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Paying for water in Scotland : a distributional analysis

Sawkins, John W and McMaster, Robert and Newlands, David (1999) Paying for water in Scotland : a distributional analysis. Quarterly Economic Commentary, 24 (3). pp. 62-68. ISSN 0306-7866

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Abstract

During the last decade the water industry throughout Great Britain has undergone its most radical restructuring in over half a century. In England and Wales privatisation of the ten regional water authorities in 1989 removed the industry from the public sector at a stroke. In Scotland the privatisation option was rejected, and responsibility for water and sewerage services was instead transferred from local to central government control through the creation of three public water authorities in 1996. Despite these fundamental differences, however, domestic customers on both sides of the border have faced increases in thencharges, year on year, well above the rate of inflation. In Scotland these increases have been underpinned by the need for additional capital investment, tariff harmonisation across water authority areas and reductions in central government financial support in the form of transitional relief for sewerage services. The statutory body established to protect consumer interests - the Scottish Water and Sewerage Customers Council - has viewed the sharp rise in prices with increasing concern, taking the controversial step of rejecting the 1998/99 water authority charging proposals in January 1998. The final settlement determined by the Secretary of State for Scotland allowed these increases to stand, but arranged a redistribution of the transitional relief grant of £30 million to limit the effect of the price rises on low-income households. For the 1999/2000 determination transitional relief was phased out completely, leading to rises in average domestic water bills of the order of 20%. Against this background our paper analyses the distributional impact of water and sewerage price rises on domestic households in Scotland. Following the introduction, section two contains a brief theoretical discussion and an analysis of the recent charging reforms in Scotland. In section three we employ data from the Family Resources Survey, a source not used previously in this context, to examine the relative burden of water and sewerage charges on households classified according to income, property value and geographical location. Section four discusses the policy implications of the analysis and section five concludes.