A steady flow of venality

An orchestrated campaign to privatise Scottish Water is underway, and as Tommy Kane and Kyle Mitchell show only those running it stand to benefit.

Plans to privatise Scottish Water (SW) and remove it from public control have, yet again, intensified. This time, however, the purveyors of privatisation make their case in the backdrop of uncertain economic and social recovery from what has been widely reported as the worst economic crisis since the 1930s. In this political and economic climate, we are told a scaling back of public expenditures and subsequent retrenchment of public services is inevitable. This message is peddled by the same supposed experts, many of whom were responsible for establishing, legislatively and legally, the necessary political and economic conditions for the policies that were directly responsible for and/or created the conditions that led to the collapse of the financial market. Yet now, we are told that the same macroeconomic policies that in part created the collapse of the global economy are to be applied to a whole host of public goods and services, including Water and Wastewater Services (WWS) in Scotland. Esteemed academic David Harvey refers to this dogmatic thinking as “the irrational rationality of an irrational system”. To be sure, the current crisis is being strategically manipulated to reconfigure WWS in Scotland.

The proposed reconfiguration of SW would purportedly save the Scottish Government between £140-150 million per annum. This cut would amount to 15 per cent of SW’s annual budget; the remaining 85 per cent is made up by user charges. All else being equal, surely this would imply a rise in user charges to make-up SW’s total annual budget. In this context of financial crisis and the need to reduce the deficit, the cacophony of calls for some form of privatisation of WWS in Scotland has gathered momentum in a way that chimes with market ideologues who have pushed this idea for years. Now, it is no longer just business, neo-liberal think tanks, media elements, the Tories and their chums the Lib-Dems that are creating the momentum for change. Their ideas and arguments now resonate amongst agencies and organisations linked to and formed by government, most notably, the stakeholders and regulators from the WWS industry. There is no longer any pretence: the views of government agencies mirror the likes of the Scottish Confederation of Business Industry (CBI) who have argued for years the need to wrest public control from WWS in Scotland.

At a Holyrood Water Conference in 2009, Alan Sutherland, Chief Executive of the Water Industry Commission for Scotland (WICS), Richard Ackroyd, Chief Executive of SW and Pamela Taylor from Water UK, pre-empted the current debate propounding the need for change on the basis that government cuts to SW funding may need to take place. Despite the fact the Scottish Government has never suggested a cut in funding to SW, Sutherland raised this prospect for change, moreover, that alternative means of financing should be sought, namely, either commercial loans or by way of the Scottish Futures Trust (SFT). In July 2010 the calls for the transformation of SW ownership were accelerated by the SNP-created SFT (chaired by Merchant Banker Sir Angus Gossart) and the Independent Budget Review (IBR) (chaired by Crawford Beverage, an industrialist and board member of the venture capitalist firm Scottish Equity Partners) – an initiative by the Scottish Parliament to consider options for public spending budgets. In a carefully-choreographed process, the SFT and IBR, alongside the Centre for Public Policy and the Regions (CPPR), recommended SW become a Public Benefit Company otherwise known as a Company Limited by Guarantee (CLG). In an apparent attempt to manipulate public opinion they contend this is not privatisation and would ensure SW remained in public hands.

The WICS has perhaps been most influential of all. Their role is solely concerned with setting the budgets and charges in Scotland. Yet, in 2006/2007 the WICS privately commissioned London-based consultants LECG and ING Barings to consider different options of ownership for SW. Known as ‘Project Checkers’ and never publicly released, this report recommended a CLG, an almost identical recommendation made by the SFT and IBR. Included within the £209,000 cost of the LECG report (paid for from public money) was a staggering £17,606.00 for external advice from Neil Summerton (obtained through FOI), a non-executive director at English companies Veolia South East and Veolia Central, both of which are owned and controlled by Veolia, the biggest transnational water corporation in the world. It’s plain to see that the objectivity of this influential report, from the outset, was compromised. The intentions and self-interest of Veolia are clear in shaping change in the water industry in Scotland. Their Chief Financial Officer, Thomas Piquemal, recently remarked to Veolia investors, “The only growth we are interested in is growth in profits […] we have tremendous potential to improve our profitability” (Global Water Intelligence, March 2009: 9).

The LECG report, produced prior to the recent pressure on public spending, demonstrates the seamless path between business, regulators, government bodies and government itself. Moreover, a preliminary LECG report obtained through FOI, illustrates the ideological and political rationale for privatisation. Further, the role of a public regulator in setting policy agenda is highlighted through the WICS commissioning such a report. The report’s only stated concern of recommending full scale privatisation was whether Scottish politicians, trade unions and the public would accept such a radical measure. Moreover, the report contradicts SFT and IBR’s assertion that as a CLG SW would remain in public hands, noting that a CLG is, in fact, a form of privatisation. Characteristics of the proposed CLG validate this concern as this type of company would be free of public control and involvement, be fully funded by private markets and user charges, and have directors’ pay increase beyond what are already exorbitant levels (obtained through FOI). Furthermore, the LECG notes that this form of privatisation could change over time, pointing to a “possibility that a group of members by determined action might be able, with the support or allowance of the remaining members, to influence the company in unforeseen or even irrational ways…” This “cannot be ruled out completely…” the LECG contend, “that is the price of creating an independent body” (obtained through FOI). Notably, however, should this happen it would be without public recourse. It’s no wonder LECG’s concern is with public perception.

To give context to the debate, it is important to acknowledge that even though SW is still tenuously accountable to the Scottish Parliament, this public entity has been essentially corporatised – operating as a private company with only a semblance of public accountability. Indeed, a key feature of this corporatisation is the entrenched private sector involvement manifested in the outsourcing of SW’s operations through Scottish Water Solutions and the PFI contracts employed to design, build, operate and finance 21 Wastewater Treatment Works (WWTW), which came into being in the late 1990s. Alarmingly, however, many of these PFI contracts have had difficulty meeting odour and discharge compliance at various sites around Scotland, pointing to the many risks of privately operated WWS. In spite of the PFI companies’ responsibility for much of the finance, design, building and operating of these plants a bulk of the funding for failures at plants have come from public funds. Private companies’ aversion to, and poor track record of, reinvesting capital for construction, improvement and extension of goods and services, indicative of PFIs here in Scotland, points to the siphoning of public monies to bolster private operations and profits. Thus, while privatisation transforms the public interest ethos into a for-profit motive – with the company legally obliged in this regard to their shareholders, as evidenced in Scotland’s WWS PFI contracts – the public ultimately remains responsible for risk in terms of large capital investments thereby effectively subsidising private profit.

Economists suggest that the sale of Scottish will relieve the public purse, forever feigning that it is more a matter of value for money than it is politics and ideology. Even if this were the case (which it is not as it is ultimately the people of Scotland who pay for their WWS through either general taxation or user charges), then one concerned about public interest would be compelled to question the proposed sale of a public utility with a total asset base worth £36 – £42billion (as outlined by SW), for £2.75 – £3.5billion (as suggested by SFT). To be sure, this economic rationale represents a particular world view with an ardent belief that private companies operating in robust markets with minimal government interference are more efficient than public entities. Once the profit motive becomes society’s raison d’etre and all productive capacities are geared towards this ethos, so the argument goes, only then will life be more efficient and, as an ancillary benefit, more equal. This is a neoliberal worldview that has intensified reform in all aspects of life: social, political and environmental, including all facets of daily life associated with these spheres.

The economic rationale for privatisation paints a partial picture; there is little, if any, analysis of the social and political impacts. From a social point of view, the history of water privatisation has shown that workers’ rights, including pensions and pay amongst others, are detrimentally impacted. Disconnections are a normal – a mere collateral occurrence consistent with the tendency for private water providers to cherry-pick lucrative operations. This would call into question service provision in the Highlands and Islands if privatisation was pursued. From a political point of view, control of socially necessary goods and services in a privatised model is ceded from democratically elected and accountable officials and subsequently transferred to city of London investors and private equity firms. The loss of democratic control of our most precious and essential resource, water, is unconscionable and dangerous.

The purveyors of water privatisation are intimately involved and closely following the SW debate, anxiously waiting for changes to the ownership of WWS in Scotland. Certainly, as a mature and relatively well developed system, Scotland’s WWS industry is the archetypal market sought by transnational water corporations and investors alike. Where throughout Europe the broader ideology is agreeable, the political and economic climate is stable and conducive to business’ interests (i.e. legislation permits, risks low and/or amortised [public subsidy] and profits guaranteed) water corporations have openly acknowledged their plans to expand. At the 2008 World Water Week in Stockholm an investor proclaimed, “Water systems in Europe are ripe for privatisation, it’s the policies that’s not ready [sic].” With the economic criteria met here in Scotland, the purveyors are left only to test the political will, thus the importance of this debate.

Moments of crisis, to which capitalism is prone, and the policies employed to mitigate their worst effects (those generally skewed in favour of private capital over the public interest) create new spheres of investment thereby reconfiguring class relations. This is where we find ourselves in Scotland, locked into a debate over the ownership and control of one of our most precious and essential resources. Harvey adds, “Whether we can get out of this crisis in a different way depends very much upon the balance of class forces”. To this end, organisation and cooperation is essential. The most fundamental of public services must remain under public ownership and control.