Scottish Water bonuses ‘obscene’ as customer bills rise
Holyrood ministers have been criticised for allowing state-run Scottish Water to pay “eye-watering” bonuses to its top executives in a year when group surpluses before tax fell and its commercial arm made a loss.
The top three bosses shared £227,000 under the annual out-performance plan, more than double the previous year (£104,000) as households expect to see their bills rise by at least 12%.
Chief Executive Douglas Millican was handed a £92,000 bonus, on top of his £267,000 salary, while chief operating officer Peter Farrer was paid £68,000 in addition to his £197,000 salary and finance director Alan Scott’s salary of £195,000 was topped up with a £67,000 payout.
Mr Millican waived a £2,000 increase in base salary for executives agreed within the Scottish Government’s Public Sector Pay Policy.
Deputy Labour Leader Jackie Baillie said: “It is obscene that high-paid execs are being handed bonuses three times the size of the average salary at taxpayers’ expense while people across Scotland struggle to make ends meet.
“These eye-watering sums make a mockery of the SNP’s pretence that they can’t spare a penny to freeze water charges or give people a rebate.
“The SNP are responsible for Scottish Water – they must show some leadership and put struggling families first by delivering a £100 rebate for every household.”
Scottish Water states in its annual report that after a decade of real term reductions in customer charges, “we recognise the significance of increasing charges by more than inflation.
“Annual household water and waste water charges increased by an average of 0.9% from April – however over 400,000 customers will pay less overall because of the Water Charges Reduction Scheme being expanded over the next six years. Customers who pay the full charge levels will pay 2.5% more over this year.”
it adds that the announcement, in accordance with the Water Industry Commission for Scotland (WICS) and with the support of the Scottish Government, “was made transparently and received some media coverage and political comment.
“While we’ve no wish to cause controversy, it is important that customers and stakeholders understand why we’ve had to increase charges and that we will need to continue to increase them in future years.”
It states that to achieve its targets by 2027 will require nothing short of a “transformation” of Scottish Water and declares that “what was successful in the past will not be sufficient for the future”.
The WICS set out the available financing that will support a substantial increase in the level of investment that Scottish Water will make between 2021 and 2027.
But Scottish Water states: “It will take more than increased investment alone to achieve our strategic ambitions, it will also require nothing short of a transformation of Scottish Water.
“Since being set up in 2002, Scottish Water has done well to continually improve service levels and invest for the future. But what was successful in the past will not be sufficient for the future and we require to reshape Scottish Water to meet the challenges ahead.
“This transformation will be as significant as any challenge ever faced by Scottish Water and vital to our future success.”
The board sates that it has been been working on the plan and has been “inspired by, and learned from, transformation stories in diverse organisations; from mass transit systems in Asia to car manufacturing in Europe.
“These insights have informed what could be possible as we consider our key areas of focus: asset intelligence, efficient processes, partnerships, investment prioritisation and customers and communities.”
It intends to publish its Transformation Plan in the Autumn and says many of the changes required will take years to implement.
“But we are also keen to make significant changes quickly in the areas most important for the delivery of our future ambitions.”
The group surplus before tax for the year to 31 March 2021 decreased by £51.7 million to £34m (2020: £85.7m), primarily due to increased asset maintenance costs and reduced volumetric income and increased provisioning for bad and doubtful debts as a consequence of the Covid-19 pandemic, within Business Stream – its retail subsidiary – and Scottish Water.
These increases were partly offset by increased profits in the non-regulated business services.
Scottish Water estimates that the pandemic has reduced the surplus before tax for 2020/21 by circa £66m.
Consolidated revenue in the year increased by £51.3m to £1.7 billion (2020: £1.6bn) but costs increased by £107.2m to £1.54bn (2020: £1.4bn).
Business Stream, which supplies water and waste water services to business customers throughout Scotland and England, saw revenue rise to £574.4m (2020: £477.7m) but the operating loss rose to £16.7m (2020: £14m loss) after recognising a £16.6m charge for the provision of doubtful debt in relation to the anticipated impact of the Covid-19 pandemic.
Despite challenges, Business Stream has continued to grow its market share, retaining its position as one of the largest retailers in the UK retail water market.
Business Stream felt an immediate impact from the lockdown restrictions as many customers ceased trading temporarily and customers either stopped paying or deferred payments to preserve cash.
It acquired additional temporary funding to ensure it had the liquidity to support its customers through the pandemic.
Despite this “complex and challenging environment”, Business Stream’s balance sheet “remains strong” and debt free, with net assets of £88.3 million at the end of March 2021, including cash balances of £70.2m.
In her comments in the annual report Dame Susan Rice, chairman, noted that the water sector in Scotland came top of the annual Which? consumer trust survey, with a year-on-year increase in trust.
“The research found a greater proportion trusted the water industry in Scotland than in the rest of the UK,” she said.
“We are also the highest ranked water company in the UK in the Institute of Customer Service’s Customer Satisfaction Index and we’ve made it into the Top 50 companies for the first time.”