Taxing Changes: How the Abolition of Council Tax Could Turn the Scottish Water Industry Upside Down

Water suppliers north of the border are on the edge of their seats as the Scottish Government is expected to decide if council tax will be abolished in the region. The first minister Alex Salmond has said it is time to replace the council tax with a local income tax, based on ability to pay, which has the potential to reduce the number of people in poverty and save the average Scottish family between £350 and £535 per year. It’s a bold choice and one that will impact both suppliers and customers in a range of ways. One of the less visible organisations affected is Scottish Water, which faces a potentially massive set of changes within its industry.

Cancelling council tax would result in a major shift in the dynamics of the water industry in Scotland. The industry had already undergone one major change this year, with the introduction of competition at a business and public sector level. The opening up of supplier competition in the Scottish water industry was in itself a revolutionary move to drive improvements in services to businesses. The move necessitated a wide range of customer service related initiatives that took a long time to initiate and implement. The possibility that standard water rates for consumers will no longer be part of council tax payments means that this scene could now be replayed in the consumer market place. It effectively sets the scene for further competition within the water market – something that that just six months ago didn’t exist at all in Scotland.

Scottish Water would appear to have two options. To either maintain the same level of control it currently has and take on complete responsibility for individual household services, or to ship this opportunity onto the newly competitive suppliers. Either way, there’s a range of billing and metering and customer service processes that still need to be put into place in the light of what is effectively another level of de-centralisation.

Should Scottish water decide to take up the challenge, this would present an opportunity for the company to implement improvements of its own across the board. This said, the company needs to be well prepared and realistic about the technical and operational challenges that it may face. Throughout the transition period it is imperative that it does its utmost to be transparent with customers about any changes that might impact on them.

Households in Scotland can currently choose between having a water meter, or being charged a lump sum incorporated in their council tax to pay for water. The first technical challenge that either Scottish Water or the suppliers will face is the installation of water meters across the whole of Scotland. Many households do not have a water meter – meaning that this will be a wide spread task, carrying both economic and logistical burdens. A thorough evaluation and planning exercise to choose the optimal metering technology will need to be conducted, followed by the installation process itself. Unless the task is managed with meticulous organisation, it is likely to be accompanied by a confusing transition period for both suppliers and end users – and the possibility of large losses of revenue.

The second challenge that the supplying organisation (be it Scottish Water or suppliers) would face is managing increased levels of customer interaction. Appropriate customer service resources and systems must be put in place, either from the relatively Greenfield perspective of Scottish Water, or just building on what the suppliers have already achieved in their business endeavours. Furthermore, an entire new billing system will need to be initiated to underpin the entire change.

Naturally, all of these developments cost money, and that has to come from somewhere. Regardless of whether competition is fully opened-up to suppliers or not, the chances are high that it will be consumers who pay for this cost in water price hikes. Should the suppliers be the ones handling this relationship rather than Scottish Water, there’s an additional weight their own profits to add to this equation as well as those of Scottish Water.

Either way, it is crucial that the Scottish water industry commits to maximising the opportunities that the potential abolition of council tax may create. The success of this transition will lie in the ability to commit to excelling in a competitive market by exceeding customer service expectations.

About David Hughes
As Utilities Practice Director at ABeam Consulting, David assists clients in the delivery of major business transformation programs, specialising in back office redesign and shared services as well as mobile fieldforce transformation. David is a Chartered Accountant and has extensive financial and business change experience gained via a variety of senior positions within the UK utilities sector. Prior to joining ABeam, David was the Head of Shared Services for British Waterways.