of delivery is irrelevant.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

That is the same old story trotted out again. We heard Railtrack mentioned. What do we want in Scotland? Do we want a Railtrack of the water mains? The water industry affects the nation's health. One accident could put at risk not only one person or 100 people, but thousands of people.

John Scott (Conservative, Ayr)

rose—

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Sit down, please.

When profit is put before the public's interests, problems arise, as we have seen in the rail industry.

If the minister wants to secure SNP support at stage 3, the bill will have to be made much clearer. An absolute guarantee must be included—and the guarantee ain't there—that Scottish Water will not be able to become a private company without the passing of primary legislation and full parliamentary scrutiny. That is a fundamental issue of parliamentary democracy. [Interruption.]

Members say that Ross Finnie called Scottish Water a company, but the Executive has done that several times, including once in an answer to John McAllion a couple of weeks ago, so some Freudian slips are being made.

It is generally understood and accepted that the water industry requires unprecedented levels of investment. The Executive estimates that the investment requirement is about £2 billion in the next four years. How are charges to be kept under control? We know that the water industry commissioner—the WIC—has demanded efficiency savings of £135 million, yet charges are still expected to rise by up to 25 per cent in the East of Scotland Water area and the West of Scotland Water area.

Although the WIC and the minister are confident that the efficiency savings of £135 million from operating costs can be delivered, people are sceptical about whether such savings are achievable. It is assumed that much of those savings will come from job losses, but as the minister told the committee on 14 November:

"The real trick is how we achieve the other savings".—[Official Report, Transport and the Environment Committee, 14 November 2001; c 2299.]

I hope that job losses are kept to a minimum and I hope for the charge payers' sake that such savings do not prove to be a trick too far and an unachievable illusion.

The industry worries that the scale of proposed job losses could leave it short of vital skills and put health and safety in jeopardy. As we debate the issue, we can be sure that the public's primary concern is the level of charge that they will be expected to pay. What more can be done to keep charges down? The main driver for increasing charges is the extraordinary level of capital works that are being financed from current revenue by the existing authorities. For example, in a letter dated 5 November, West of Scotland Water said that in the current financial year, it had a capital programme of £187 million, of which £96 million, or 51.3 per cent, came direct from revenue. That picture is replicated in the two other authorities.

According to figures that the WIC has supplied, the level of capital finance from current revenue is estimated to be more than £300 million for each of the next four years. Paying in the short term for capital works directly from current revenue is the real driver for increasing charge levels. What can the Executive do about that? What is the alternative? For starters, if even an element of the £350 million that is committed from current revenue to pay for capital improvements were used for longer-term borrowing, the impact on the charge payer could be kept down significantly.

I will now raise a fundamental issue of discrimination and unfairness to Scotland that needs to be dealt with to sort out the problem of inherited debt levels and leave ample room for new borrowing.

At the time of reorganisation of the water industry in England, when the industry was privatised, the debt of the former public utilities was written off. The slate was wiped clean to allow the new organisation to get the best possible start. Prior to reorganisation in the south, the water industry received benefits amounting to £9.2 billion—£1.5 billion of aggregated direct cash support and tax allowances of £7.7 billion. Those figures are not SNP figures, but figures taken from the Transport and Environment Committee's report into the water industry which, on page 31, describes that cash support as a "green dowry". The background factors and debt profile for Scotland are not dissimilar to those of England at the time of reorganisation in that the current debt level in Scotland, as at 31 March, was £1.9 billion. Why should Scotland not secure the same advantage that was provided in the south?

Ross Finnie (Liberal Democrat, West of Scotland)

Does Mr Crawford accept that, at the time of the write-off of the debt to which he has referred, customers in England received a benefit of £50 per customer? Does he also accept that the commutation of Scottish debt—not all of it was made at that time—amounted to more than £300 per customer? Can he explain what is the discrimination to which he refers?

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Perhaps the minister should read more deeply the report from which he is so fond of quoting. On page 175 of his strategic review, when discussing the debt, the WIC makes it quite clear that:

"In short, the customer in Scotland should have had a better deal."

John Scott (Conservative, Ayr)

Will the member take an intervention?

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

No. I have taken a number of interventions and I want to get through what I want to say.

In the interests of fairness, the Scottish Executive should demand that the UK Treasury provides similar support to the Scottish water industry. The new First Minister should be beating a path to the chancellor's door to demand justice. [Interruption.]

Murray Tosh (Conservative, South of Scotland)

Order.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Democracy and accountability are vital for the board of Scottish Water and for the WIC. Many column inches have been written recently about cronyism and job creation for the boys. The passing of the bill is an opportunity for a Liberal Democrat minister to put himself beyond reproach in this regard. More important, it is a golden opportunity for the Scottish Parliament to show, in the clearest of terms, that the appointments procedure to public bodies in Scotland is as transparent as it can be and that it operates fairly. Ross Finnie can do that by accepting the amendments that the SNP will lodge at stage 2.

The first amendment that we will lodge is to ensure that the democratic legitimacy of local authority councillors is recognised and that Scotland's councillors are represented on the board. That would strengthen local democracy and ensure that at least some directly elected people are represented on the board.

I am glad that the minister seems to be giving way on the second point on which we plan to lodge an amendment, which is that non-executive directors should be in charge of the board. The third amendment will propose that members of the board be selected on the basis that is outlined in the Public Appointments (Parliamentary Approval) (Scotland) Bill and that the Scottish Parliament be provided with the opportunity to approve or veto appointments.

It is an absolute precondition for the SNP that Scottish Water remains in public hands. Although it is proper for the new entity to be expected to operate in a more commercial manner, it will be formed as a traditional non-departmental public body or quango. With more than 5,000 employees and an annual revenue spend of almost £1 billion, it will be the largest quango that Scotland has seen. The shape and form of Scottish Water will be vital to ensuring that it is the outstanding success that Scotland deserves. It will be interesting to hear from the minister, in his closing speech, what consideration is being given to other public sector models. For instance, what level of consideration is being given to forming Scottish Water as a not-for-profit trust?

The minister discussed how charities are to be treated and the impact that the bill will have on them. My colleague Richard Lochhead will explore that issue further. I ask the minister to agree that it cannot be right for an organisation such as Rachel House, the children's hospice for Scotland in my home town of Kinross, to be required to lose the equivalent of two full-time nurses as a direct result of the bill. That should not happen. I make a genuine and heartfelt plea to the minister to take another look at that issue before untold damage is done throughout Scotland. We need to have an impact assessment, which Richard Lochhead raised in his intervention on the minister.

Finally, I leave the Executive with the clearest of messages. The SNP's support at stage 3 will be dependent on an absolute guarantee being written clearly into the bill that before the decision is taken to create Scottish Water as a private company, the decision will be the subject of full parliamentary scrutiny through primary legislation. The Executive will get no blank cheques from the SNP on this issue and no carte blanche to do as it pleases. If the Executive wants the SNP's support, it should deliver the changes.

John Scott (Conservative, Ayr)

I take the opportunity to welcome Murray Tosh as the Parliament's new Deputy Presiding Officer.

We in the Scottish Conservative party recognise the need for the bill to be debated in the Parliament. European and national legislation requires water quality standards to be raised and investment to be made. There is complete agreement that the status quo of the three water companies is no longer a viable option for the management of Scotland's water. The Conservatives accept that it is sensible to create the single authority by amalgamating the three old companies. We accept that the type of company structure that is mooted is more viable than the mutual model that is favoured by some.

When Scottish Water is created, it will almost be a privatised company. It will enjoy some of the advantages that are enjoyed by other plcs. However, it will be strangely fettered by its accountability to so many masters. Scottish Water will enjoy the economies of scale that are necessary to allow it to function in a competitive market. It will enjoy a merger dividend that will allow it to invest more efficiently in its outdated infrastructure. It will be able to borrow huge amounts of capital—£2 billion over four years at Government rates. That said, the cost would be far greater than if the capital had been raised on the equity markets. Nonetheless, even with those significant borrowings, Scottish Water should, if properly managed, enjoy a gearing that is well within accepted industry norms.

The new structure will have its advantages, but it will not be without its problems. Unlike the SNP, the Conservatives believe that the introduction of competition into the Scottish water industry is a good thing. We have confidence in the future of Scotland, unlike SNP members who seem afraid to look competition in the face and attack it head on.

Richard Lochhead (Scottish National Party, North East Scotland)

Will the member take an intervention?

John Scott (Conservative, Ayr)

No. I will not take interventions from the SNP. Bruce Crawford did not take any from me. Sit down.

Looking at the structure of the new company, it may well have difficulty in functioning efficiently. Put crudely—

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Surely the member will take an intervention.

John Scott (Conservative, Ayr)

No, as the member would not take one from me. I will certainly not take a sedentary intervention.

Put crudely, the company will have to answer to too many masters. Unlike a fully-fledged plc, Scottish Water could be subject to political interference. The water companies throughout the UK that are plcs need only answer to their shareholders and the regulator. Scottish Water may have a more complicated set of masters. It will have to be accountable to Scottish ministers, the Scottish Parliament, its board, the water industry commissioner, water customer consultation panels and the Scottish Environment Protection Agency. It may also have to be responsible to the Transport and the Environment Committee and, ultimately, it will have to be responsible to the Scottish people. There is a real danger that precious management time will be wasted creating and presenting too many briefings and reports to too many different groups of people.

Des McNulty (Labour, Clydebank and Milngavie)

Is Mr Scott objecting to scrutiny by the Scottish people and the Scottish Parliament?

John Scott (Conservative, Ayr)

As Des McNulty is well aware from discussions at the Transport and the Environment Committee, Scottish Water could have an encumbrance of tasks to undertake at a time that it is trying to create a new business in difficult circumstances.

The new company could also be the subject of political interference, which would prevent it functioning freely because of short-term political gain that could hinder its performance. As I raised at committee, that would mean that, if the WIC were to set water prices at an inappropriate time in the eyes of the Executive—say before an election—the WIC might be unable to set the prices that Scottish Water needs in order to function efficiently. That is vitally important. We in the Conservative party are determined that the new company must deliver water cheaply and competitively in line with what is being delivered by the water companies in England and Wales.

I welcome the creation of the water industry commissioner's role, but I see a huge risk that his position could be overruled and compromised by ministers for reasons of political expediency. If such a contentious scenario were to come to pass it would, once again, take management eyes off the ball. Those are just a few of the problems that I foresee. I believe that the new chief executive will need to be very strong and focused to deal with ministers, MSPs and so on at the same time as creating a new and vibrant business.

Another area that needs to be examined is the structure of the board, which, as proposed, is unsound. The balance between executive and non-executive directors needs to be moved so that it is less in favour of executive directors and more in favour of non-executive directors. Instead of the current proposal, as outlined in schedule 3 of the bill, there should be no more than four executive directors and a minimum of six fully empowered non-Executive directors. I welcome the minister's assurances on that matter this morning.

The water industry panels, while superficially an attractive idea, are another potential source of problems. Put simply, if those panels are strong enough to make a difference, they will almost certainly interfere with the efficient running of the company. If they are not strong enough to make a difference, they will only be talking shops and of little value. The role of those panels will need to be more clearly defined than it is at present. I am far from certain that the minister's comments on that today provide the clarification that we need.

There is also the issue of full commercial freedom. It is already clear that Scottish Water will not be given the freedom to do as it pleases. The authority will be unable to seize a commercial opportunity if it presents itself, because the Executive and the water industry commissioner are afraid that by giving it full freedom it might start to think and behave like a plc. Again, Scottish Water will be shackled by arbitrary political constraints at a time when it will have to be very fleet of foot to survive in a hugely competitive marketplace. That is why I said at the outset that the new company will face difficulties and challenges that it may not be able to cope with. Indeed, the whole exercise is a bit of a gamble with taxpayers' money.

We will monitor closely the performance of the new company. The jury is still out—and will remain so for some time—on whether that model will work. If it does, the upside is that it will work like a fully privatised company.

George Lyon (Liberal Democrat, Argyll and Bute)

Will the member give way?

John Scott (Conservative, Ayr)

No.

If the new model that is Scottish Water does not perform as it is hoped, it will become, in the worst sense, a nationalised industry, which will be a burden on Scottish taxpayers.

Ross Finnie (Liberal Democrat, West of Scotland)

Is Mr Scott saying that he would prefer a private monopoly for a company that operates and provides a utility service, rather than the public and the Parliament holding that company to account? It seems to me that private companies exploit monopolies and the public are unable to look after themselves. Mr Scott presumably takes the opposite view.

John Scott (Conservative, Ayr)

We have already discussed the fact that the industry will operate in a competitive environment. If we take away the freedoms that an unfettered business would have, the authority will not be able to operate efficiently in that competitive environment. That is my point.

Scottish taxpayers should be under no illusion that this is a huge experiment—

Allan Wilson (Labour, Cunninghame North)

Will the member give way?

John Scott (Conservative, Ayr)

I am sorry. Well, all right, since Mr Wilson is a minister. I beg his pardon.

Allan Wilson (Labour, Cunninghame North)

At last I have reached that exalted status.

The point that was being made, and which John Scott has not addressed, is that as a public authority Scottish Water would operate in a competitive environment in the public interest, whereas a private company would act in the private monopoly interest. Which one does he favour?

John Scott (Conservative, Ayr)

A private company could still operate very much in the public interest. The minister cannot tell me that the water companies in England—which are, after all, the model upon which Scottish Water is based—which, as the reports show, provide cheaper and cleaner water than we have in Scotland, do not operate in the public interest. To say that would be, at best, naive. Scottish taxpayers should be under no illusion: this is a huge experiment, funded by their money, which may or may not work. As a businessman and as a member of the Transport and the Environment Committee, I genuinely wish the new company well. However, the Parliament must be aware that success is not guaranteed.

Turning to other parts of the committee report, I wish to address matters that are perhaps less contentious. First, there is the efficient collection of moneys, which is vital to the cash flow of the new business. At the moment we are all aware that water charges are collected by local authorities. Scottish Water must move away from that situation as quickly as possible. With many councils' debt collection records being as they are, the inability to collect debt could be the difference between profit and loss and between the success and failure of the project. It is essential that the company takes on the collection of its own debts and moneys as quickly and efficiently as possible rather than putting itself in the hands of 32 local authorities, whose collective track record of council and water charge collection is at best poor and at worst potentially damaging to the new company, which we all want to succeed.

Another issue is the new company's position as the provider of last resort. We believe that it is right and proper that Scottish Water should be the provider of last resort to the Scottish people.

Like others, I welcome the minister's commitment to leave in place for another year the dispensation that allows water to be delivered free of charge to registered charities. That said, I accept the minister's view that it is an unfair burden on the new company that water should be given free to charities when electricity and gas are not. I therefore cautiously welcome his undertaking to establish a review of the whole situation of charitable reliefs, in order that a more broad-based support scheme for deserving charities can be developed. I ask that that be done as a matter of urgency.

We welcome the Scottish Executive's initiative in introducing the bill. Although we welcome the new commercial freedom to be found in the bill, it is a halfway house. The new company is essentially a hybrid, a compromise and an admission that the Executive aspires to the private sector model. The bill recognises that privatisation of water worked in England and Wales. Sadly, the Executive does not have the confidence to take the industry out of public sector control. That is why the bill contains contradictions, some of which I have highlighted. Time will tell whether the model is a success. In the meantime, the Conservatives will monitor the situation.

We hope that Scottish Water delivers the service that the people of Scotland deserve and expect. We will monitor its progress carefully over the months and years ahead, and observe how it performs in comparison with the private sector down south, which, despite what the SNP says, is delivering cleaner and cheaper water for consumers. If further change is necessary, it will be based on an open-minded examination of the evidence and facts and a judgment made purely on the interests of Scottish consumers and taxpayers. While we accept the broad principles of the bill today, we of course reserve our right to lodge amendments at stages 2 and 3.

Bristow Muldoon (Labour, Livingston)

I welcome Murray Tosh to his new position as Deputy Presiding Officer.

I welcome also the opportunity, as a member of the Transport and the Environment Committee, to open on behalf of Labour. Over the past year and a half the committee has devoted a considerable proportion of its time to examining the water industry and has published two major reports: the water industry report, which was published in June this year; and, later, the stage 1 report on the bill.

I place on record my thanks to the 19 members who have contributed to the reports. In particular, I single out the former convener of the committee, Andy Kerr, who has gone on to new ministerial responsibilities. Andy led the committee very ably through that period and deserves our best wishes in his new role. I also express thanks to others who have assisted the committee in the process, particularly the committee clerks, Shelagh McKinlay and Callum Thomson, and Ian Jones, the adviser, who gave much valuable advice to the committee prior to the earlier report.

More important than all those people are the many organisations and individuals from which the committee took evidence over the year and a half. That evidence has contributed greatly to the reports. We have taken evidence from the existing water authorities, the Scottish Trades Union Congress and several of its affiliated unions, the Convention of Scottish Local Authorities and individual local authorities, the Scottish Environment Protection Agency, Scottish Environment LINK and its members, business organisations and various community groups and individuals. When we look back at the process, the contributions that those groups have made have improved the quality of the report that the committee has produced. As a result, this has been an able demonstration of the accountability and participation that the Parliament is supposed to be about.

Having got through that Oscar ceremony of thanks, I turn to the bill itself. The bill has three main policy objectives. The first objective is to create Scottish Water as a single, all-Scotland, public water authority. It is important to stress that it will be a public water authority. The second objective is to ensure that the views of customers are properly represented by establishing water customer consultation panels. The third objective is to safeguard public health by creating the post of the drinking water quality regulator.

Andrew Wilson (Scottish National Party, Central Scotland)

Given what Bristow Muldoon has just said about the public status of the new authority, does he see anything wrong with an explicit mention in the bill of the need for primary legislation to change its status from public to private in the future?

Bristow Muldoon (Labour, Livingston)

The minister has already given an assurance that privatisation of the industry cannot take place without further primary legislation. Throughout the whole process, SNP members have been raising scare stories about privatisation.

Fiona McLeod (Scottish National Party, West of Scotland)

Will Bristow Muldoon give way?

Bristow Muldoon (Labour, Livingston)

No, I am still responding to a previous intervention from Mr Wilson.

SNP members have been raising scare stories about privatisation when they do not believe those stories themselves. They have not moved against the general principles of the bill. If they genuinely believed that the bill was about privatisation, they would have done so.

Tommy Sheridan (SSP, Glasgow)

Will Bristow Muldoon give way?

Bristow Muldoon (Labour, Livingston)

I may allow Mr Sheridan to intervene later. I want to make some progress.

If SNP members genuinely believe that the bill is about backdoor privatisation, why do they not move against the bill? They have not done so today.

Lloyd Quinan (Scottish National Party, West of Scotland)

rose—

Fiona McLeod (Scottish National Party, West of Scotland)

rose—

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

rose—

Bristow Muldoon (Labour, Livingston)

I am sorry, but I would like to make some progress. I will take more interventions later on.

In establishing Scottish Water, it is important to recognise some of the important challenges that it faces. It has the largest investment programme that the industry has ever embarked on, to address long-term underinvestment and to meet new national and European standards for drinking water quality and waste water treatment. We must ensure that the industry achieves maximum efficiency, to ensure that charges do not rise too steeply and to prepare the industry for any possible competition in future.

Having recognised the policy objectives, I now want to go through the sections of the bill to see whether the Executive is delivering on those objectives.

Tommy Sheridan (SSP, Glasgow)

Before he leaves the issue of charges, will Bristow Muldoon accept that the current water charging system is acutely unfair because of its relation to council tax banding?

Bristow Muldoon (Labour, Livingston)

A system in which water charges are related to council tax banding is fairer than a flat-rate system. There are issues that concern poorer water charge payers and I hope that the Executive will reflect on those issues. However, I do not think that relating water charges to council tax banding is inherently unfair. It provides some degree of progressiveness in the taxation system as it applies to water charges. I will return to water charges later, but I would like to move on to other issues.

The core purpose of the bill is

"to establish a public corporation which is able to compete in a competitive market but which is properly accountable to the people of Scotland through Scottish Ministers and the Scottish Parliament."

That is a paragraph from the stage 1 report and one that SNP members do not dissent from.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Of course we do not disagree with that paragraph, nor do we disagree with the general principles of the bill as outlined in the policy memorandum. I made it entirely clear in my speech that our support at stage 3 will depend on an assurance being written into the bill that the organisation cannot be privatised without primary legislation. Does Bristow Muldoon believe that Unison was scaremongering as well?

Bristow Muldoon (Labour, Livingston)

My view is that Unison is mistaken in believing that the bill could lead to privatisation. Bruce Crawford has deliberately reached that opinion so that he can posture on it. SNP members say that the bill will lead to backdoor privatisation and the Tories say that it will over-regulate the organisation. That leads me to believe that the minister has probably got it just about right.

The commitment to a publicly owned and publicly accountable water industry is important to the people of Scotland. That is why the Executive and this Parliament will deliver a publicly owned and publicly accountable water industry. That has been highlighted on many occasions, most notably by the Strathclyde water referendum a number of years ago, which rejected the approach that the Conservatives would take to the water industry. Yesterday, Unison brought to our attention a survey that indicated that 91 per cent of the Scottish population supported public services providing publicly accountable services. That is a higher proportion than in the UK as a whole.

I believe that the minister has given adequate assurances that Scottish Water cannot alter its functions or change its accountability to Scottish ministers or the Scottish Parliament without further legislation. The minister has said that quite clearly on several occasions.

I move on to the timetable for Scottish Water. The committee welcomes the timetable. Our original report said that, if Scottish Water was to make the transition, we felt that it was important that that should be done swiftly. All the evidence indicates that the timetable for moving to Scottish Water by 1 April 2002 is an achievable deadline. The committee also agreed that the Executive was right to put in place transitional arrangements, including the appointment of the chairman designate and chief executive designate, although I recognise that one committee member dissented from that position.

Bruce Crawford referred to competition in his introductory remarks. In our earlier report, the Transport and the Environment Committee examined whether any attempt to exclude the water industry from the requirements of the Competition Act 1998 would be sustainable. We did not find any substantive evidence to that effect.

The committee also expressed concerns about the water authority's short-term ability to compete. In that regard, we very much welcome the fact that the Executive has decided to delay the licensing regime to deal with competition issues until the introduction of the water services and water environment bill later next year.

Bruce Crawford also mentioned investment, debt and charges. When he talked about the green dowry, he quoted selectively from the Transport and the Environment Committee report that was published earlier this year. Among the sections that he failed to quote from was paragraph 164, which records the fact that, when the regional councils were wound up, outstanding debt related to the water industry was £1.7 billion and that only £1.06 billion of that was transferred to the new water authorities. There was therefore a £700 million reduction.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

If the figures in the Transport and the Environment Committee report are slightly confused, does Bristow Muldoon accept that the Scottish Parliament information centre report that was produced for us only yesterday is also confused? Page 12 of that report states:

"In 1989 the UK Government announced its 'green dowry' policy, whereby ... £1 billion ... was injected into the ten water companies and £4.4 billion of debt was written off."

Which report is right?

Bristow Muldoon (Labour, Livingston)

I have not read yesterday's SPICe report. Bruce Crawford may doubt the accuracy of the Transport and the Environment Committee's report, but he was a signatory to it. He was one of the members who produced it and did not dissent from it.

Here is another paragraph from the report that Bruce Crawford did not dissent from:

"The key question in seeking to compare fairness is the charge to the customer and the quality of service which is given. There is a variation in charges between the Scottish water authorities and the English companies but it is not significant."

He failed to dissent from that but now, several months later, he wishes to distance himself from it.

When the committee considered the bill at stage 1, it took evidence from the chief executive designate of Scottish Water and asked him for his view on whether the company could cope with the debt sensibly. His response was:

"If it can meet its efficiency targets, Scottish Water will have the capacity to manage the debt sensibly with regard to customer charges."—[Official Report, Transport and the Environment Committee, 24 October 2001; c 2129.]

I tell SNP members that the issue for the Government of Scotland to consider is who else will suffer if it writes off the debt. They cannot always go to running to Uncle Gordon. I do not know what SNP members would do in an independent Scotland, where they would not have an Uncle Gordon to go running to for a bail-out.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Will Bristow Muldoon give way?

Bristow Muldoon (Labour, Livingston)

I am reaching the end of my speech.

I know that colleagues will raise other issues later in the debate, but I would like to say one thing about the minister's contribution. It concerns voluntary sector relief. The committee recognises that many of the larger organisations that currently receive relief are probably not deserving of subsidy from domestic or non-domestic water rate payers. We accept some of the points that the minister makes, but I encourage him to introduce a more targeted set of proposals aimed at some of the smaller organisations, particularly those that are not in receipt of Government or local authority support. I ask the minister to consider that point.

The bill sets out a framework for the Scottish water industry that is firmly fixed in the public sector. SNP members would do well to recognise that and to stop their political posturing. If the SNP believes that the bill is a move to privatisation, its not moving an amendment indicates that it does not believe its own rhetoric.

I repeat the committee's recommendation, which the SNP supported:

"that the Parliament approves the general principles of the Bill".

That will lead to a strengthening of public accountability and will ensure proper accountability of the industry through the minister and the Parliament. I encourage members to support the motion.

Murray Tosh (Conservative, South of Scotland)

We now move into open session. If speakers restrict their speeches to about four minutes, we should be able to call every member who has indicated that they wish to speak.

Andrew Wilson (Scottish National Party, Central Scotland)

I welcome the opportunity for Parliament to debate a huge issue not just for Scotland but for the whole world—the provision of water. One of the earliest examples of the value of government and collective endeavour in the history of human society is the provision of public water supplies. Great efforts were made in Victorian times to pipe water from the heart of the Highlands into the city of Glasgow to cleanse its health problems. That is an example of what government and society can do if people pool resources. The same process has cleansed much of urban Scotland.

In the 21st century, our country is richer than at any point in its history, yet it is amazing that there is a great crisis in infrastructure provision—not just in water provision, but in schools, roads, hospitals and housing. That crisis is a direct result of the short-termism and lack of ambition of politicians and politics in Scotland and the United Kingdom for decades. One sixth of what we invested in 1970 of the share of our economy is being invested in public capital provision. The massive cut in investment has resulted in the infrastructure crisis that we see around us.

David Davidson (Conservative, North East Scotland)

Will the member give way?

Andrew Wilson (Scottish National Party, Central Scotland)

With a great sense of boredom, I will.

David Davidson (Conservative, North East Scotland)

That is charitable of Mr Wilson. I want to remind him of what his colleague on the front bench said. He suggested that we go to Westminster to look for money. What is the SNP's official policy on funding anything nowadays?

Andrew Wilson (Scottish National Party, Central Scotland)

The tedium from the Conservative bench is almost gripping. From time immemorial, politicians such as that lot have chased a short-term political cycle. Long-term investment has been cut. A scythe was taken to public investment in the 1970s and particularly in the 1980s and we must learn from that lesson.

I do not doubt that the Government wants to address the crisis in infrastructure provision, particularly in water. We do not doubt that that is the intention of the bill and the structures. My colleague Bruce Crawford said that we welcome a national approach to a national problem. We hope that some of the criticisms and suggestions that we bring to the debate will be taken on board by the Executive through amendments to the bill at stage 2.

On public status, what would be the cost to the Executive of inserting in the bill a provision that privatisation in the future would require primary legislation in Parliament? Of course we all trust Ross Finnie absolutely and implicitly, but a nod and a wink from a minister will mean nothing in five years. Ross Finnie may be long gone and cutting grass in Gourock by then and the rest of us will have to deal with the problems.

Ross Finnie (Liberal Democrat, West of Scotland)

I might be pushing up grass.

Andrew Wilson (Scottish National Party, Central Scotland)

I strongly doubt that, given the health and vigour in the minister's cheeks.

What would be the cost to the Executive of inserting that provision in the bill? It would cost a few moments of a clerk's time. It would cost nothing. What does the Executive's opposition to that tell us? Why is the Executive against inserting that? Does that not set off alarm bells in the minds of reasonable people?

Ross Finnie (Liberal Democrat, West of Scotland)

rose—

Andrew Wilson (Scottish National Party, Central Scotland)

I will give way to a healthy and vigorous-looking minister.

Ross Finnie (Liberal Democrat, West of Scotland)

Before I push up grass, I wish to say something. There is a fundamental misunderstanding between me and Andrew Wilson. I am sure that Fergus Ewing, who is sitting behind Andrew Wilson, will advise him on matters of law. The bill vests in a public corporation its prime core functions. It would be impossible and ultra vires for the corporation to transfer its functions without reference to the body that conferred those functions upon it. The provision is entirely unnecessary in a bill that explicitly states who has given the powers and where those are conferred.

Andrew Wilson (Scottish National Party, Central Scotland)

I defer to Fergus Ewing on all legal matters except my private conveyancing, but what is the cost of making what I said explicit in the bill to allow humble non-lawyers such as I to be comfortable? I must move on, as I am reaching my time limit. I will give the rest of my speech to the future.

The key issue that should be considered at stage 2 is the structure of water industry funding, which, as it stands, is not sensible. Questions of inter-generational equity are important. I would like to hear from the minister why so much capital investment is being put on to current revenue and current charge payers. Should we not assess the cost for the job of replacement and then consider a better system of funding by spreading costs over generations? In the future, generations will be wealthier than we are. Perhaps it would be equitable to spread costs.

Des McNulty (Labour, Clydebank and Milngavie)

I want to pick up on Andrew Wilson's final point. The position that we are in is the result of decades of underinvestment in the water industry by successive Governments, and particularly by the Conservative Government of the 1970s and 1980s. Anybody who was involved in running water and sewerage services at that time—as I was as a member of Strathclyde Regional Council—will be aware of the real needs and of the strong limitations that central Government imposed on capital consent.

John Scott (Conservative, Ayr)

Will the member take an intervention?

Des McNulty (Labour, Clydebank and Milngavie)

No, thanks.

I am pleased to see Murray Tosh in the chair, but I am disappointed that he has left the water debate. It is interesting to note the contrast between his contribution to the debate, which was measured and rational, and Mr Scott's unreconstructed approach. Mr Scott has demonstrated that the Conservatives have learned nothing from what happened in the 1980s and 1990s.

It is the settled will of the Scottish people that water should be under public control. Public control and accountability is not an encumbrance; it is a safeguard, a guarantee and a mechanism for ensuring that public views and the public interest can override commercial considerations where that is necessary. There must be an appropriate balance between commercial considerations to ensure the economic efficiency of the water industry—which we all want—and the proper interests of the public.

The mechanism—the model—that is being put together strikes that balance. The water industry commissioner will safeguard the interests of the public and make efficiency a concern, while Scottish ministers and the Parliament ensure that environmental and social aspects and planning concerns, for example, are properly taken into account. Responsibility will be on Scottish ministers to set directions for the board of Scottish Water and the parameters within which that board will be expected to operate. There will be economic efficiency information through the econometric modelling produced by the commissioner, who will be responsible to us and the Scottish people for decisions that he makes and directions that he gives.

The system of accountability and scrutiny is not an encumbrance—it guarantees that the people of Scotland will have control over Scottish Water. That is what we wanted and what people voted for in the Strathclyde referendum. People want that and the Parliament will be the guarantee. We are not interested in the words in the bill, making more guarantees and more points; we are interested in Parliament being in control, making decisions and guaranteeing the continuity of Scottish Water.

In recent months, the SNP has withdrawn its spokespersons from committee involvement, which is interesting. I presume that that has been done so that they can be kept in a state of blissful ignorance. I draw such conclusions from some of Bruce Crawford's comments. The debate and the technical work in the Transport and the Environment Committee have arrived at something that has won broad consent. There was broad consent in the committee, based on the evidence. The Transport and the Environment Committee has done good work. It considered the evidence, the figures and the alternatives and came up with recommendations that satisfy the requirements of commercial operation, economic effectiveness and democratic accountability, which are what we all want.

The bill requires amendment to bring it into the final form that I would like, but the principles that have been laid out are good and I commend them.

Murray Tosh (Conservative, South of Scotland)

I call David Mundell, to be followed by Nora Radcliffe.

David Mundell (Conservative, South of Scotland)

Thank you, Presiding Officer. It is a pleasure to be called by your good self—almost as good as having the use of your office space.

My purpose in speaking in the debate is to call on the Minister for Environment and Rural Development to live up to his previous commitment that jobs in the new Scottish Water will be distributed fairly around Scotland. As the minister well knows from our previous discussions on the topic, West of Scotland Water, ahead of the creation of the new Scottish Water, has been in effect downgrading its Dumfries office from an office to a depot by relocating laboratory and engineering services to Glasgow. The drip, drip, drip of jobs from Dumfries is the result of a knee-jerk reaction to cost cutting, not of a management review of how best to provide a service or of a cost analysis that is other than simplistic.

Neither I nor other MSPs who represent Dumfries and Galloway have been presented with a credible reason why the Dumfries office of West of Scotland Water should be downgraded in that way. The meetings in which I participated with the Dumfries constituency MSP Dr Elaine Murray demonstrated tunnel vision in West of Scotland Water's management. For example, there is no concept that functions could be centralised in Dumfries or in non-urban locations. There is no willingness to adopt a different approach.

That leads me to the conclusion that the only way West of Scotland Water will change its mind is if the minister intervenes directly to ensure that West of Scotland Water follows through on the minister's previous commitment that jobs in the new Scottish Water will be distributed fairly around Scotland and that rural areas will not be disadvantaged.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Will the member give way?

David Mundell (Conservative, South of Scotland)

No. I have little time. West of Scotland Water has given no indication that it is paying attention to the minister's previous pronouncements. I call on him, as the minister responsible for the water industry and for rural development, to crack the whip. To people in Dumfries and Galloway, it is patently ridiculous that with one hand he seeks to encourage rural development and bring jobs to the area, but with the other—his water responsibility—he allows valuable jobs to be taken out of the area.

In the context of the water industry, 20 or so jobs might not seem a great deal to the minister and other urban representatives, but for an area that has the lowest earned-wage economy in the United Kingdom, those jobs are vital. If West of Scotland Water—or the new Scottish water authority—relocates to other areas, it will not be able to draw on that skilled work force.

I recently had the opportunity to speak at a public meeting organised by Unison. I congratulate Paul Hyles, the local representative for Unison in West of Scotland Water, on organising the meeting, which demonstrated cross-party support, from Dr Murray, Alasdair Morgan and me and from Dumfries and Galloway Council and the community, for a continued West of Scotland Water—or Scottish Water—presence in Dumfries.

The minister might not listen to me or to Unison—although Allan Wilson might be more willing to do so—but I hope that he will listen to the water industry commissioner for Scotland. In the meetings that Dr Murray and I have had with him, he has clearly indicated that the most efficient and effective privatised water companies operating in England—those that provide the best level of customer service—are those that have not undergone centralisation. The companies that are most centralised, such as Welsh Water, are the least efficient and have serious financial difficulties. The companies that have kept costs down are those that maintain local bases and keep their customer service standards up by staying close to their customers.

I do not believe that consumers in Scotland, certainly not those in Dumfries and Galloway, will benefit in any way from the relocation of jobs from Dumfries to Glasgow. It is time for the Scottish Executive to follow through on its many fine pronouncements by ensuring that jobs are distributed. The minister must make it clear to West of Scotland Water and Scottish Water that there should be jobs in places other than the central belt.

Nora Radcliffe (Liberal Democrat, Gordon)

After a wide-ranging inquiry, the Transport and the Environment Committee recommended the amalgamation of the three current water authorities into one Scotland-wide public water authority. That is the main purpose of the bill.

The reasons for creating a single authority are fourfold. First is the need for major capital investment because of lack of investment in the past and because of increasingly higher standards for drinking water quality and waste water treatment. Secondly, significant efficiency savings will be realised if water services are delivered by a single large body. Thirdly, a single and efficient Scottish water authority should be able to hold its own in what will become a competitive marketplace. Fourthly, the harmonisation of water charges across Scotland will deliver water services at charges that are calculated on the same basis for all Scots.

There has already been a great deal of rationalisation and co-operation among the existing authorities, but restructuring will be required. With the proposed vesting date a mere five months hence, the circumstances warrant the preliminary work that has been done to frame the new body in advance of the Parliament agreeing the general principles of the bill.

Some water industry issues will not be dealt with by the bill. Matters of competition and licensing will be included in the proposed water services and environment bill. Although the word "environment" might not be in the title of the Water Industry (Scotland) Bill, it does not mean that the issue has been ignored or that Scottish Water will not be required to operate in a sustainable way. People have asked whether the sustainability clause is strong enough or in the right place. I think that it is probably both those things, but those points will be argued more fully at stage 2. More wide-ranging environmental issues will be dealt with in the next bill when the requirements of the water framework directive are addressed.

In real life, efficiency savings inevitably translate into fewer employees. We are assured that voluntary severance packages and assistance in finding new employment are being offered. For those staff who transfer to Scottish Water, the bill provides that the Transfer of Undertakings (Protection of Employment) Regulations 1981 will apply. However, TUPE does not cover pension arrangements. We are assured that pension arrangements will be dealt with through regulation, ensuring that staff who transfer will remain in the same pension scheme and that their terms and conditions regarding continuing pension benefits are unaffected.

Proper accountability will have to be built into the public sector model. A key element will be the status of the non-executive directors who should form a majority on the board. That is not explicit in the bill as it stands.

The bill gives Scottish Water some commercial freedom, but it must be exercised in a way that meets the approval of Scottish ministers. It will be important to balance the ability to operate effectively in a competitive business environment and to guard against the organisation straying too far from its core functions.

There have been representations and considerable discussion about relief from water charges for charitable bodies. The committee's view is that a relief scheme for charities should continue. However, the issue is somewhat muddied by the range of bodies that have charitable status. Some are multimillion-pound businesses, while others are almost entirely voluntary and live hand to mouth.

The system that the water authorities inherited had grown up over the years in an unplanned fashion. The withdrawal of reduced charges was seriously damaging for some organisations. The transitional relief scheme is a muddle and not particularly satisfactory, but it should continue until a thought-through alternative can be proposed. Some rapid and thorough thinking has to be done on the matter.

Does our society think that no charitable body should have to pay the full whack for water services? Do we think that only certain charitable bodies should be exempted from the full charge? If the answer is yes, should that support be at the expense of the water services provider or should it be provided in some other way? If the water services providers pick up the tab, that in effect means that their customers pick up the tab. I am not comfortable with expecting all water users, including those on low incomes who may struggle to pay their water bills, to meet what seems to be a social obligation.

We should consider whether a suitable mechanism can be created under the social justice budget to pick up the tab. If we are to be selective about who should be exempt from charges, we need selection criteria for exemption. Some of Scottish Water's customers will pay reduced charges. What impact will that have on Scottish Water's ability to deal with competition from companies who can avoid that burden?

I welcome the creation of customer panels, which will give customers an independent and strong voice, but there are concerns about how they will be appointed and how they will be constituted to achieve broad representation.

The Parliament should agree to the general principles of the bill. I look forward to working with colleagues to address the various matters that remain to be addressed at stage 2.

Tommy Sheridan (SSP, Glasgow)

There are several reasons why the bill does not deserve support. The democratic control in the bill is minimal and the staffing provisions, including its provisions for staff pensions, are completely and utterly inadequate.

That there is no provision for debt write-off creates a supreme irony. In 1989, the Tories were prepared to provide £4.4 billion of debt write-off and £1 billion of investment of public money to make privatisation work, so that the private shareholders could get extra dividend payments. Today, the Executive is not prepared to make a similar political commitment to improve the situation for the citizens of Scotland.

Bristow Muldoon (Labour, Livingston)

Does Tommy Sheridan accept that £700 million of the Scottish water industry's debt was written off when the three existing water authorities came into being in 1996? Can he explain where he would want any write-off to come from?

Tommy Sheridan (SSP, Glasgow)

I remind Bristow Muldoon of the new word that was created at the time of the creation of the three water authorities. We were told that the water debt had been not written off but "commuted". Only £700 million of the water industry's then £1.7 billion debt was commuted. I argue that we should have a level playing field by writing off the debts of the water authorities when we create Scottish Water. We need to do that in anticipation of the ferocious competition that there will be from single utility companies and, more ominously, multi-utility companies—particularly those that are American-backed. Such companies will see a massive market opportunity in Scotland because of the way in which the Executive intends to open up competition in our water industry.

Let me turn to the main reason why I want to oppose the bill. Bristow Muldoon talked about charging and the way in which costs are spread. When the minister opened the debate, he said that the bill was about serving the customer well. He said that charging is not a matter for the bill. The minister will accept that between 1996-97 and 2001-02, the amount of revenue raised from domestic customers rose from £240.7 million to £494 million, which is a 105 per cent increase. The amount of revenue raised from non-domestic customers increased from £256.4 million to £297 million. That is only a 16 per cent increase.

If we accept the premise that the council tax is unfair—and even the Institute for Fiscal Studies accepts that—we must accept that the water charging system, which is intrinsically related to the council tax system, is also unfair. If we accept that water is a vital public commodity and public service, it would be better if we had a fair progressive income-based tax to raise the revenue for our water. It would be better if the Inland Revenue applied a water tax across Scotland in a fair and equitable fashion. Not only would that raise the amount of money that we already raise, it would raise £201 million extra—even if the tax was based on average cost and used current income tax levels.

If we wanted to make the tax even fairer—which is what we should do—we would exempt those individuals whose income is less than £10,000 a year. There are 882,000 Scottish citizens whose income is less than £110 a week. That they should face the burden of water charges is a disgrace. Since 1996-97, benefit recipients and pensioners have seen their benefits and pensions rise by less than 20 per cent yet their water charges have risen by 105 per cent. That is a direct reduction in the disposable income of the very poorest members of our society.

We need a fair progressive water tax, which should be applied across Scotland. The tax should exempt those with incomes less than £10,000 per annum. We should introduce a new average tax, which would be less than the current average water tax that is applied through the unfair water charging system. That is the inherent fault in the bill; that is why the general principles of the bill should be opposed.

The Executive has lacked imagination and social justice commitment because it has not reached out to change the charging mechanism to ensure that our water services are paid for in a fair and progressive manner.

Adam Ingram (Scottish National Party, South of Scotland)

Implicit in the creation of a single water authority is the desire that the new authority will be lean and mean enough to see off competition from the privatised English water companies. It remains to be seen whether public accountability will be more than a nominal feature of Scottish Water or whether the commercial imperative will win out when the ethos of the body corporate is established. Given the Administration's ideological distaste for public enterprise, I fear that the accountants will dominate. Perhaps we have got off to a bad start with the Minister for Environment and Rural Development.

I want to focus on how operational efficiency savings will be sought; their likely impact on the quality of service that is provided to customers by the work force; and the work force's terms and conditions of employment. Let us look at the scale of the job losses that the amalgamation of the three authorities will visit on the industry. In his evidence to the Transport and the Environment Committee, the Minister for Environment and Rural Development suggested that around 1,000 jobs—one in six of the current work force—will go. That figure, which is bad enough in terms of the loss of skills and expertise, is likely to be a significant underestimate. Unison suggests that 2,000 is likely to be nearer the mark. For confirmation, we need look no further than the experience in England and Wales, where the work force has fallen by a third since privatisation.

The consequences of such work force losses on other public utilities have had a severe impact on work force capability and on the quality of service that is provided to customers. Railtrack is but one example. The problem is not only that deskilling takes place—bad as that is—but that there is an inevitable erosion of health and safety performance that affects both the work force and the public. Clearly, the major public health concern is what would happen if an accident or other incident were to cause contamination in the water supply. When that happens, the whole system must be shut off and cleaned up. Taking out a third of the work force means that such incidents will be dealt with less effectively and will result in serious disruption. The evidence to the committee made it clear that local knowledge and experience are vital to sorting out problems. We have a hotch-potch of sewers and pipes. In a water quality crisis, local operational staff who know the systems and know what they are doing are vital.

The drive towards multifunctional roles, which goes hand in hand with staff reduction, will also have an adverse impact on public health. Someone who is in a sewer in the morning should not use the same clothing and kit in the water system in the afternoon. At the moment, there tends to be a demarcation between water and sewerage to prevent the incidence of cross-contamination. A logical consequence of a significant reduction in staff and the adoption of multifunctional jobs is an increased risk to public safety and a rise in the number of boil water notices. I hope that the minister will address that in his summing-up.

Furthermore, I hope that the minister will acknowledge that such problems will be compounded many times over if, as is likely, outsourcing becomes a significant feature of the industry when the commercial imperative takes over. It is a matter of concern that, in the past year, the four fatalities in the industry in Scotland have all involved staff of private contractors.

Not only workers' health and safety but their employment rights will be put at risk because of privatisation and increased outsourcing. Although I welcome the minister's commitment to protect pension rights, I hope that he will confirm that workers who are transferred from the three water authorities will have their terms and conditions guaranteed, even if they are transferred on again to private contractors. Will he also acknowledge the need for the regulator to take into account the effect that any decision will have on the work force? That would be a welcome departure from regulatory regimes elsewhere.

Finally, I hope that the minister will take on board Unison's proposal for a comprehensive staff order in addition to section 23.

Johann Lamont (Labour, Glasgow Pollok)

I welcome the opportunity to participate in a debate on these important issues. At the outset, I should declare an interest, as I am supported in my Glasgow Pollok constituency by the Scottish Co-operative Party.

The debate is important because of the history of the water industry and the historical willingness to invest in the health of ordinary people. There is a clear public commitment to access to clean water and the Strathclyde referendum against privatisation, which has been mentioned, still lives on in our memories and, indeed, in the memory of the Scottish people as a whole.

The issue is of great interest to the Co-operative group of MSPs and, more broadly, to the Co-operative movement. It is part of our role to take every opportunity to promote the value and potential of co-operatives. I contend that this debate is one such opportunity.

I have time to make only a number of brief points. I should perhaps start with a health warning. As I did not sit on the Transport and the Environment Committee and am not au fait with all the technicalities, it would be the easiest thing in the world for someone else to trip me up. Perhaps we should just take that as read, and members can leave their clever interventions where they are.

There is a danger of being blinded by the science of economics, some of which is not science at all but just hostility to new models. Some experts' hostility to and prejudice against the co-operative model does not bear great intellectual scrutiny. We in the Co-operative movement believe that there is an opportunity in the water industry to provide a community mutual model and that more work should be done to explore that possibility.

We must also explore some of the myths about co-operatives and mutuals. Some people think that co-operatives are for woolly thinkers and the woolly-hatted. In fact, if we examine our economy, that is far from the case. The concept should be given more respect than that. There is a contention that co-operatives and mutuals are not efficient. For example, the Tories would have us believe that only a profit motive can drive efficiency. We need to challenge such a belief, because there are good examples across Scotland and beyond of highly efficient co-operative and mutual businesses.

John Scott (Conservative, Ayr)

I refer Johann Lamont to my entry in the register of members' interests. I am a founder member of three co-operatives in Scotland and am quite a supporter of the Co-operative movement. Nevertheless, I do not feel that the co-operative and mutual model, as discussed in the committee, is appropriate to the development of Scottish Water.

Johann Lamont (Labour, Glasgow Pollok)

That is a separate argument. People have dismissed the mutual model on the ground that it is not efficient, although I accept that Mr Scott has not argued that case.

Co-operative and mutual businesses are able to focus on delivering services on a rational basis. There has already been discussion about the privatised water companies down south. The reality is that, in their search for profits, some of those companies have sought high-risk investment in far eastern hotel chains and indeed want to divest themselves of delivering water services because they are not making a suitable profit on them.

It has also been argued that the co-operative and mutual option is not really public. It is clearly not for profit and there are good examples of democratic structures that can ensure local community involvement through democratically elected boards. I can develop that argument if members so wish.

Some argue that the co-operative option is developed only at a time of crisis. I seek assurances that the bill does not rule out developing the model for the future. It would be wise to carry out the work now, when we are not facing a crisis, to allow us to consider all the possibilities. We are keen for the co-operative model to be explored further through a feasibility study in which we would be afforded the opportunity to advance arguments about the model's efficiency and credibility and the capacity to borrow to invest at a highly competitive rate. Such a study should challenge prejudices about the model instead of allowing them to continue. As a minimum, I seek the minister's acknowledgement that the model has not been dismissed out of hand.

We must be honest about the legitimate anxieties concerning the future of the water industry. There are no easy answers. There is an issue about the impact of the Competition Act 1985 and we should examine the possibility of exemptions from that act instead of simply accepting it as a given. That said, I recognise that competition already exists in the water industry and that issue must be addressed. Although I believe that the Executive has a real desire to maintain water in the public sector, there is a genuine fear that that desire will be undermined in reality and that there will be privatisation by the back door, not because the Executive seeks it, but because of the rigours of the Competition Act 1985.

Finally, we need to recognise that the cost of any increased investment will be borne by consumers. There is a fear that a disproportionate amount of the cost will be borne by domestic consumers and, bearing in mind Tommy Sheridan's point, I think that we must consider exempting the very poorest in our communities from charges. If charges are to increase, they will do so disproportionately for those who can least afford them. We must use the Scottish Parliament's own powers to address the issue, instead of focusing on income tax, which is dealt with elsewhere. What can we do in this bill to exempt those least able to afford the increased charges in the same way that we have exempted people from the council tax?

Alex Johnstone (Conservative, North East Scotland)

I emphasise that the Scottish Conservatives welcome and support the bill's general principles, albeit with the reservations that John Scott set out earlier. Furthermore, I welcome the fact that the—

George Lyon (Liberal Democrat, Argyll and Bute)

Will the member give way?

Alex Johnstone (Conservative, North East Scotland)

No.

I welcome the fact that the headquarters of the new water authority will be sited in Dunfermline. I strongly support the principle that civil service jobs should be located outside Edinburgh, especially when a new body is established. I hope that many more Government jobs will be dispersed in the months and years to come.

The previous Conservative Government moved water away from local authority responsibility and established the current three Scottish water authorities. Perhaps at the time we should have gone all the way and created a single authority, but that was deemed a step too far.

The three authorities have not been an unqualified success. Like other members who represent the North of Scotland Water Authority area, I have received many complaints from businesses and individuals about the rise in charges over the past four years. The increases have been huge. Even since 1999, NOSWA's charges have more than doubled; for example, for a band D property, the charge was £170 in 1998-99 and £351 this year. Although the charges are bad in the rest of Scotland—where the average is £295—they are particularly bad in the north of Scotland. The increases have been especially damaging for people such as the low paid and pensioners, who can least afford to pay, and they have had a crippling effect on small businesses.

The creation of the new body will mean that costs are harmonised across Scotland in due course. However, although that is good news for the north of Scotland, it is not such good news for the east and west. It is expected that domestic charges in the east and west will increase by 25 per cent in real terms over the period, while they will remain much the same in the north.

Bristow Muldoon (Labour, Livingston)

Will the member give way?

Alex Johnstone (Conservative, North East Scotland)

No.

We can make an interesting contrast with the water industry in England. We were told that, when water in England was privatised, charges would rise, investment would fall and services would deteriorate. The opposite has happened. In particular, costs to the customer are considerably lower than in Scotland. In England, the average bill for an equivalent band D property is £232 rather than £295 in Scotland. The simple fact is that the involvement of the private sector is good news for the consumer.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Will the member give way?

Alex Johnstone (Conservative, North East Scotland)

No.

Richard Lochhead (Scottish National Party, North East Scotland)

Will the member give way?

Alex Johnstone (Conservative, North East Scotland)

No, thank you.

The bill allows for a measure of increased competition, which is welcome. Competition is the way in which to keep costs down in future. Monopoly suppliers, such as the existing authorities, have no incentive to reduce costs or to increase efficiency. Only by introducing more competition will we be able to ensure that costs do not continue to spiral upwards.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Before Alex Johnstone gets into his final minute, will he give way?

Alex Johnstone (Conservative, North East Scotland)

I am well into my last minute.

We remember all the scare stories from the assembled sirens of the left in the 1980s and 1990s, who suggested that the privatisation of utilities would bring additional costs, that services would collapse and that people in remote areas would be deprived of access to networks. None of those things has happened. Let us consider the experience in the privatisation of telecommunications, gas and electricity.

Tommy Sheridan (SSP, Glasgow)

Disaster.

Alex Johnstone (Conservative, North East Scotland)

Following the liberalisation of the marketplace, prices to the consumer fell in real terms. That should happen with water charges, too, and the bill represents a small step in the right direction.

The Executive could and should have been bolder in bringing in more private sector investment, more public-private partnerships and more competition. Nevertheless, the Tories welcome the limited movement that will be made in that direction under the bill.

Tavish Scott (Liberal Democrat, Shetland Islands)

At least one member applauded Alex Johnstone's speech. However, I do not blame Mr Sheridan for shouting at him, because he was not going to give way. That is as bad as it gets in the modern Conservative party.

Like other colleagues, I welcome the principles of the bill, especially the fact that Scotland's water industry will remain a public asset—that is an important principle, which Liberal Democrat members support. I concur with the minister's opening remarks on the equalisation of charges, which have been reflected in the remarks of members who represent constituencies in the NOSWA area. We have received an unprecedented number of representations about the increases of the past few years and the minister's confirmation that charges would have risen by a further 34 per cent over the next three years had the new structure not been put in place is helpful.

Nonetheless, I take the points that several members have made about people on low pay, who have difficulty in paying bills, including water bills. Those are important points, which I hope the Executive will address in the manner of a truly cross-cutting Government.

I appreciated Nora Radcliffe's measured arguments on the issues concerning charitable organisations. I believe that the Executive, across ministries, has to consider ways in which those issues can be addressed. I hope that the minister will be able to tell us in his winding-up speech that discussions are continuing across departments to find ways in which those important issues can be progressed.

I agree with Andrew Wilson on one point—and one point alone—which is that, over many years, there has been a significant lack of investment of major capital in the infrastructure of the water industry. That must be put right. We have no alternative. The bill presents the best route for meeting the objectives of providing the safest and healthiest water for domestic customers and businesses for a variety of uses. Without the merged authority, my constituents would face significant increases in costs over time. The bill must be supported by all parties. I am not a natural supporter of mergers. I do not agree with the suggestion that they always create efficiencies. Central organisations have many disadvantages as well as the advantages that can be gained through economies of scale. However, I recognise the advantage of having a centralised billing service. It does not matter whether someone lives in Shetland or Stranraer; the billing service must be efficient. I presume that such a service can be delivered.

Tommy Sheridan (SSP, Glasgow)

On the billing system and the fairness of charging, does Tavish Scott agree that the Executive should consider the feasibility of applying a water tax so that charges can be applied progressively?

Tavish Scott (Liberal Democrat, Shetland Islands)

I do not think that the Scottish Executive has the power to impose a water tax. However, I accept that we need to consider ways in which we can better target assistance to those who are low paid and living on benefits. I believe that that is the premise behind Mr Sheridan's question.

On the engineering service, I make the obvious constituency point that there is no point in flying up teams of engineers from Edinburgh or Glasgow to Shetland at vast cost to the new water authority. I believe—and I shall pursue the issue at stage 2—that engineering functions should be devolved to local areas where there is local expertise. I am talking not just about the fix-it side of engineering, but about the strategic direction of those functions. I believe that an essential local service can be delivered efficiently for local areas.

Finally, I hope that the ministerial team will be open to questions about the best balance of the customer panels in relation to the geographical areas that they cover. For example, NOSWA is as distant from Shetland as the new water authority will be. That problem can be overcome by having a local customer panel in the islands and Shetland, which could cover the issues and reflect the views of commercial and domestic customers on investment in and maintenance of the service. I believe that all members should support the principles of the bill.

Richard Lochhead (Scottish National Party, North East Scotland)

As the debate is about massive change in the water industry, which we are told will influence the charges that people have to pay, I am surprised that the issue of affordability has not been given a higher profile this morning. Just as the safety of the water service and the security and quality of the supply are guiding principles, so is affordability, which must be at the heart of where we take the water industry. For a Government that says time and again that social justice is a priority, it has a strange way of delivering it. The whole point of retaining public ownership of the water industry is to help the Government and the Parliament to achieve their social objectives. However, over the past couple of years, we have had to drag ministers' attention to the affordability issue.

Just after the Parliament was established, I tried to get ministers to consider the impact of high water charges on low-income families. Eventually, after months of campaigning by anti-poverty groups and MSPs from all parties, we got a consultation paper. Several months later—last year, which was two years into the Parliament—we finally had an announcement that there would be a scheme to help low-income families. The scheme has been attacked because it is simply not good enough. It will provide £24 million over three years but will fail to target the people who are most in need. I make a plea to the minister to introduce a better scheme.

Not only MSPs but anti-poverty groups the length and breadth of Scotland are complaining. The Scottish Local Government Forum Against Poverty's most recent annual report states that many of the councils that are run by the coalition parties are saying that

"the Executive's proposals have failed to address the problem."

The proposals do not benefit those most in need of assistance and fly in the face of the Scottish Executive's much-acclaimed commitment to social justice. We need a

"long term scheme of assistance, which targets all low income households where there is a serious problem of affordability".

Tommy Sheridan (SSP, Glasgow)

Does the member agree that ministers should also read COSLA's report, which says that a million of the poorest households in Scotland have been excluded from the exemption scheme? Does he agree that it is worth considering the feasibility of applying a progressive water tax, which would be within the powers under the Scotland Act 1998 because the Parliament is responsible for water charges?

Richard Lochhead (Scottish National Party, North East Scotland)

I am happy to agree with Mr Sheridan on his first point. Many reports highlight the fact that, under the coalition Government, inequality in Scotland has grown thanks to things such as the increase in water charges in recent years.

We have heard time and again about the impact that high charges and the removal of the water rates relief will have on the voluntary sector. How can the Government say that it wants to deliver social justice when it is pulling the rug from beneath the feet of the many organisations and volunteers who are trying to deliver social justice?

Nora Radcliffe (Liberal Democrat, Gordon)

Does the member accept that we are arguing not that the water rates relief should be removed entirely but that it should be moved to a different budget? It should still be paid.

Richard Lochhead (Scottish National Party, North East Scotland)

People—including, I hope, Nora Radcliffe—are calling for the bill to retain the principle that special assistance be given to charities and voluntary organisations the length and breadth of Scotland and that those bodies continue to have water rates relief. I am sure that the voluntary organisations do not mind whether the money comes from the social justice budget or any other budget; they want the principle to be retained in the bill. There is cross-party support for that.

Church halls, village halls and all sorts of charities will be affected. We hear that hospices will have to lay off nurses because they will be unable to pay their bills if the water rates relief is removed. If the relief is removed, Capability Scotland's bills will rise from £14,000 to £90,000, Abbeyfield Scotland, which runs sheltered houses and residential care homes, will lose the equivalent of the wages of 22 people and Voluntary Service Aberdeen's bills will rise from £9,000 to £87,000—a 900 per cent increase.

Accountability and democracy in the water industry in Scotland are important. While the Government has made life particularly difficult for the voluntary organisations and low-income households, it has made life particularly cosy for people such as Colin Rennie, the chairman of NOSWA. Colin Rennie was appointed to the water authority in 1998 by virtue of being a Labour councillor. Despite being deselected by the local Labour party in Dundee within weeks of being appointed, he remains in post. By the time his four years' tenure is up, he will have been paid £150,000 in packages, which will all have been funded by the bills that consumers pay. As he works only one and a half days a week, that amounts to £500 a day, which means that it takes two consumers to pay his daily wage. That is not democracy and it has to be stopped. I ask the minister to put the needs of voluntary organisations and low-income households first and the needs of cronyism and people such as Colin Rennie last.

Maureen Macmillan (Labour, Highlands and Islands)

It is difficult to find any new issues to raise at this point in the debate, but I hope to be able to reinforce some points that others have made. Before I go any further, however, I must say that Mr Lochhead made a disgraceful attack on Colin Rennie.

Richard Lochhead (Scottish National Party, North East Scotland)

Will the member give way?

Maureen Macmillan (Labour, Highlands and Islands)

No, I will not. I have only just started my speech and I ask Mr Lochhead to sit down—he has said quite enough.

Whatever some Opposition parties might suggest, we are not privatising Scottish water by the back door or in any other way. We are creating a public sector corporation that will be accountable to the Scottish Parliament and will be strong enough and efficient enough to hold its own against any private water company that might offer water and sewerage services in Scotland. Further legislation will ensure a level playing field and will prevent the private cherry-picking of lucrative and easily delivered contracts. Competition cannot be stopped as Bruce Crawford suggested that it could be. It is here already and we must face up to it.

The bill shows our commitment to and faith in the public sector. We believe that a public sector corporation can be competitive, efficient, accountable, responsive to its customers and environmentally responsible. Various concerns were raised in the committee on this topic. The fact that Welsh Water has contracted out its service provision to private companies was raised by Bruce Crawford, who appears to have latched on to a minority view that was presented in evidence to the committee but that was not backed up by our adviser. I am content with the explanation provided by the Executive that, without the express consent of Parliament and a change in legislation, it would not be possible for Scottish Water to do what it has been alleged Welsh Water has done. Any lawyer on the SNP benches will tell Mr Crawford that that does not need to be written into the bill in red capital letters. I do not believe that the Conservatives will ever be in a position to pass legislation in the Scottish Parliament. If they somehow manage to come to power in Holyrood, however, we will deserve all we get.

Concerns have been expressed about the proposed consultative committees that will be watchdogs for the consumer and will operate more at the grass roots than the commissioner will. Like Tavish Scott, I hope that the consultative committees will be able to deal with local concerns. However, we await detailed proposals from the minister on how they will be appointed and on the criteria for the appointments.

Members from all parties will be aware that Scottish Water is not inheriting a state-of-the-art infrastructure. Years of underinvestment have left us with a far from satisfactory inheritance. There are particular problems in the Highlands and Islands, which I represent, caused by distance and rurality. It costs a great deal of money to deliver to small rural communities the water and sewerage services that other areas take for granted. I welcome the amalgamation of the three water authorities into one, as that spreads the cost of investment in deprived areas across the country, which is a good socialist principle. Even so, the cost of investment is substantial and will have to be met by customers over many years. Consequently, some households will face genuine difficulties in meeting increased charges and some charities and voluntary organisations will be seriously stretched by having to pay full charges. The public are willing to support charities, particularly local ones, even if that means that consumers must foot the bill.

The Scottish Executive has already announced measures to give relief to charities for one year, which is welcome. There is concern that the current definition of a charity encompasses organisations such as private schools or clinics that are, in fact, wealthy businesses in no need of support. The implementation of the McFadden report will deal with that problem in part, but I suspect that some of the remaining charities—national charities with large incomes, for example—will not find water charges too onerous. I therefore believe that the Scottish Executive should consider targeting relief at the small local charities that will find it difficult to absorb water rates. The income of local churches or voluntary groups is vastly different from the income of large charities that have a large support base. The Federation of Small Businesses suggested to the committee that such a distinction should be made and I welcome the minister's indication that the Executive will review the position.

The Scottish Executive has introduced measures to help those on low incomes. The transitional system is due to last for three years. The Executive should consider extending that period and should examine whether the system is as effective as we all want it to be. The system is not reaching all deserving cases and I would be grateful if the minister could give his assessment of how it is working. Section 37 of the bill leaves the door open for targeted relief and I urge the minister to consider how that might be taken forward to a just solution.

The bill is important and proposes significant changes. I hope that the inevitable job losses will be managed with a minimum of hurt and will not be so severe as to affect service delivery. The service received by consumers and the environmental standards to which we are committed will, after all, be delivered by people. The water boards have been significant employers in rural Scotland and I hope that that will continue. I hope that the Executive will address my concerns. I support the bill.

Lloyd Quinan (Scottish National Party, West of Scotland)

Like all SNP members, I welcome the principles of the bill. However, the Scottish Trades Union Congress, Unison and a number of other organisations have raised clear concerns. Those concerns principally relate to the opportunity for an extension of democracy in the creation of the board of Scottish Water, which would obviously go a long way towards allaying people's fears about the perceived cronyism in boards and public bodies, where we find an astonishing number of ex-Labour councillors including Yvonne Allan, Colin Rennie, Robert Cairns, David Hamilton, Thomas Dair, David Munn and, an old friend of mine from the Glasgow Trades Council, Jane McKay, who is an adherent of the Labour party.

Obviously, the change in the structure of the board might go some way towards removing those accusations of cronyism, but paragraph 2 of schedule 3, which deals with membership of the board of Scottish Water, says:

"The non-executive members are to be appointed by the Scottish Ministers from amongst persons who appear to them to have knowledge or experience relevant to the functions of Scottish Water."

I hope that that appearance of knowledge and experience will not result in a repetition of the events surrounding the appointment of the director of VisitScotland, who clearly appeared to ministers to have the knowledge and experience to take on that job but who, unfortunately, had to be removed from that position rather quickly.

In the past, local authority councillors served on the boards of the water authorities. It is essential that we maintain that link between local authorities and board membership. The SNP plea is that the local authority councillors who will serve on the board be approved by the Parliament rather than by Labour or Liberal Democrat ministers. Indeed, our plea is that all non-executive directors of the board be approved by Parliament in accordance with the principles of Alex Neil's Public Appointments (Parliamentary Approval) (Scotland) Bill.

The Water Industry (Scotland) Bill makes no reference to worker participation or trade union involvement in the board. The STUC and the GMB are totally hostile to the proposals. Is that why we do not have an opportunity for the involvement of workers in our new democracy in Scotland?

The key issue in what the SNP has been saying throughout the debate is that it would be simple to introduce into the bill a requirement for primary legislation if the board should wish to change the nature of Scottish Water's operation. That would remove any of what Bristow Muldoon referred to as scaremongering; it would remove people's fears and allay their doubts. I do not understand why it cannot be done. I do not understand why the Executive does not understand that, if it does not do that, the fears and concerns—much like those about housing stock transfer—will continue and an air of the likely privatisation of Scottish Water will always hang over the bill. A simple and straightforward move would allay all those fears and guarantee full support from all parties in the Parliament.

I was disappointed to hear the minister's negative response to the request made by my good friend Bruce Crawford for an employment guardian to be appointed to ensure that the transition to a single authority will not be marred by unfairness or mistreatment of employees. We would inspire far more confidence among the water industry work force if we took its concerns as outlined in the STUC's submission to the Transport and the Environment Committee more seriously. The minister could do worse than to implement the Equal Opportunities Committee's recommendation to appoint an employment guardian and get workers properly involved.

George Reid (Scottish National Party, Mid Scotland and Fife)

Mr Harper, only a couple of minutes remain. They are yours if you want them.

Robin Harper (Green, Lothians)

From the outset of the Transport and the Environment Committee's consideration of the bill and as we have conducted our inquiries, my perception has been that the purpose of the bill—if it has one underlying purpose—is to create a public sector water industry that is robust enough to fight off any attempt at creeping privatisation. I assure the Executive and other members that I will resist any attempt from the Conservatives to weaken the bill in that respect at stage 2.

The Transport and the Environment Committee recommended that there should be more non-executive directors on the board of the new single water authority. I urge that those directors be elected representatives from local councils. Although I welcome the idea of customer consultation panels, nominations for membership should be announced publicly so that, if necessary, people can formally register objections to candidates before they are appointed.

We would like the water debt to be written off. Plenty of arguments have been made in support of that. I have a great deal of sympathy with what Tommy Sheridan said. I plead with the Executive to listen, as Johann Lamont said, to any new sensible suggestions and review the other suggestions that have been made on relief to the poorest people in our society and to voluntary organisations. That is the end of my two minutes.

George Reid (Scottish National Party, Mid Scotland and Fife)

A time has been fixed for a ministerial statement to be given at 12.00. If closing speakers can trim their remarks, that would be helpful.

George Lyon (Liberal Democrat, Argyll and Bute)

I will try my best to trim my remarks. I add my support for the principles of the Water Industry (Scotland) Bill.

With the Competition Act 1998's coming into force and allowing commercial companies to seek cheaper water and sewerage services from private sector suppliers, it was clear that the Government had some stark choices to make. To do nothing was not an option and the economic realities of the water industry mean that current structures are unsustainable in the longer term because of competitive pressures.

Members should consider some of the competitive pressures that the three Scottish water companies currently face. On price, compared with some of the privatised English water companies, the efficiency gap is somewhere between 25 per cent and 35 per cent in favour of English companies. We cannot expect the Scottish public to continue to pay for those inefficiencies through increasing water rates. I believe—most people would agree—that that is an unrealistic proposition.

Another significant pressure is that in England the water companies draw 70 per cent of their revenues from domestic customers and only 30 per cent from commercial companies. The balance is nearer 50:50 in Scotland. It will place a huge financial burden on domestic customers if big industrial customers start switching to cheaper suppliers of water and sewerage services.

Tommy Sheridan (SSP, Glasgow)

Does George Lyon accept that the proportion is now clearly skewed away from the 50:50 ratio and that almost double the amount of revenue is now raised from domestic customers than is raised from non-domestic customers?

George Lyon (Liberal Democrat, Argyll and Bute)

The figures that I quoted were from Professor Alan Alexander, who probably has some knowledge of the issue.

Clearly, if big industrial customers in Scotland start switching to alternative suppliers, an even greater financial burden will be placed on domestic consumers and water rates will rise. That would mean continually rising domestic water bills for Scots, as commercial users go elsewhere.

Another major factor is that the Scottish water companies face a capital investment programme of up to £15 billion over the next five years. Prices to consumers must rise to fund that investment. That comes at a time when the privatised companies south of the border have completed many of their capital programmes and are expected to be able to begin to reduce prices to consumers. Under such severe competitive pressures, the Government clearly needed to take action if it was to retain a publicly owned water company that could meet head on those competitive pressures. To do nothing would have spelled the end of the three publicly owned water companies.

Richard Lochhead (Scottish National Party, North East Scotland)

The member mentioned that the Government faced several options in the face of competition. One option that he did not mention was exemption from the Competition Act 1998. Why does not his party support that?

George Lyon (Liberal Democrat, Argyll and Bute)

I will come to that point near the end of my speech.

It is clear what the Government's aims are in creating a single water company and giving it much wider commercial powers. It wants to create a publicly owned water company that can close the efficiency gap between the English privatised water companies and itself and that can head off the threat to domestic consumers of the competition cherry-picking its commercial customer base. It also wants to create a publicly owned water company that can meet the challenge in the next five years of investing £15 billion to redress 50 years of neglect of our water and sewerage infrastructure while minimising price rises to the consumers. Those are surely the objectives of the bill and I am sure that we all support them.

Bruce Crawford of the SNP argued—as have many of his colleagues—that the bill that will create Scottish Water will lead to back-door privatisation. Nothing could be further from the truth. If SNP members believe that, they should have the courage to stand up to oppose the basic principles of the bill. If the SNP believes that the bill is a slippery slope to back-door privatisation, why on earth does not it oppose the bill?

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Will the member give way?

George Reid (Scottish National Party, Mid Scotland and Fife)

The member is in the last minute of his speech, I am afraid.

George Lyon (Liberal Democrat, Argyll and Bute)

We have heard some confusing messages about finance from the SNP.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Will the member give way?

George Lyon (Liberal Democrat, Argyll and Bute)

I ask Mr Crawford to sit down.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

Mr Lyon is a feartie.

George Reid (Scottish National Party, Mid Scotland and Fife)

Mr Crawford, the member is in the last minute of his speech.

George Lyon (Liberal Democrat, Argyll and Bute)

The SNP's answer to the debt issue seems to be to get on its hands and knees to beg from Westminster. What kind of position is that for a so-called nationalist party to adopt—begging Uncle Gordon to bail it out? In an independent Scotland, Uncle Gordon would not exist to be able to bail it out.

On competition, perhaps the closing speaker for the SNP will clarify whether the SNP is committed to allowing consumers in Scotland the benefits of competition—which I hope will lead to lower water prices—or whether it is committed to exempting Scotland from the Competition Act 1998. An answer to those questions might be useful in the SNP's summing up.

By creating a publicly owned company with the scale and efficiency to meet the competition head on, the Scottish Executive is guaranteeing that the water industry will remain in public ownership. The Liberal Democrats will certainly support that.

David Davidson (Conservative, North East Scotland)

We have had an amazing morning, with the shadow minister for sewerage telling us about all the new SNP policies and its new stance on how it will fund things. The phrase "no blank cheque" was the classic of the morning. That was followed by a phrase on which George Lyon commented ably—"Well, we must go to Westminster." Obviously the union must still be working for some SNP members.

I am concerned about another matter, on which the SNP did not answer my earlier question. Why does the SNP fear efficiency and competition if that will result in better public service? Does the SNP still believe that only nationalised industries are any good? Would the SNP nationalise all the utilities? Will that be in its next manifesto?

Tommy Sheridan (SSP, Glasgow)

Hear, hear.

David Davidson (Conservative, North East Scotland)

Well, at least Mr Sheridan is honest— [Interruption.]

George Reid (Scottish National Party, Mid Scotland and Fife)

Order.

David Davidson (Conservative, North East Scotland)

Thank you, Mr Reid.

I also recall that for the past two and half years I have asked the present minister and his predecessors to investigate and review the funding formula for the water industry. Many speakers in today's debate have talked about there being too short a payback period for capital investment for the consumer. In the real world in which there is equity finance and cheap market finance, such debt can be spread, which makes it affordable. I welcome the SNP's support for that, which it denied me when I asked for it previously in the chamber. I think that Mr Crawford was involved in that debate.

I turn now to the minister, because he is leading on the matter today. He made some interesting points about governance and I hope that he paid attention to the comments that my colleague John Scott made. The role of non-executive director, which I have held in several companies, is very important. The most effective companies are those in which non-executive directors can outvote the executive and hold it to account, as we are supposed to do with the Executive in the chamber.

A question about board members of the new company has not been answered. In considering board members' roles and duties, little comment has been made about selection criteria. I do not mean only in relation to who will pick board members, but in relation to what they will need to be able to demonstrate and who will ultimately make decisions. I am concerned that the minister might retain that responsibility. There is a need for other bodies—independent of Government—to give fair analyses of what board members' roles should be and how they will be selected.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

I think that we share the same view of the appointments process. Do you agree, therefore, to go the whole way and accept that the appointments process as outlined in Alex Neil's Public Appointments (Parliamentary Approval) (Scotland) Bill would be an appropriate route for the Parliament to follow and that the minister should go down that route?

David Davidson (Conservative, North East Scotland)

To be perfectly fair, I have not read all the fine print. I left one of my colleagues to deal with that matter, but I will have a look at it.

John Scott raised an interesting point about the role and powers of the panels. That needs to be clarified and I hope that the minister will produce early recommendations on that.

The minister also talked about the importance of commercial activity. If such activity is important, why will not the Executive unfetter the board and let it have the tools that it needs to compete? Everybody, even Mr Sheridan, recognises that there will be competition. One cannot ignore that—it will come. We must, if Scottish Water is to be effective, ensure that the board of the company or corporation can do what it must to be a commercial success. The public interest will always be represented by the various commissions and so on.

On Des McNulty's comments, he seems to have forgotten that most of the regional councils in Scotland were run by the Labour party, which was given the money, ability and control to run the water services. Des McNulty—I am sorry that he is not here—might want to go away and take a little look at the history book. I was also a bit confused by his comments about the relevance of some of the words in the bill.

I mentioned Mr Sheridan's comment about competition, but will we have a water industry that is able to operate as freely as other utilities operate in the market? There has been no suggestion, apart from Mr Sheridan's, that everything should be renationalised. Surely the issue is to get the bill sorted out by the committees in good time. The Conservative party will produce recommendations to ensure that we accept the principles that lie behind the bill and that those principles are turned into a model for the behaviour of and control by the new authority.

That authority will have the freedom to operate commercially in the interests of Scottish people.

Fiona McLeod (Scottish National Party, West of Scotland)

We are debating the general principles of the Water Industry (Scotland) Bill. The SNP accepts the general principles of the bill, but at stage 2 we will lodge amendments to ensure that the bill creates in Scottish Water a public body that will remain a public body.

Several issues have come out of the stage 1 report and today's debate that are concerns not just for the Parliament, but for the wider public, who have made representations to us. One of the major issues has been section 25 and the ability of Scottish Water to set up private companies. No matter what assurances we have been given, section 25 opens to the door to turning Scottish Water into a private company. Section 25 relates to the Companies Act 1985, section 3(1)(f) of which provides for Scottish Water to be able to turn itself into

"an unlimited company having share capital".

That is a privatised industry.

Ministerial direction is not a sufficient "safeguard" or "guarantee". I use those words advisedly, because they were used by Labour members Des McNulty and Johann Lamont. I must ask the minister why, if there is an act that states that

"There shall be a Scottish Parliament",

the Water Industry (Scotland) Bill should not say "There shall not be a Scottish Water plc"?

Ross Finnie (Liberal Democrat, West of Scotland)

There is no equation with

"There shall be a Scottish Parliament",

because section 20 of the Water Industry (Scotland) Bill says:

"There is established a body corporate to be known as Scottish Water".

Fiona McLeod (Scottish National Party, West of Scotland)

I will reply with a quote from section 3(1)(f) of the Companies Act 1985, which provides for Scottish Water to turn itself into

"an unlimited company having share capital".

Why cannot we include in the bill a statement that Scottish Water will be a public authority? That is what Unison is asking for. I take the minister back to the Strathclyde referendum, when 97 per cent of the people of Strathclyde said clearly that the water authority must remain a public body.

Another area of the bill that we must consider more carefully at stage 2 is debt and charges. We have heard about the £1.9 billion debt that Scottish Water will carry over. Why cannot we have the green dowry for our £1.9 billion of debt that the English authority had for its £9 billion debt? A £700 million commutation a few years ago is not the same as getting rid of £1.9 billion of debt. The point of carrying the debt is that the Treasury wins and customers end up paying higher charges. Getting rid of the debt is about ensuring that everyone pays as little as possible.

I turn to relief for voluntary organisations. Ross Finnie did not just prevaricate in his replies to some interventions, but tended towards obfuscation. At the end of one of the minister's replies I was unsure whether he was saying that under section 37 of the bill the Executive would ensure reduced charges or relief for voluntary organisations. We have heard from the Scottish Council for Voluntary Organisations, the churches and Women's Aid, and members have given examples of how crippling to charities in Scotland will be the loss of relief. If the minister believes in the compact with the voluntary sector and in social justice, he must tell us that there will be relief for charities in Scotland.

Jobs is another area of concern. We could lose one sixth to one third of the work force. Adam Ingram gave clear evidence of the catastrophic effect that such huge losses would have on the industry. We want Scottish Water to be an industry that is fit for the 21st century. We do not want it to be stripped of skills and jobs, as Railtrack and Transco were. The same thing happened to Welsh Water, which went in a matter of years from having 1,000 employees to having 100 employees.

Democracy is one of the other elements about which the SNP and the general public are greatly concerned. Scottish Water will be the biggest quango in Scotland and we must ensure that all appointments to the non-executive board and the appointments of convener of the customer panels and the water industry commissioner are approved by the Parliament. The appointments must not be made as the gifts of a minister to the largest quango in Scotland.

I wish to speak briefly about sustainable development.

George Reid (Scottish National Party, Mid Scotland and Fife)

You have one minute left.

Fiona McLeod (Scottish National Party, West of Scotland)

I hope that we will lose section 47(5) of the bill. We need sustainable development to be at the heart of Scottish Water and we cannot have a get-out clause, so let us get rid of that section. The SNP demands that there be no get-outs in the Water Industry (Scotland) Bill. There must be no get-outs on privatisation, on job security, on loss of rates relief to charities, on ensuring democracy of the new board or on debt write-off. The SNP demands that Scottish Water be a public trust for the Scottish people for the 21st century.

George Reid (Scottish National Party, Mid Scotland and Fife)

I call on Allan Wilson to respond for the Scottish Executive. You should be finished by 12 noon, minister.

Allan Wilson (Labour, Cunninghame North)

In returning to the environment portfolio from sport, the arts and culture, and in getting to grips with the detail of the water industry in the past few days, I have been struck by the amount of work that has been done by members of the Transport and the Environment Committee, and by their warm endorsement in the stage 1 report. That rightly reflects what I believe to be genuine enthusiasm for the way in which the bill will serve Scottish customers—after all, we are all here to serve the Scottish people.

I will come to some individual issues shortly, but I will clearly have insufficient time to deal with all the matters that have been raised in the debate. It is worth putting on record again the purpose of the proposed legislation and what we hope it will achieve. The case for Scottish Water can be summed up in one word: efficiency. A single water authority will be able to achieve greater efficiency savings than the existing three authorities could manage on their own. For customers, that greater efficiency will mean lower charge increases.

As Ross Finnie said, the figures are dramatic. Tavish Scott reminded members and I remind them now that, according to the water industry commissioner, without Scottish Water the average Scottish water bill would rise by between 36 per cent and 46 per cent over the next four years, depending on where in the country one lives. With the establishment of Scottish Water, bills will rise by only 20 per cent.

Alex Johnstone sought to make comparisons with England and Wales. In so doing, he was trying to extol the virtues of a privatised service, which we obviously reject. Alex Johnstone got his facts wrong; the average Scottish charge this year is £228.82, compared to the English and Welsh average of £233. Even in that simple test, the contention that privatised service is more efficient is, to be frank, wrong.

I wish to deal also with a fantasy that has again been promoted by the SNP. That is the fantasy that somehow Scottish customers were financially disadvantaged compared to English customers at the time of the commutation of debt, to which reference has been made. The water industry commissioner has shown that Scottish customers did relatively well out of the £700 million debt commutation for Scottish Water. As Ross Finnie explained, the benefit to the customer of writing off the English-Welsh debt was £50 and the benefit to the customer of the Scottish commutation was £300, which is a sixfold advantage.

Richard Lochhead (Scottish National Party, North East Scotland)

When will the minister start standing up for Scotland's consumers, instead of defending a decision that was made by the Tory Government several years ago?

Allan Wilson (Labour, Cunninghame North)

I thought that I was standing up for Scotland's consumers, but perhaps I missed something. Richard Lochhead's interventions are getting increasingly obtuse.

Tommy Sheridan (SSP, Glasgow)

The minister heard my comments about progressively applied water tax. It is my understanding that, under the Scotland Act 1998, we would be able to apply such a tax because of the Parliament's responsibility for raising water charges. Will the minister accept that that is at least worth investigating? It would allow a more progressive charge to be levied throughout Scotland?

Allan Wilson (Labour, Cunninghame North)

I have not seen Tommy Sheridan's proposed amendment, although I did see his press statement. I suspect that his reference to tax might be part of the problem which, as Tavish Scott pointed out, might have made his amendment ultra vires for the purposes of the debate. I agree with Tommy Sheridan that we should have a genuine debate on affordability. Debt write-off is part of that debate, but if by some miracle Gordon Brown gives us £2 billion tomorrow—in addition to the Scottish grant—the last thing that I would wish to do with £1 billion of it would be to write off Scottish Water debt. The principal beneficiaries of that would be corporate Scotland, not the lowest-paid water consumers. I am with Tommy Sheridan 100 per cent in seeking to do something for lower-paid water consumers.

Delivery of efficiency savings means that we must achieve the same objectives for less money. If that does not happen—if less is achieved or delivered—it is not efficiency, but cost cutting. We have set before Scottish Water the outputs that it must achieve, including improved drinking water quality and cleaner beaches. We require it to achieve those objectives with less charge income than the existing authorities would have had to do the same work.

Setting up Scottish Water does not mean compromising public health or environment protection standards. It means the opposite. It means that we must strengthen the Scottish water industry to ensure that standards will rise dramatically over the next four years, but at less cost to the customer than would otherwise have been the case.

Andrew Wilson (Scottish National Party, Central Scotland)

rose—

Allan Wilson (Labour, Cunninghame North)

May I move on? Andrew Wilson could perhaps come back in later.

Bristow Muldoon and others mentioned charitable reliefs. As Ross Finnie said, we acknowledge the strength of feeling about charitable reliefs, although we are mindful that we must keep that in the context of the Executive's record funding of the voluntary sector and its policy of targeting support for the sector according to the outputs that it achieves. We will, however, consider the suggestions that have been made. I understand why a continuation of the current transitional relief scheme might be viewed as attractive, but I do not share that view. It is important that charities are not left uncertain about their position. We must be clear about how those that are affected by this year's postponement, which was announced in May, plan to cope with the phased withdrawal of reliefs from next April.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

The minister has come to the crux of the matters that we have been raising all morning, which is the potential for the new organisation to move on and to become a privatised body, if ministers wanted that.

Section 25(3) says that Scottish Water will be able to

"form ... companies (within the meaning of the Companies Act 1985".

In what circumstances does the minister envisage that power being used?

Allan Wilson (Labour, Cunninghame North)

By definition, it takes—

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

In what circumstances?

Allan Wilson (Labour, Cunninghame North)

By definition— [Interruption.] I will return to that point, but perhaps I could conclude first on charitable reliefs, which are important to many people. We recognise that some difficulties might remain for small local charities that rely on public funding, which have been identified by the Transport and the Environment Committee. I undertake to consider further at stage 2 the scope for possible support for such organisations.

I come now to a point that Bruce Crawford raised. I know that he has expressed concern that the bill will result in back-door privatisation of Scottish Water, or that it will allow Scottish Water to diversify into other areas at the expense of its core functions and customers. I am happy to take this opportunity to restate what we have said all along: Scottish Water will be created by primary legislation and can be dissolved only by further primary legislation. It is being given its core functions through primary legislation and only further primary legislation can amend or remove those functions. There are two safeguards: first, the Scottish Executive has no intention whatever to privatise Scottish Water; secondly, such a move would require primary legislation.

Bruce Crawford (Scottish National Party, Mid Scotland and Fife)

rose—

George Reid (Scottish National Party, Mid Scotland and Fife)

The minister is in his last minute.

Allan Wilson (Labour, Cunninghame North)

If I am in my last minute, I say simply that I hope that I have made my response clear. I look forward to the SNP's stage 2 amendments on the matter. I assume that those amendments will say that this proposed primary legislation can be repealed only by further primary legislation that would replace the original primary legislation. How the SNP intends to square that circle I really do not know. I look forward to that with interest.

Concern has been expressed about staffing and I share that concern. I am probably the only person in the chamber who was around at the original restructuring of the water industry in the 1970s. I represented water workers during that process and I was also involved in restructuring in the 1990s. Here we are again, restructuring the industry to take account of the competitive environment in which it must operate for the next 100 years.

I do not underestimate the challenge of the move to Scottish Water that faces all who work in the industry, whose commitment will be crucial to the success of the venture. Scottish Water will recognise that commitment in its dealings with staff. The existing authorities have been running voluntary redundancy programmes and I do not pretend that further redundancies are avoidable. However, where they are necessary, they will be handled sympathetically and responsibly.

I have not, in the time that is available to me, been able to address every point that has been raised this morning. I will have the opportunity to return to many of those points with individual members and with the committee during stage 2.

I ask the Parliament to approve the general principles of the Water Industry (Scotland) Bill, in the knowledge that that will bring us closer to our aim of vesting Scottish Water on 1 April 2002 for the benefit of all its customers.

Water Industry (Scotland) Bill: Financial Resolution

George Reid (Scottish National Party, Mid Scotland and Fife)

The next item of business is consideration of the financial resolution in respect of the Water Industry (Scotland) Bill. I call Peter Peacock to move motion S1M-2522.

Motion moved,

That the Parliament for the purposes of any Act of the Scottish Parliament resulting from the Water Industry (Scotland) Bill, agrees to—

(a) the expenditure out of the Scottish Consolidated Fund of the expenses of the Scottish Ministers in consequence of the Act; and

(b) any charge imposed on, and any payment required to be made by, any person by or under the Act.— [Peter Peacock.]

Local Government Settlement 2002-03 and 2003-04

George Reid (Scottish National Party, Mid Scotland and Fife)

The next item of business is a statement by Andy Kerr, on the local government settlement 2002-03 and 2003-04. The minister will take questions at the end of his statement, so there should be no interventions.

Andy Kerr (Labour, East Kilbride)

Before I make my statement, I place on record my appreciation and, I hope, that of the chamber, for the work of Angus MacKay, the previous Minister for Finance and Local Government, who laid down solid foundations. I also wish to thank him personally for his assistance since I took up my portfolio.

The Labour and Liberal-Democrat Administration is committed to providing a sound and stable financial platform for local government. For the first time ever, we have announced guaranteed three-year revenue and capital allocations for each local authority in Scotland. In no other part of the United Kingdom do local authorities have the certainty of knowing their central government funding allocations three years in advance.

We have announced record levels of resources for local government, guaranteeing every local authority an above-inflation increase in revenue grant in each of the three years. Let me be clear about that: every local authority in Scotland is receiving a real-terms increase in grant support, not just for one year, or over three years, but for each of the three years of the current spending review. Those commitments are testament to the benefits of devolution and to the Administration's continuing partnership with and commitment to local government in Scotland.

In total, we have committed well over £1 billion in additional revenue grant support to local government over three years. We have also announced a 40 per cent increase in the allocations for local authority capital investment over three years. Those commitments are already bearing fruit, not just in additional local services and infrastructure, but in improved financial and service planning, laying the foundations for continued and sustained improvements in future years.

I am delighted, as Minister for Finance and Public Services, to announce today further substantial increases to the local government revenue grant support on top of the existing allocations for next year and the year after that. I will also confirm the transfer of resources out of ring-fenced programme grants into unhypothecated general grant provision and I will announce today the provisional national non-domestic rate poundage for 2002-03.

The three-year local government revenue grant allocations that were announced last year committed substantial additional resources to the delivery of key policy priorities. Those include, for example: modernisation of the teaching profession; improved care services for older people; enhanced concessionary travel schemes; extra resources for the police; and increased allocations for local authority capital investment in schools, roads and other infrastructure. We also included, for the first time in recent years, provision for local authority pay and price inflation. Those resources, with the stability of the three-year settlement, provide the perfect platform from which local government can better plan and deliver improvement in service delivery and secure best value.

No one should be in any doubt that I regard local government as a key partner in delivering better public services for all our citizens. I have great confidence in the capacity of local government to deliver, but I always want it to deliver the best. To be able to do so, councils need to benchmark their standards, to learn from one another and from other sectors, to compare and contrast their performance and to plan improvement.

I want every council to provide excellent services and to constantly seek improvement. I believe that the Executive has a key role in working with councils to assist in that process, helping to establish the benchmarks for the best performance and helping to facilitate improvement. In that spirit, we made it clear at the time of the previous settlement that new policy commitments that placed a financial burden on local government would be funded in full.

Today, I am announcing the allocation of an additional £350 million in grant support through the local government settlement next year. Those additional resources build on the real-terms increases that were announced last year. Scottish Executive revenue grant support to local authorities will total £6.7 billion next year, including that additional provision. That is an increase of £650 million, or 10.7 per cent, over the current year—more than four times the projected rate of inflation. I hope that members agree that that increase is remarkable. The revenue grant allocations will increase by a further £375 million, or 5.6 per cent, for the following year—more than twice the projected rate of inflation. Investment on such a scale is unprecedented and demonstrates our commitment to providing better public services for Scotland's citizens and to the continuing vital role that local government plays in delivering those services.

The details of the allocations for individual councils are set out in a finance circular that is being issued today to all local authorities. A summary of the allocations is available from the Scottish Parliament information centre table at the back of the chamber and copies of the full circular have been placed in SPICe. The settlement totals to which I have referred include provision of £125 million that was previously announced to fund personal and nursing care for older people. Those resources are not included yet in the allocations to individual authorities, as distribution arrangements are still to be finalised.

Even excluding the resources of £125 million, the increases for individual local authorities range between 5.5 per cent and 10.5 per cent for next year and between 5 per cent and 8 per cent for the following year. Therefore, all local authorities are receiving a year-on-year increase in grant that is at least twice the projected rate of inflation each year, with further allocations still to be confirmed. The allocations include resources totalling over £150 million over two years for the transfer of responsibility from the Department for Work and Pensions to local authorities for people in residential care homes and nursing homes.

We are making available additional money to assist local authorities in providing more literacy and numeracy learning opportunities for adults, to support improved out-of-school care for children and to help authorities to prepare for the new supporting people regime for housing support services. In total, local authorities will receive more than £13 million in additional support for those commitments next year, rising to more than £21 million in the following year. Those allocations reflect our priorities of providing children in Scotland with the best possible start in life and closing the opportunity gap.

There is one transfer out of the local government settlement. The Parliament passed the Regulation of Care (Scotland) Act 2001, which provided for the new Scottish commission for the regulation of care to take over responsibility from local authorities for inspecting care establishments from next April. Resources of £5.6 million will transfer to the commission to reflect that transfer of responsibility.

There has been much discussion of ring fencing in relation to local government funding. Contrary to suggestions that have been made elsewhere, specific grants continue to account for only around 10 per cent of total Scottish Executive support through the general local government settlement. From next year, we are allowing local authorities even more flexibility in how they use resources, with the abolition of certain ring-fenced controls.

However, ring-fenced specific grants have a role. For example, no one would argue that funding for police services should not be protected. In the same way, specific programme funding has allowed us to move from uneven provision of nursery places between local authority areas to a position in which pre-school places are available, where parents wish, for every three or four-year-old in the country. As that aim has been achieved, it is right that the resources should return to general local authority control. Therefore, from next year, £137 million of specific programme funding through the pre-school grant will transfer to unhypothecated general grant. Similarly, resources of £8.8 million for the rough sleepers initiative have helped to develop services for homeless people across Scotland, and annual specific resources of £8.8 million can now transfer to general grant.

Of the other allocations, we have agreed with the recommendations that were made by the care development group and the Parliament's Health and Community Care Committee that, during the initial implementation period, we should monitor local authority expenditure from the £125 million that is being provided for personal and nursing care.

No specific financial conditions are attached to any of the other additional allocations that I am announcing today. We are keen to shift the focus away from resource inputs and on to what we and service users are really interested in—the outcomes that are being achieved in terms of additional and improved services.

Local authorities have been asked to prepare local outcome agreements relating to the additional support that I have announced today for adult literacy and homelessness. Outcome agreements are also being prepared for community care services and social justice. We are working with the Convention of Scottish Local Authorities on pilots to test the wider potential of the outcomes-based approach.

The distribution of the original three-year settlement allocations was established following discussions with COSLA. Those increased allocations are provisional. Following further discussions with COSLA, they will be confirmed in the local government finance order next year. With COSLA we have worked on the establishment of three-year budgets, the implementation of teaching for the 21st century recommendations, the proposals for long-term care for older people and the review of care home fees. We will continue to pursue that joint approach.

Income from non-domestic rates forms part of the total Scottish Executive revenue grant for local government. Today, I announce a provisional non-domestic rate poundage for 2002-03 of 47.8p. That represents an increase of 1.7 per cent on the figure for 2001-02, matching the inflation rate to September 2001, and fulfils, as in the past, our commitment to limit year-on-year increases to growth in the retail price index. We will seek the views of business organisations before confirming the poundage early next year.

The additional allocations that I am announcing today will meet in full the costs arising from new policy commitments and should not impact on local authorities' existing council tax plans. It is, of course, for local authorities to set council tax at the levels that they consider appropriate, following consultation with their electors. All authorities have published provisional council tax changes or upper limits for next year and the year after that—that represents a commitment by councils to local taxpayers. I congratulate councils on the responsible way in which they have handled that new commitment; I recognise that it was a major challenge for them and congratulate them on having risen to that challenge. Council tax payers now have a clear indication of what they can expect to pay and can better judge their councils' actions if and when any variation in tax levels occurs.

The resources that I have announced today, which come on top of the increases that were announced last year, represent a significant investment in local services. It is vital that local authorities make effective use of those resources and work with other local agencies to deliver quality services that put people's needs first. We want to ensure that local authorities have the resources and flexibility to do their jobs and the powers and responsibility to work with other agencies to deliver real and visible improvements in public services.

The Parliament will have the opportunity to debate the final allocations for 2002-03 when it considers the local government finance order next year. Early next year, I will confirm the final rate poundage for 2002-03.

I hope that all members will join me in welcoming the substantial additional support that the Labour and Liberal Democrat Administration is committing to local government for the next two years, on top of the significant increases that have been provided for the current year. In anyone's book, a year-on-year increase in grant support of nearly 11 per cent, with further increases in the following year, represents a substantial investment in local services and a vote of confidence in the continuing role of local government in delivering those services to all Scotland's citizens.

Kenneth Gibson (Scottish National Party, Glasgow)

I am taking the place of my colleague Tricia Marwick, who is unwell and unable to be with us.

I welcome the minister's statement as the first of what I hope will be many statements in the coming months. Ministerial statements are becoming as rare as snow on Christmas day. I remind the minister that it is the convention for ministers to supply their statements to the SNP and Tory front benches an hour, not 20 minutes, before they are made.

In evidence to the Local Government Committee on 13 March, George Black, director of finance at Glasgow City Council, stated:

"in real terms, the level of aggregate external finance for Glasgow at the end of 2003-04 will be about £50 million less than in 1996-97. The impact of that reduction is well documented. We have had council tax increases of 19 per cent, 22 per cent and 9.4 per cent in the three years since 1996-97."

George Reid (Scottish National Party, Mid Scotland and Fife)

Mr Gibson, what you are saying must contain at least the hint of a question.

Kenneth Gibson (Scottish National Party, Glasgow)

I am leading up to one.

Mr Black went on to say:

"We have had about 4,500 council job losses. We had what is commonly termed a double whammy; we had to reduce services while dramatically increasing council tax."—[Official Report, Local Government Committee, 13 March 2001; c 1665.]

Mr Black also made it clear that, over the same period, Glasgow's share of aggregate external finance had fallen from 15.7 per cent to 14.7 per cent of the Scottish total.

George Reid (Scottish National Party, Mid Scotland and Fife)

I am still waiting for a question, Mr Gibson. I am being very patient.

Kenneth Gibson (Scottish National Party, Glasgow)

Given that Glasgow contains 79 per cent of Scotland's most disadvantaged enumeration districts and more than half of the poorest 10 per cent of districts, will the minister say by what date he will have restored fully, in real terms, Glasgow's level of aggregate external finance to what it was before new Labour came to power, excluding new burdens?

Mr Kerr made welcome comments on the additional flexibility that councils will have over their finances to allow them to govern, rather than to administer locally, thus reducing the high level of hypothecation and ring fencing that the Executive imposed. However, is not it the case that most of the new moneys that the minister announced are to fund personal and nursing care and the transfer to councils of responsibility for people in residential care homes and nursing homes?

Will the minister confirm that the rate poundage that he announced will still mean that Scotland has a rate poundage that is 10 per cent higher than that in England? Finally, will Mr Kerr advise us why specific grants for social work training, mental illness, and in-service training for teachers will remain at a standstill from 2002-03 to 2003-04, forcing local authorities to pick up the tab for those areas?

Andy Kerr (Labour, East Kilbride)

I recall Kenny Gibson's leader saying that we should take the SNP seriously in our joint approach to government. If that is all that the SNP can offer on the announcement, it has a lot to learn.

Kenny Gibson referred to ranked grant AEF per capita. Glasgow is sitting at the top of that table, with a per capita rate of £1,571, which is 25 per cent higher than the average. Glasgow will receive record levels of revenue grant in the next two years, reaching over £1 billion in 2003-04. That is higher than any figure under the Tories in cash or real terms. Glasgow City Council is also receiving the per-head-of-population figure that I mentioned. In addition, the better neighbourhood services fund will support the deprived communities of Glasgow.

By anyone's reckoning, Glasgow requires assistance—that is why the Executive is committed to providing it. We do not live in the land in which Kenny Gibson lives, where money is plucked off trees. I expect our money to be spent wisely. We will monitor that spending and that is how we will run the Executive. We have every confidence that Glasgow City Council and other councils will deliver services.

I apologise for the lateness with which members received copies of my statement, but I think that they received them a lot longer than 20 minutes ago. I will investigate that later.

I announced the reduction of hypothecation and ring fencing in accordance with the requests of colleagues in local government. Could not Kenny Gibson even muster up some welcome for that announcement? We are funding in full the other policy initiatives that we are driving forward.

David Davidson (Conservative, North East Scotland)

I welcome Andy Kerr as the Executive's new minister for smoke and mirrors and I thank him for the prior delivery—albeit late—of the statement.

I was pleased to hear the minister's comments about ring fencing and I hope that he takes the issue on board. I am a little concerned that COSLA still believes that the figure is 20 per cent, whereas the minister has just stated that it is 10 per cent. Perhaps the minister will tell us precisely why he is at variance with his colleagues in COSLA.

I am also a bit concerned that, although the statement gave credit to local government for the way in which it is handling council tax rises, the Executive retains capping sanctions. Will the minister explain how that will work—will he make any changes to the sanctions?

My third point is that the minister mentioned taking Sutherland out of the local government settlement and quoted a figure of £125 million. Will he clarify for the people of Scotland exactly what definition he has used to come up with a price of £125 million? Will any other burdens be forced on local governments to implement the policy?

Andy Kerr (Labour, East Kilbride)

I thank the member for welcoming me to my portfolio; I appreciate that. Again, I offer my apologies for the delay in getting the statement to him. That will be investigated.

Only 9 per cent of the allocations that I announced will be provided through specific grants, which is less than in the current year. We have removed ring fencing from £145 million of grant funding for next year and there is potential for further flexibility, where appropriate. The figure to which the member referred also includes police grant and I have not yet heard any arguments in favour of removing ring fencing from such grants. I would argue that the authorities are not taking that position.

Capping is a reserved power, which we have no intention of using. Our colleagues in local government are spending their money wisely. I do not anticipate needing to use that mechanism.

On personal nursing care, we are doing what the care development group wanted us to do. We are fully funding personal nursing care. The amount of money is what is required and what the care development group requested. We will give local authorities that money when we have agreed the distribution formula with our colleagues in local government.

Trish Godman (Labour, West Renfrewshire)

I welcome the minister's statement. The significant headline increases that he announced suggest that new burdens have been fully funded. Will the minister confirm that no extra pressure on councils will arise from those burdens and that council tax payers can expect council tax levels to remain at the rates that councils set for the three-year period?

Andy Kerr (Labour, East Kilbride)

I am happy to receive the member's question. The smoke and mirrors to which Mr Davidson referred allow me to answer the member's question more fully. We should consider the figures. In anyone's terms, an increase in total revenue grant of nearly 11 per cent is substantial. Next year, the increase will be 5.6 per cent.

Every council will receive increases in grant that are at least twice the projected rate of inflation. The allocations also take into account general pay and price inflation and—to answer Trish Godman's question directly—full support for the new policies and commitments that the Executive has driven forward as part of the partnership agreement for government. The Executive places no extra pressure on local council budgets. Funding is at a record level. I am glad that Trish Godman welcomes that; it is a pity that others cannot.

Alasdair Morgan (Scottish National Party, Galloway and Upper Nithsdale)

I welcome the minister to his new post, although he seems to have retained the same speech writer that his predecessor had.

I will ask about council tax, because I do not think that we received the answer that Trish Godman sought. Given all the extra burdens on councils, not only from this place, but from Westminster—the aggregates tax, the climate change levy and the superannuation knock-on of the Railtrack fiasco—by how much does the minister expect council taxes in Scotland to rise? I ask what figure he expects, because I know that he does not set council tax levels. How much higher than inflation will that figure be?

How much of the pension increase that the minister's colleague in Westminster announced recently does he expect a pensioner to pay in increased council tax payments? Will the minister confirm that an increase at the rate of inflation for non-domestic rates will mean that Scotland retains the highest non-domestic rates in the UK and that our businesses continue to be the most heavily taxed in the UK, at a rate that is about 5p more than that south of the border?

Andy Kerr (Labour, East Kilbride)

I expect councils throughout Scotland to act responsibly. Therefore, in accordance with subsidiarity, I do not wish to express views about their decisions, which they must take locally and account for to local citizens. That is what local government is about.

Local councils announced indicative council tax increases for the next two years. The all-Scotland average projected increase is less than 5 per cent for each year. We will fund in full any commitments from the Executive, so there is no reason for those matters to impact on councils' budgets.

Scottish businesses do not pay more than English businesses pay in non-domestic rates. As Alasdair Morgan knows, rateable values in Scotland tend to be lower than those in England. Small businesses in Scotland receive a 2p discount that is unavailable in England, so Alasdair Morgan's case is inaccurate and untrue.

Sylvia Jackson (Labour, Stirling)

I welcome the minister's announcement that money for pre-school education will move into the unhypothecated general grant. Will the minister give more details about the continuing discussions on other ring-fenced allocations?

Andy Kerr (Labour, East Kilbride)

I have met COSLA and will continue to meet COSLA to discuss those matters. I intend to go down the road of providing further unhypothecated resources to local government, because I believe strongly that local government is local. As Minister for Finance and Public Services, I intend to continue discussions with COSLA to ensure that we continue to reduce hypothecation of resources for local authorities. That is how I want the situation to develop and I am sure that the rest of the Executive wants that too.

Iain Smith (Liberal Democrat, North East Fife)

On behalf of the Liberal Democrats, I welcome one of the most positive statements in support of local government that I have heard since the Parliament was formed. The minister announced a substantial increase. I particularly welcome the news that some of our hard-pressed rural authorities, such as Aberdeenshire Council, Argyll and Bute Council, Perth and Kinross Council and Scottish Borders Council will receive some of the largest increases. That is welcome news for those areas.

Will the minister confirm that the Scottish Executive will fund the full cost of free personal care that will fall on local authorities?

Andy Kerr (Labour, East Kilbride)

I am under no illusion about that. I say to Iain Smith, in a straightforward manner, that the Executive will fund fully the decisions that were made by the care development group. That is why the sum of £125 million has been set aside to fund fully the whole package.

Iain Smith welcomed me to my post. I also welcome what Iain Smith said—it is a sign of maturity that people welcome real money being put into real services. It is a sadness that some people cannot rise to the occasion and acknowledge that fact. Excluding the fiscal black hole that would exist under the SNP because the price of oil is falling at the moment, what would local government get from the SNP? Very little.

Bill Aitken (Conservative, Glasgow)

I note from the minister's statement that the increase in non-domestic rates is limited to 1.7 per cent. However, that results in a projected average of 47.8p in the pound. Notwithstanding the minister's answer to Mr Morgan, why is it appropriate, at a time of threatened recession and increased business competition, for Scots firms—even if we accept that they get a 2p rebate—to pay significantly more than English firms in a comparable position? Scots firms are left in a non-competitive situation that will impinge on employment prospects.

Andy Kerr (Labour, East Kilbride)

First, the increase is low and, as I said earlier, the figure of 1.7 per cent is in line with inflation. I remind Bill Aitken that rateable values in Scotland are less than are those in England, which means that the actual take from business is lower. Bill Aitken mentioned the 2p discount. That is not available in England. I look forward to my discussions with the business community in Scotland. I have had many such discussions in the past and, as Minister for Finance and Public Services, I will continue to listen to business. I doubt the facts that Bill Aitken presented today.

John McAllion (Labour, Dundee East)

I welcome the minister's statement. However, will he give more thought to how the national settlement might be better fine-tuned to reflect the realities of local government services in individual council areas? This morning, Dundee City Council informed me that the settlement makes no provision for the £2.5 million that it spends every year on secure residential care for children. The council also informed me that the McCrone settlement in the city will be underfunded by more than £4 million over the next three years because McCrone was based on pupil numbers rather than on Dundee's higher staffing levels.

The local government settlement can be described in the Scottish Parliament as the "perfect platform" and yet be met with disappointment by individual councils, who tell their MSPs that it is not good enough. Does the minister accept that that is a problem?

Andy Kerr (Labour, East Kilbride)

I met the leader, the convener of the finance committee and the director of finance of Dundee City Council and we examined the matters that John McAllion has raised. I will continue to seek solutions. One of the issues that was raised in Dundee was mismatched funding. In preparing for the next three-year settlement, we will look again, with COSLA, at the distribution arrangements. That said, any change must demand a general level of support amongst all local authorities.

The issue of deprivation was also raised in Dundee. Last year, the deprivation distribution system was the subject of a COSLA joint review. As a result of that review, an additional £16 million was allocated to tackle deprivation. The better neighbourhood services fund is providing £90 million to improve services to Scotland's most deprived neighbourhoods. We should examine the current allocation system to reflect specific circumstances, but let us not forget that we are trying to ameliorate the worst effects of the situation that is to be found in Dundee and other cities in Scotland.

Andrew Wilson (Scottish National Party, Central Scotland)

Given the factional fighting and bruised egos on the Labour seats in the chamber following the reshuffle, I caution the minister, when he is answering questions, against reading out notes that are passed to him from his colleagues. He never knows what time bombs may be ticking in those notes. With respect to the note—[MEMBERS: "Question."] If members examine what I said, they will see that all of it was a question.

With respect to the note and, given the minister's position on business rates, will he confirm that—in addition to the SNP—the Forum of Private Business, the Federation of Small Businesses, the Confederation of British Industry and every other business lobby in Scotland believe that business rates in Scotland are higher than for comparable businesses in England? Will the minister undertake to provide a full explanation of what on earth he is talking about when he suggests that that is not the case?

Given that the minister sets 80 per cent of the average council budget, does he take any responsibility for the level of council taxes in Scotland? Why are declining services, rising taxes and the highest taxed businesses in Scotland all happening under Labour?

Andy Kerr (Labour, East Kilbride)

All the organisations that the member mentioned are against independence and separation. If that is the endorsement that the member is giving me, I thank him very much; I will take it. With regard to notes being passed, I will take no lectures about teamwork from the SNP—I have seen the SNP in action for too long.

These are important issues, which I have said that I will discuss with the business community, as I have done already through the Parliament. We will consider those matters, but we have said that the inflationary increase will be 1.7 per cent, that the 2p discount exists in Scotland, that Scottish businesses—small, medium and large—continue to thrive and that we are still attracting investment. If we were to go down the road of division, separation and the fiscal black hole that the SNP wants us to go down, where would business be then? That would be the end of business as we know it. Through the partnership in the Scottish Executive, we will continue to deliver for local government and to improve services by allocating more money for local authorities to deliver services and allow businesses to thrive.

Tommy Sheridan (SSP, Glasgow)

If the minister genuinely believes that local government is local, when will he announce the abolition of the capital receipt clawback rule and introduce rate retention and setting for local authorities? Last week, Charlie Gordon, the leader of the Labour-led council in Glasgow, said:

"We have had four and a half years of Labour government and we are getting grant assistance for Glasgow that is pound for pound less than under the last Tory government."

Will the minister apologise to the people of Glasgow for the shameful neglect of that city and give me an assurance that the settlement will make up for the lost funding in the past four years of Labour Government?

Andy Kerr (Labour, East Kilbride)

There is no need to apologise for anything with regard to Glasgow City Council. At £1,571 per capita rate, Glasgow is 25 per cent above the average.

With regard to the distribution formula, we recognise the unique role that our cities play in Scotland. As I have said, Glasgow receives the highest grant allocation per head: 25 per cent above the mainland average and 50 per cent higher than the allocations for neighbouring authorities. The distribution formula takes into account a range of factors that are specific to Glasgow: the urban centre; the need for expenditure-based allowances, such as tourism, museums and planning; and deprivation allowances, to which I have already referred.

I look forward to meeting Glasgow City Council. I was born and brought up in East Kilbride and have worked in Glasgow and used its services for many years. There is a desire on the Executive's part to ensure that, through the cities review, in the hands of my colleague Iain Gray, we address those issues.

With regard to the set-aside arrangements, COSLA has expressed its views to me on the use of the 75 per cent of income from council house sales to redeem debt, with particular reference to those authorities with relatively low levels of housing debt. We continue to discuss those matters with COSLA; indeed, that is a matter for the Minister for Social Justice to consider further.

Nora Radcliffe (Liberal Democrat, Gordon)

I welcome Andy Kerr to his new role and welcome the tone and content of his statement.

Much work has been done recently to identify why the indicators that are used to calculate need do not pick up rural deprivation or small pockets of deprivation that are scattered through broadly prosperous areas. Will the minister confirm that, as those tools improve, they are being used to refine existing distribution models? Can he say what work is being done to check that the uplift is being calculated in a way that does not perpetuate a bias against historically low-spending councils such as Aberdeenshire?

Andy Kerr (Labour, East Kilbride)

Work is continuing with regard to rural deprivation. A report is available, which we are considering. Through COSLA, which is the primary organisation for determining such matters, we discuss those matters continuously with our colleagues in local government. The better neighbourhood services fund that I mentioned earlier applies to rural areas in some instances, therefore we could also seek some resources from there.

Margaret Jamieson (Labour, Kilmarnock and Loudoun)

In overall terms, I welcome the minister's announcement. However, unlike my colleague Sylvia Jackson, I have concerns regarding the removal of ring fencing for pre-school education. Given the growth in that sector, what assurance can the minister give that he and the Minister for Education and Young People will monitor that area to ensure the continuation of quality provision for our young people?

Andy Kerr (Labour, East Kilbride)

We will continue to analyse the outcome and output of all public services in Scotland, rather than the inputs, which people tend to dwell on too much. We want to focus on the services that matter to people, such as primary and pre-school education. I am sure that the Minister for Education and Young People takes a great interest in such matters. In addition, other organisations and bodies look into education and report to us.

The removal of hypothecation and the reduction of ring fencing are to be generally welcomed. Maturity, responsibility and trust exist between the Executive and local authorities to ensure that there is no diminution of the services that Margaret Jamieson mentioned.

Business Motion

George Reid (Scottish National Party, Mid Scotland and Fife)

The next item of business is consideration of business motion, S1M-2521, in the name of Patricia Ferguson, on behalf of the Parliamentary Bureau.

Motion moved,

That the Parliament agrees—

(a) the following programme of business— Wednesday 12 December 2001

2.30 pm Time for Reflection followed by Parliamentary Bureau Motions followed by Executive Debate on 'Our National Health' - Delivering Change followed by Parliamentary Bureau Motions

5.00 pm Decision Time followed by Members' Business - debate on the subject of S1M-2289 Mr Brian Monteith: Closure of Scottish Executive Environment and Rural Affairs Department Offices in Stirling, Dundee and Forfar Thursday 13 December 2001

9.30 am Scottish National Party Business followed by Business Motion

2.30 pm Question Time

3.10 pm First Minister's Question Time

3.30 pm Executive Debate on Sea Fisheries followed by Parliamentary Bureau Motions

5.00 pm Decision Time followed by Members' Business - debate on the subject of S1M-2400 Mr Bristow Muldoon: Proposed Closure of Binny House, Sue Ryder Care Wednesday 19 December 2001

2.30 pm Time for Reflection followed by Parliamentary Bureau Motions followed by Debate on the Finance Committee's Report on Stage 2 of the Budget Process followed by Parliamentary Bureau Motions

5.00 pm Decision Time followed by Members' Business Thursday 20 December 2001

9.30 am Parliamentary Bureau Motions followed by Stage 3 Debate on the Scottish Local Government (Elections) Bill followed by Business Motion

2.30 pm Question Time

3.10 pm First Minister's Question Time

3.30 pm Stage 3 Debate on the School Education (Amendment) (Scotland) Bill followed by Parliamentary Bureau Motions

5.00 pm Decision Time followed by Members' Business and (b) that Stage 1 of the Marriage (Scotland) Bill be completed by 18 January 2002, that Stage 2 of the Community Care and Health (Scotland) Bill be completed by 23 January 2002, that Stage 1 of the Scottish Public Sector Ombudsman Bill be completed by 1 February 2002 and that Stage 1 of the School Meals (Scotland) Bill be completed by 10 May 2002.— [Euan Robson.]

Motion agreed to.

David (None, Lothians)

I am sure that, before we begin this afternoon's business, members would like to welcome the new Solicitor General, Elish Angiolini, to her post, even though she will not answer any questions today. [Applause.]

Question Time — scottish executive

James (Conservative, Lothians)

To ask the Scottish Executive, in view of any anticipated flooding, what preventive measures have been put in place in co-operation with local authorities and emergency services to protect life and property. (S1O-4221)

Allan Wilson (Labour, Cunninghame North)

Implementation of the Flood Prevention and Land Drainage (Scotland) Act 1997 has resulted in many councils putting in place preventive measures of inspection, monitoring and maintenance. In addition, many councils are installing flood prevention schemes, with financial assistance from the Executive.

Details of measures that councils have taken are given in their statutory biennial reports on flooding. The provision of flood warnings and information on flood risk, through the Scottish Environment Protection Agency's recently launched Floodline service, will be a significant help to local authorities and emergency services. In conjunction with emergency services, local authorities have generic multi-agency response plans in place to help those who are affected by flooding.

James (Conservative, Lothians)

Can the minister confirm that, with the onslaught of winter rains, immediate steps can be taken if and when emergencies arise? Flooding can be an extremely depressing and miserable experience for our constituents, especially when polluted water flows into their living rooms and residences.

Allan Wilson (Labour, Cunninghame North)

I concur with what the member has said about the havoc that flooding can wreak on people and communities. Local authorities have a primary responsibility in this area. I understand that City of Edinburgh Council has recently purchased reusable emergency flood barriers, which can be mobilised at a time of predicted flooding. Floodline is a proven system for co-ordinating emergency services' response, and it worked very well during last year's floods in England and Wales. An adequate warning goes hand in hand with the preparation of flood defences.