Selling Scottish Water could ease impact of cuts, says economist

Published on Sunday 1 August 2010 17:55

SELLING off Scottish Water could be a less painful way of sorting out the cuts crisis gripping the country, a leading economist has said.

The claim was made as accountancy firm KPMG called for "detailed consideration" to be given to changing the status of the publicly owned utility, amid the highlighting of possible cuts in services in an independent review on Scotland's budget.

Dougie Adams, the senior economic adviser to the Ernst & Young Scottish Item Club of economists, said KPMG's claim that turning Scottish Water into a not-for-profit company could generate a 3 billion windfall "made some sense".

The SNP government, which has come under pressure to look at a shake-up over the way Scottish Water is run, reaffirmed its commitment to keeping the utility as a fully publicly owned body.

However, Mr Adams said that the government might be forced to look at a sell-off, after the Independent Budget Review report warned that 60,000 public sector jobs could face the axe due to Scotland's spending squeeze.

Mr Adams said: "Everything needs to be on the table, and this issue and other bits of family silver that could be sold off might also be looked at.

"A lot of things will be looked at, so it's not at all surprising that this is being talked about.

"It would be a bit like swapping a debt for equity and would be a way of finding additional money for spending. Doing this would just be a one-off kick, even though it would ease some of the spending problems."

He went on: "It does make some sense in the current environment to look at this as part and parcel of how money might be saved.

"It could be a way of raising finance that's not so painful, as people wouldn't notice the difference in the service."

The Scottish Government said its "strong preference" was for the country's water utility to keep its current status.

However, Scottish Water's status is not thought to be one of the sacred cows the government has said will not be affected by cuts, such as free personal care, concessionary travel and NHS spending.

A Scottish Government spokesman said: "Scottish ministers have said that Scottish Water performs very well if we compare domestic water charges in Scotland to those in the privatised system in England and Wales.

"The Scottish Government has no plans to change the status of Scottish Water and the current publicly owned status is our strong preference."

Meanwhile, the row over Scottish Water drew mixed reactions from the main parties at Holyrood, with the Conservatives backing a sell-off.

Tory finance spokesman Derek Brownlee said: "If the Scottish Government had listened to us in 2003 and taken Scottish Water out of government control, we would have 1bn extra for investing in public services, and we would have saved 140 million this year, and every year from now on. "The SNP government must tackle this issue urgently, and all parties need to work together to make the savings we need."

Mr Brownlee added: "KPMG's comments reaffirm the benefit of the Scottish Conservatives securing the creation of the Independent Budget Review earlier this year."

However, Labour stressed it was against a sell-off and called on the SNP to "come clean" over its plans for the utility.

Labour's finance spokesman David Whitton said: "If there are any plans to change the financial structure of Scottish Water, then SNP ministers must come out and say so.

"It's time the SNP came clean on the future of Scottish Water."

Lib Dem finance spokesman Jeremy Purvis called for Scottish Water's assets to be used to help generate electricity.

He said: "Customers are paying through the nose for the massive levels of energy consumption to process water while at the same time there is minimal effort to use the Scottish Water assets to generate energy.

"The challenge we set is a clear one: free up resource while keeping the public-interest ethos of Scottish Water, and ensure it generates energy that can contribute to reducing household bills."