Alex Salmond will make a major U-turn on the ownership of Scottish Water if he wins independence for Scotland, converting the iconic company into a model his government has previously condemned as “privatisation”.
The First Minister and SNP leader has repeatedly rejected all calls to change the status of Scottish Water, saying that it has been a “tremendous success story” as a nationalised public company accountable to the Scottish government.
But now Mr Salmond has said that he is thinking of changing it into a public benefit corporation modelled on Network Rail, which is owned on behalf of the public by 100 individuals mostly nominated by the UK Government.
Mr Salmond’s Administration has previously denounced such a proposal as having “long since been overtaken by events”. But under independence, making such a change could give the Scottish government an extra £150 million a year to spend on capital projects such as roads and hospitals, and potentially a one-off capital receipt of £2.7 billion.
Mr Salmond has floated the idea in two unreported passages of speeches he gave in London this year. His references to Scottish Water came in sections where he exemplified the benefits he claimed the economy and business would gain from independence.
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In February, speaking at the London School of Economics, he said that Scottish Water was effectively prevented from doing its own borrowing by “unfair and inefficient” Treasury rules that would penalise the Scottish government.
He maintained the company could borrow “cheaply and easily” from the financial markets instead of being restricted to borrowing money from the Scottish government’s capital allocation.
He added: “If Scottish Water were allowed to borrow money, it would soon develop a bond rating comparable to, let’s say Network Rail, and perhaps even better than the UK Treasury itself!”
In April, speaking to the Institute of Directors’ annual conference, Mr Salmond went further. He said: “We have a highly competitive public water industry in Scotland. It has a spectacular record.
“It could borrow easily in the markets if it was placed on the same status as Network Rail. It could fulfil that role and duty. It would allow us to increase capital spending merely by taking that discretion on fiscal policy.”
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Mr Salmond’s espousal of a Network Rail-type structure for Scottish Water is a U-turn from his party’s stance when the Liberal Democrats proposed it as a way of raising large sums for capital spending in their manifesto for the 2011 Scottish parliament elections.
In comments issued at the time to the media, John Swinney, the Finance Secretary, said: “As the UK Government spell out, in such circumstances Treasury ministers reserve the right to reduce the grant to the devolved administration to reflect receipts — leaving Scotland no better off in return for going down the road of privatising Scottish Water.”
The new view is also a retreat from the government’s stance when Sir Ian Byatt, who chaired company’s regulator, the Water Industry Commission, from 2005-11, suggested it in 2009.
In memos to Mr Swinney, which surfaced after the 2011 elections, Sir Ian expressed concern that being restricted to government borrowing was hampering the company’s investment programme and said the Scottish government could consider “allowing Scottish Water to borrow commercially along the lines agreed for Network Rail”.
However, according to Public Finance magazine, Sir Ian’s plea was “given short shrift by a Scottish government spokesman. He said that Byatt’s ideas had ‘long since been overtaken by events’, citing the consistent poll evidence that most Scots want to keep their water industry in public hands.”
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The spokesman continued: “The position of the Scottish government and people of Scotland is clear. Scottish Water will remain in public ownership.”
Now, however the SNP government says that a public benefit corporation is not privatisation after all, but merely a different form of public ownership.
In a statement to The Times last night, a Scottish government spokesman said: “Scottish Water, which is in public ownership, has been a substantial success story in Scotland. It has managed its infrastructure well and frozen water charges for households for the last four years. At present unfair HM Treasury rules mean that any borrowing by Scottish Water from external sources is classed as Scottish government spend.
“Following independence the Scottish government would allow Scottish Water to issue bonds to the capital markets — and such bonds would be extremely attractive to a range of investors. It would retain the status of a company in public ownership.”
It now appears that Mr Salmond’s objections to changing the ownership structure of Scottish Water may have more to do with cash needed to balance an independent Scotland’s books than ideology.
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Under independence, Mr Salmond’s speeches imply, the Treasury would have no say in what happened to the proceeds from bond sales and Scotland would have extra capital resources for other infrastructure projects.