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

Section 3: Costs, impacts and benefits

Quantified costs to businesses

Based on analysis to date, the primary direct cost to businesses under the proposed Ministerial Objectives and Principles of Charging will arise from changes to wholesale charges for water and wastewater services. These services are provided to non-household customers by Licensed Providers, who purchase them wholesale from Scottish Water. Scottish Water’s draft business plan for 2027-33 indicated that it expected wholesale charges would need to increase by CPI + 4% per annum. It is noted that WICS have published their feedback on this draft business plan and that Scottish Water will consider this feedback and the Ministerial Objectives in developing their final business plan. However, whatever the final charge increases, it is anticipated that Licensed Providers would pass those on to their business customers.

These costs would affect all businesses operating in Scotland that consume water and wastewater services, with the greatest impact on sectors with high water usage, such as food and drink manufacturing, hospitality, and certain industrial processes. The impacts are expected to be limited to direct service costs; no significant resource costs (e.g., staff training or system changes) have been identified at this stage.

It should be noted that the draft figures reflect Scottish Water’s assessment of the investment required to deliver the draft Ministerial Objectives. The maximum amount customers can be charged is determined by WICS and its initial view will be apparent when it publishes its draft determination in June 2026. This will be reflected in the final BRIA. The final costs will be confirmed when WICS publishes its final determination in October 2026.

Other impacts

Beyond the direct cost implications outlined earlier, no significant additional impacts on businesses are anticipated from the proposed Ministerial Objectives and Principles of Charging. The proposals represent an evolution of the existing framework rather than a fundamental change, and therefore unintended consequences are expected to be minimal.

One area of potential impact relates to the Ministerial Objective on Supporting Sustainable Economic Growth, which requires Scottish Water to work with businesses and industry to provide strategic capacity to meet their domestic and non-domestic needs. The objective introduces a caveat that Scottish Water is not obliged to provide capacity for non-domestic needs where doing so would compromise its ability to meet domestic obligations to its current or future customers without incurring unreasonable costs. This reflects existing Scottish Water duties under Section 9(2) of the Water (Scotland) Act 1980 and as such, is not expected to materially alter the existing policy framework.

No evidence has emerged to suggest that these proposals will negatively impact business investment decisions or the ability of businesses to meet other policy requirements. However, the Scottish Government will continue to monitor feedback during the consultation period and through engagement with stakeholders to identify any emerging issues.

Scottish firms’ international competitiveness

The proposed Ministerial Objectives and Principles of Charging largely continue the existing policy framework. Consequently, the overall impact on Scottish firms’ ability to compete internationally is expected to be minimal.

Scottish Water’s draft business plan indicates that it believes charges will need to rise to enable delivery of the Ministerial Objectives. This will increase costs for businesses, particularly those with high water consumption. However, were these changes to materialise they are not anticipated to materially affect international competitiveness. The charging approach remains consistent with the principles that they should remain stable, fair, equitable and affordable. This will help maintain stability for businesses operating in global markets.

Similarly, Scotland’s attractiveness for global capital investment is unlikely to be adversely affected. The Ministerial Objectives seek to balance investment needs with affordability, supporting confidence in the long-term resilience of water services. This stability is likely to be considered positive from the perspective of investors.

Overall, while some cost increases are expected, the proposals are not expected to significantly influence Scotland’s competitive position internationally. This will be kept under review as part of ongoing monitoring.

Benefits to business

The proposed Ministerial Objectives and Principles of Charging are expected to deliver continuity and stability for businesses. While the policy does not directly reduce costs of goods or services, it provides indirect benefits through predictable charging structures and sustained service quality.

All businesses can therefore continue to rely on high-quality water and wastewater services, which are essential for operational efficiency across all sectors.

Small business impacts

The proposed Ministerial Objectives and Principles of Charging are expected to have broadly similar impacts on small and large businesses.

Smaller businesses may find it more challenging to absorb any cost increases. However, as charges for businesses are generally based on actual water consumption, most businesses have the opportunity to manage costs through improved water efficiency. Scottish Water’s Water is Always Worth Saving campaign materials provide guidance on water-saving measures, and the Ministerial Objectives require continued engagement with its customers to promote water efficiency.

The charging principles also maintain existing exemptions for charities, which will continue to benefit organisations operating on a not-for-profit basis. To avoid charities that are exempted from water charges having an unfair advantage over small businesses, charities are not eligible if they are running a commercial activity that would compete with businesses, e.g. a café or shop. No additional exemptions for small businesses are proposed, as impacts are considered proportionate and mitigated through consumption-based charging and efficiency support.

Investment

The proposals are not expected to make Scotland less attractive for global investment. The approach seeks to balance affordability with the need for sustained investment in water and wastewater services, supporting confidence in the long-term resilience of essential infrastructure. It is anticipated this stability will generally be viewed positively by investors.

While Scottish Water anticipates that charges will need to rise to deliver the Ministerial Objectives, the Ministerial Objectives and Principles of Charging are intended to ensure any increases are proportionate and stable, mitigating potential concerns around cost volatility.

The policy framework continues to provide clarity and transparency, which aligns with the recommendations of the Investor Panel to consider investor sentiment when developing policy.

Workforce and Fair Work

The proposals are not expected to introduce new requirements that directly affect workforce practices or recruitment. However, any increase in charges will impact business costs, which in turn may affect their ability to meet Fair Work First principles, including paying the real Living Wage.

This risk has been mitigated by ensuring that the Ministerial Objectives are proportionate and that revenue raised through customer charges is invested to address the challenges the water industry faces, enabling it to continue to provide high-quality water and wastewater services. The approach seeks to balance ambition with affordability, reducing the likelihood of significant cost pressures that could constrain fair work commitments.

Furthermore, by requiring a stable and predictable charging framework, the Principles of Charging will help businesses plan effectively and sustain fair work standards.

Climate change/ Circular Economy

The proposals are expected to have a positive impact on businesses’ ability (including Scottish Water’s) to contribute to climate and circular economy targets, including their own plans and wider Scottish Government objectives.

The Ministerial Objectives require Scottish Water to maintain its trajectory towards achieving net zero emissions. Scottish Water’s net zero emissions target includes its operational and capital investment emissions. This has resulted in its supply chain having to embed emissions reduction into their operations.

In addition, the Ministerial Objectives require Scottish Water to assess the potential for resource recovery from its sewage systems and promote the sustainable reuse of bioresources and effluent. These requirements support circular economy principles and could create collaborative opportunities for businesses.

Overall, the proposals reinforce Scotland’s climate ambitions and circular economy objectives, while offering businesses the chance to engage in innovative emissions reduction and resource recovery projects.

Competition Assessment

The proposals are not expected to have any material impact on competition. Scottish Water operates as a regulated monopoly for wholesale and household water and wastewater services, governed by statute, and the competitive retail market for non-household customers is already established with 22 active Licensed Providers under the governance of WICS.

An initial assessment against the Competition and Markets Authority questions is as follows:

• Will the measure directly or indirectly limit the number or range of suppliers?
  • No. The proposals do not alter market structure or licensing arrangements. Nor change the fact that Scottish Water is the only supplier for households.
• Will the measure limit the ability of suppliers to compete?
  • No. Retail competition remains unaffected, and wholesale arrangements continue under existing regulatory frameworks.
• Will the measure limit suppliers’ incentives to compete?
  • No. The proposals maintain current principles and do not introduce barriers to innovation or service differentiation.
• Will the measure affect consumers’ ability to engage with the market and make choices that align with their preferences?
  • No. Non-household customers will continue to choose among Licensed Providers as before.
• Will the measure affect suppliers’ ability and/or incentive to introduce new technologies, products or business models?
  • No. The proposals do not restrict innovation and may indirectly support investment in efficiency and sustainability.

Overall, the proposals are considered neutral in terms of competition impacts.

Consumer Duty

The Ministerial Objectives and Principles of Charging have been developed in line with the Consumer Duty under the Consumer Scotland Act 2020. The proposals aim to ensure continued provision of high-quality water and wastewater services at a cost that is affordable to households and businesses. Careful consideration has been given to the impact on consumers, both households and non-households (i.e. businesses) including those in vulnerable circumstances.

The impacts on consumers (household and non-household) of the proposed Ministerial Objectives and Principles of Charging have been explored at various points throughout this partial BRIA. As the proposals are an evolution of the existing approach, they do not introduce any new impacts on consumers that are considered material. They do not affect consumers’ access to services, the choice available to consumers, the information, their safety, fairness, representation or redress. The Scottish Government indirectly engages with consumers’ views through the Independent Customer Group within Scottish Water, and engaging with Consumer Scotland. The public consultation accompanying this BRIA is the Scottish Government’s direct engagement with consumers.

Household customers have no choice of supplier, and above-inflation charge increases may increase the number of households in water poverty. Charges will continue to be linked to council tax bands, which does not allow customers to influence bills through reduced consumption. However a range of affordability support is provided including through the Water Charges Reduction Scheme (WCRS), which provides support for low-income households. Alternatives such as increasing discounts, were considered, but as they are funded by charges on all customers, it would impose additional costs on other customers, potentially creating further affordability challenges. We will continue to provide affordability support and encourage uptake.

Wholesale charge increases will be passed on by Licensed Providers, but business customers, including small and medium-sized enterprises (SMEs), retain the ability to choose their retail supplier and negotiate payment plans. No exemptions for SMEs are proposed, as this would redistribute costs to other business customers. The charity exemption scheme will continue, targeting small charities only to avoid distorting competition with SMEs offering similar services.

The proposals seek to balance affordability with the need for investment in resilient, high-quality services. While some consumers may experience higher costs, mitigation measures such as WCRS and predictable charging principles aim to reduce harm. No alternative proposals were identified that would improve outcomes without creating significant negative impacts elsewhere.

In developing these proposals, the Scottish Government has considered the impact on consumers, including those in vulnerable circumstances, and taken steps to mitigate harm where possible.