Water services - charging principles: 2027 to 2033

Additional Requirements

Household charges

8. Ministers confirm that the collection arrangements and tariff structure applying to unmetered household charges in 2021-27 should continue for the 2027-33 period. That is:

1. Local Authorities will continue to bill and collect unmeasured household water and sewerage charges - Ministers will ensure that an order under section 37 of the Water Industry (Scotland) Act 2002 is in place to secure this.
2. The bandings for household water and sewerage charges should correspond to the council tax bandings that were in place in section 74 of the Local Government Finance Act 1992 as it had effect at 1 April 2015. Subject to paragraphs 8c and 9, the discounts and reductions that apply to council tax are to be applied to household water and sewerage charges.
3. No discounts or reductions in household water and sewerage charges should be applied for empty dwellings and second homes under the definition in The Council Tax (Discount for Unoccupied Dwellings) (Scotland) Regulations 2005 (as they had effect until 1 April 2013).

Affordability support

9. Ministers confirm the Water Charges Reduction Scheme (WCRS) should remain the means by which the water industry supports those customers least able to pay water and sewerage charges. Detailed provisions are set out at Annex A.

Household drainage charges

10. Metered and unmetered household charges should continue to include appropriate elements to recover the cost to Scottish Water of dealing with rainwater that drains to its sewers from:

• roofs and other impermeable surfaces from household premises; and
• public roads.

Wholesale charges

11. Ministers confirm that non-household customers should be charged for water and sewerage services based on meters, where possible.

12. Ministers request that by 2029 Scottish Water reviews the wholesale tariff to encourage water efficiency, for implementation over the remainder of the regulatory period. And that accordingly WICS reviews its directions for the Default Retail Tariff.

Wholesale drainage charges

13. Ministers confirm that, in relation to wholesale charges, Scottish Water should continue to include appropriate elements to recover the cost to Scottish Water of dealing with rainwater that drains to its sewers from roofs and other impermeable surfaces from business premises and from public roads.

14. Wholesale charges related to rainwater drainage from roofs and other impermeable surfaces from business premises and from public roads should generally be calculated by reference to Rateable Value, as shown in the current valuation roll.

Financing

15. Ministers confirm that, in relation to the financing of Scottish Water, the following considerations should apply:

1. Financial Strength – Scottish Water should be sustainably and prudently financed, consistent with the governance framework within which it operates.
2. Dividend – The Government will not take a dividend from its ownership of Scottish Water. However, the Scottish Ministers may direct Scottish Water to fund activity that Ministers consider necessary for the successful implementation of the water sector vision and/or delivery of the Ministerial Objectives.
3. Lending – The Government will continue to make finance available through lending to Scottish Water in the 2027-33 period in support of its investment programme. The Government wishes to ensure that this lending is at the lowest practicable level, consistent with the principle of stable charges. Ministers therefore confirm they will provide to a maximum of £1.02 billion for the 2027-33 period.
4. Financial Performance – Financial performance in relation to on-going operating and broadly recurring costs should be considered in line with the financial ranges set out by the Commission. This will ensure that customers will only be asked to meet additional costs beyond those allowed for in a charges determination where these arise as the result of external factors beyond the influence of Scottish Water. This arrangement protects the position of customers and ensures that they do not compensate Scottish Water for inefficiency or poor management. Any financial outperformance will be deployed in line with Ministers’ approval. Scottish Water should provide stakeholders with separate reporting relating to expected and delivered capital expenditure.

Paying for additional capacity

16. Ministers confirm the costs associated with meeting the needs of new housing developments and the domestic requirements of new and expanding commercial and industrial developments should be funded as follows:

• Extending Local Infrastructure – the costs of providing and installing new local infrastructure associated with developments up to the connection with existing Scottish Water Network assets will be funded by Scottish Water through reasonable cost arrangements up to a maximum limit under the Provision of Water and Sewerage Services (Reasonable Cost) (Scotland) Regulations 2015. The limit applies cumulatively to the costs of extending local infrastructure and the costs of enhancing existing assets associated with the development. Individual developers will be required to meet additional costs above this limit.
• Enhancing Existing Network Assets – the costs associated with increasing the capacity of existing network assets where they are not readily attributable to a particular developer will be financed by all developers through infrastructure charges and the enhancements will be delivered by Scottish Water. Where the costs of increasing the capacity of existing network assets associated with development up to the connection with existing Scottish Water Network assets are readily attributable to a particular developer, they will be funded by Scottish Water through reasonable cost arrangements, up to a maximum limit under the Provision of Water and Sewerage Services (Reasonable Cost) (Scotland) Regulations 2015. The limit applies cumulatively to the costs of extending local infrastructure and the costs of enhancing existing assets associated with the development. Individual developers will be required to meet additional costs above this limit.
• To support these arrangements, the Commission should provide for Scottish Water to levy infrastructure charges which will increase as decided by WICS:
• Household Development – for each dwelling to be connected to Scottish Water's water services and for each dwelling to be connected to Scottish Water's sewerage services;
• Non-Household Development - for the domestic requirement of each premises to be connected to Scottish Water's water services and for each premises to be connected to Scottish Water's sewerage services.
• Upgrading Strategic Infrastructure^[1] – Scottish Water will be required to meet the costs of upgrading strategic infrastructure.

Assistance for charitable organisations

17. Ministers recognise the contribution that charities make to Scotland’s well-being and prosperity and confirm that the Exemption Scheme implemented for the 2021-27 period will continue in the 2027-33 regulatory period. This scheme will provide an exemption or a reduction on water and sewerage charges payable by charities or Community Amateur Sports Clubs, subject to the conditions set out in Annex B. This scheme is to be funded by the generality of non-household customers.

Paying for regulation and customer representation

18. Ministers confirm that the cost of Scottish Water’s economic regulation, water quality regulation and customer representation (WICS, DWQR and CS respectively) should continue to be covered by annual levies on Scottish Water funded out of charge income.

19. Ministers note that the costs of SEPA in regulating Scottish Water are funded from charges levied by SEPA in accordance with its charging regime.

Preparing for Future Regulatory Periods

20. Ministers request work be undertaken to prepare for the period beyond 31 March 2033. This should take account of the impacts of changing economic and social circumstances, and the future investment that will be required to address the long-term challenges facing the water industry.

21. The charging policies contained within this document will be reviewed by the Scottish Government, in consultation with water industry stakeholders, to ensure that they continue to meet the Government’s overall policy priorities and to inform water industry policy for the period beyond 31 March 2033.

22. This work should inform the next Strategic Review of Charges, which will be commissioned by Ministers within the 2027-33 regulatory period.