SNP rapped by water regulator

MINISTERS have been told that their insistence on keeping Scottish Water in public ownership is hampering the company's efforts to fix the country's antiquated pipe network.

Documents released under Freedom of Information legislation reveal that Sir Ian Byatt, the former water industry regulator, sent a memorandum to finance secretary John Swinney two years ago to warn him that bosses at Scottish Water were "increasingly concerned" they would not be able to afford repairs if the company remained funded solely by the government.

Still concerned about the way that the company is financed, Byatt, in unreported comments last month, said he feared that the utility would be forced to put a temporary halt to its investment programme due to a shortfall of funds. "We face the problem – as we faced in England and Wales – that companies stop their capital expenditure and then start again," he said.

Water companies in England have been privatised, allowing them to raise investment funds privately. In his memo to Swinney in 2009, the then chairman of the Water Industry Commission for Scotland urges Swinney to reform the company, possibly as an arms-length operation, which would allow it to pay for investment by borrowing from the financial markets, thereby freeing up tens of millions of pounds to spend on roads, hospitals and schools.

And his latest comments last night re-opened the debate about the status of Scottish Water, one of the Scottish Government's biggest assets.

SNP ministers said that they would keep the utility under full public ownership "operating for the benefit of all the people of Scotland".

But both the Conservatives and the Liberal Democrats backed Byatt's call, saying it should be turned into a so-called public benefit company. The row centres on the fact that, as it is in public ownership, the cost of Scottish Water's improvements come direct from the taxpayer. Budget figures show this equates to 700 million between now and 2015.

A report earlier this year found that 700 million litres of water a day are still being lost and more than 100 projects earmarked for completion over the past four years have yet to be delivered by Scottish Water.

In the memo to Swinney, Byatt – who left his post last month – declares: "The current public expenditure rules act against the interests of Scotland and there are opportunities for raising money that could increase the efficiency and scale of investment in public services."

He proposes either handing the utility over to the Scottish Futures Trust to run or setting it up as a "public interest company", similar to Network Rail.

Byatt's advice has emerged as the Scottish Government faces massive financial pressure in affording the 2 billion cost of the new Forth Road Bridge while rebuilding and repairing the country's roads, hospitals and schools.

A Scottish Government spokeswoman said that a new bill would soon be introduced to make Scottish Water a "more dynamic organisation".