Water industry - ministerial objectives and principles of charging statement: partial BRIA

Executive summary

Issue and why it needs to be addressed

Ministers are required to set the period for which a charge determination by the Water Industry Commission for Scotland (WICS) will apply. The current regulatory period for Scottish Water ends on 31 March 2027. The Scottish Ministers have powers to direct Scottish Water as regards the exercise of their functions, and in particular, set objectives regarding the standard of services to be provided by Scottish Water in the exercise of its functions. The current Ministerial Objectives apply in respect of the 2021-2027 period. This means that from 1 April 2027 onwards new Ministerial Objectives are required to be set for Scottish Water on what Ministers’ objectives are for the sector, and the Scottish Government’s policy towards how charges should be applied. WICS must determine the maximum amounts of charges payable by Scottish Water’s customers during the regulatory period set by the Scottish Ministers. The current determination also expires on 31 March 2027. Therefore new arrangements have to be put in place to ensure statutory compliance from April 2027.

Ministers have commissioned the SRC for the next six-year period which will run from 1 April 2027 to 31 March 2033.^[1] As part of this statutory process, Ministers may specify Ministerial Objectives which Scottish Water must deliver (including through investment) and the standard of services it must provide to its customers. Ministers are also required to set the Principles of Charging, which will guide how charges are structured. These inputs are essential to ensuring Scottish Water continues to deliver high-quality services in a way that is affordable to its customers, responsive to the challenges of climate change, and supportive of our ambitions to grow the economy. Scottish Water produces a business plan setting out how it will deliver the Ministerial Objectives. WICS then determines the lowest overall reasonable cost for Scottish Water to deliver the Ministerial Objectives in a way that is consistent with the Principles of Charging, setting a maximum amount within which Scottish Water can charge its customers.

Intended outcomes

The policy proposals aim to ensure the water industry:

• Supports inclusive economic growth and resilient infrastructure.
• Maintains high levels of service and customer trust.
• Keeps charges affordable and fair for households and businesses.
• Responds effectively to the challenges of climate change and net zero targets.

Options

As the current regulatory period concludes on 31 March 2027, in order to ensure the industry continues to be effective and provide services to customers, a smooth transition to the next regulatory period, which starts immediately in April 2027, is necessary. Ministers have a statutory duty under the Water Industry (Scotland) Act 2002 to give Scottish Water directions, which may set the Ministerial Objectives, and issue to Scottish Water and WICS a statement of policy regarding charges under a charges scheme, the Principles of Charging^[2]. Non-regulatory or voluntary approaches have not been considered appropriate due to the statutory requirements of the SRC process. The options under consideration represent an evolution of the current framework, with refinements to reflect emerging priorities and stakeholder feedback.

Sectors affected

The proposals will affect almost all sectors of the economy that rely on Scottish Water to provide water and wastewater services. The proposals will primarily affect:

• Scottish Water and its operational and investment planning.
• Customers of Scottish Water – namely households.
• Scottish Water’s supply chain, particularly construction and engineering services.
• Licensed Providers operating in the non-household retail market, for whom Scottish Water is the wholesaler.
• The housing sector and other developers and industrial customers, e.g. when seeking new connections to public water and wastewater infrastructure.

Engagement completed, ongoing and planned

To date, engagement has focused on stakeholders directly involved in the water industry, including:

• Consumer Scotland, the Drinking Water Quality Regulator (DWQR), the Scottish Environment Protection Agency (SEPA), Scottish Water, and WICS.
• Other parties involved in the industry or representing consumers: Scottish Water’s Independent Customer Group, the Central Market Agency, the Convention of Scottish Local Authorities, the Office of the Scottish Charity Regulator, Scottish Council for Voluntary Organisations, Local Authorities and Licensed Providers in the retail market via dedicated working groups.

Further engagement is planned with a broader range of stakeholders, e.g. business organisations, as part of the public consultation to inform the finalisation of the Ministerial Objectives and Principles of Charging policy inputs.

Anticipated impacts (intended and unintended, positive and negative) and mitigating actions

The proposed Ministerial Objectives and Principles of Charging being consulted on are based on those in the current regulatory period. This is consistent with what was set out by Ministers in the Commissioning Letter issued to WICS in April 2024. The Commissioning Letter initiated the SRC and set the length of the next regulatory period at six years, as Ministers are required to do under section 29B(2) of the Water Industry (Scotland) Act 2002. As such, the proposals represent an evolution of Ministers’ requirements for the current regulatory period and do not add significant new burdens on the industry and so no significant impacts - positive or negative - are expected.

However, due to an increasing need to replace and maintain existing assets and the need upgrade them to cope with population increases and the impacts of climate change, the investment programme may need to be larger than at present with consequential impacts on charges. Any unintended consequences will be monitored and addressed through stakeholder engagement and regulatory oversight.

Enforcement/ compliance

Scottish Water develops a Business Plan to deliver the Ministerial Objectives which WICS assesses to determine a cost-effective maximum charge. Scottish Water produces an annual Scheme of Charges which WICS assesses for consistency with the Principles of Charging. While formal enforcement mechanisms are limited to those related to drinking water quality and environmental standards rather than economic and customer performance, Scottish Water is required to:

• Comply with the Ministerial Objectives.
• Set charges in line with the Principles of Charging.

Compliance will be monitored through the Water Industry Investment Group, and WICS will ensure charging schemes are consistent with the agreed principles.

Recommendations/ implementation plans

To support WICS in making its draft and final determinations, its methodology for the SRC requires Scottish Water to submit business plans detailing how it will deliver the Ministerial Objectives. Scottish Water submitted its draft business plan to WICS in June 2025 and received feedback on this from industry stakeholders, namely Consumer Scotland, DWQR, its own Independent Customer Group, SEPA, and WICS. Scottish Water will reflect on this feedback as it develops its final business plan which it is required to submit to WICS in February 2026. WICS will then publish its draft determination on 30 June 2026 and Ministers will, having reflected on the draft determination and responses to the public consultation, finalise their Ministerial Objectives and Principles of Charging before WICS publishes its final determination in October 2026.

Ahead of the 2027-33 regulatory period and throughout, Scottish Water will also be required to submit annual delivery plans to Ministers setting out how it will deliver on the Ministerial Objectives.

Evaluation and monitoring of implementation/ review of BRIA

This partial BRIA will be reviewed and further developed following:

• Feedback from the public consultation on the Ministerial Objectives and Principles of Charging.
• Publication of Scottish Water’s final business plan.
• WICS’ draft determination and stakeholder responses.
• A final BRIA will be published by October 2026, alongside the finalised Ministerial Objectives and Principles of Charging.