I welcome everyone back to the Public Audit Committee, following our suspension. We are delighted to resume our evidence sessions this morning with agenda item 3, which is further consideration of “The 2023/24 audit of the Water Industry Commission for Scotland”.
I welcome our witnesses who join us in the committee room this morning. I am particularly pleased to welcome David Satti, who is the interim chief executive of the Water Industry Commission for Scotland. Alongside Mr Satti is Ronnie Hinds, who is the chair of the Water Industry Commission for Scotland’s board.
We are also very pleased to welcome back the director general for net zero at the Scottish Government, Roy Brannen. You are very welcome, Roy—it is good to see you. Alongside Mr Brannen is Michelle Quinn, who is the director of offshore wind, but has previously been acting as the interim director general for net zero. We are also pleased to welcome back Kersti Burge, who is director of energy and climate change in that directorate, and Jo Blewett, who is the deputy director for the water industry in the Scottish Government.
As you know, time is quite precious for us this morning, but there are some important areas that we want to cover, so I encourage the committee members to keep their questions precise. If witnesses could be concise in their answers, that would be very helpful.
However, before we get into those questions, we are pleased to invite Ronnie Hinds to speak on behalf of the Water Industry Commission for Scotland, then Roy Brannen, to speak on behalf of the Scottish Government. I turn to Mr Hinds first, to kick us off.
Thank you, convener. My remarks will be of a quasi-personal nature, but I will keep them short. What I really want to say to the committee this morning is that it would be fair to say that, like a lot of people, when I read the Auditor General’s initial section 22 report and followed the aftermath of that, including meetings of the committee and public discourse, I was shocked and dismayed. I was shocked to witness such a severe departure from the expected standards of stewardship of public money in an organisation like WICS, and I was dismayed—this is the personal bit, if you like—as a long-standing supporter of effective regulation in this country, and particularly of regulation of Scottish Water and the public water model in general. Because of that, I could see the risk to public confidence arising from such obvious weaknesses in governance and management within WICS.
When I was asked after all that to join the board in August last year, I was more than happy to do so. When I was asked to step up as chair in October, I welcomed the opportunity to do so, and I hope that I can make a contribution to turning around the fortunes of WICS as an organisation. My objectives are to restore strong financial management controls, to create a healthy organisational culture and to maintain public trust in water regulation in Scotland. That is what I will try to do in the time that I have as interim chair.
On joining WICS I was immediately impressed by the changes that had already been made and that that were under way. That was in August last year. I must give credit to David Satti, who is on my left, for a lot of the response to what I have, I think, made clear are justified criticisms, and to recommendations for improvement from various sources. He has led on that since his appointment as interim chief executive, back in March last year.
I was also struck by how the organisation was, nonetheless, carrying on with its key statutory responsibilities in relation to the regulation of Scottish Water and the retail market for water and sewerage services in Scotland, despite all the poor publicity around WICS and its leadership’s behaviours. For that, I want to give credit to the dedicated and talented staff within the organisation. They have carried on regardless, while this has been going on around them.
I believe that lessons have been learned and I believe that they are being implemented. We are turning a corner and we are transforming WICS’s governance, its management and its culture. As I have said, if I did not believe that, I would be hacking my way around a golf course and spending time with my grandchildren, instead of sitting here.
I think that I have probably said enough. I am sure that the committee has many questions for us and our colleagues from the Scottish Government. David Satti and I will answer questions as fully and openly as we can, and I hope that we are able to provide appropriate assurances to the committee this morning.
Thank you.
Thank you very much indeed.
Thank you and good morning, convener and committee members. I am joined this morning by Michelle Quinn, who was in the role of interim DG between last September and January this year. I am also joined by Kersti Berge, who is the director of energy and climate change and lead director for WICS, and Jo Blewett, who is the new permanent deputy director, with responsibility for WICS sponsorship since December.
Since our last meeting in September 2024, you have heard from Audit Scotland in relation to a further section 22 report. Although having a regulatory qualification to the WICS accounts is disappointing, I note that the Auditor General recognised that actions are being taken to address the financial management and governance weaknesses that were identified last year.
The Scottish Government and WICS have made good progress in taking action on the issues that have been identified, and in resetting the sponsorship and public body relationship. However, I acknowledge that we must maintain that momentum at WICS and sponsor level in order to build continuous improvement into our processes to create stability.
Since we last attended the committee, the chair of WICS has resigned and we have agreed that Mr Hinds, who is here today, will act as interim chair to help to guide the organisation through this period of change. You have heard about Mr Hinds’s direction of travel, in that regard.
We also continue to improve our sponsorship function within the Scottish Government, in the water industry team and more widely across the organisation, and we welcome the opportunity today to set some of that out.
As always, we will endeavour to address your questions as best we can this morning, and to follow up in writing where necessary.
Thank you.
Thank you very much indeed, director general.
Before we get into the nuts and bolts of the section 22 report, there is a matter in the public domain this week that has attracted quite a bit of attention in Parliament, about Scottish Water senior management bonus payments. I think that it was highlighted that three people were in receipt of £330,000 last year in bonus payments. That constituted a 35.9 per cent rise in one year.
The Scottish public finance manual charges you, Mr Brannen, with
“regularity, propriety and value for money”.
WICS’s terms of reference say that your job is
“to promote the interests of Scottish Water customers to ensure long-term value and excellent levels of service”.
How do you reconcile the revelations about bonus payments with those terms of reference? I will start with you, Mr Brannen.
The bonus scheme has been in existence for some time, and was put to ministers back in 2020 for review. Ministers agreed to the framework at that time. David Satti can go into the details of the various components that it is made up of, but it is there to operate in a market where the market itself is very much geared towards performance of an organisation. Scottish Water’s incentivisation through the two schemes is to drive better performance on the journey towards net zero and on the journey towards transformation, and outperformance in financial measures throughout the regulatory review period, which is 2021 to 2027.
Ministers took the information from the Scottish Water remuneration committee, considered it internally within our finance and pay structure and agreed with the decision to go forward with the bonus scheme for the regulatory review period.
As we approach the next regulatory review period, that process will be repeated. We will take any case that is brought forward by the Scottish Water board and consider it internally within the Government, then our advice will go to Scottish ministers for them to make a decision, informed by WICS, the regulator.
11:00
You used the expression “ministers”—plural—a couple of times, director general. Who signed off that framework for bonuses to be paid?
I was not in post in 2020, so I would need to ask Jo Blewett or Kersti Berge whether they remember which minister responded. I do not have that information to hand.
We are looking for accurate information, so if it is better to send us that in writing, that is acceptable.
I will do that.
The Acting Minister for Climate Action told Parliament yesterday afternoon that the Scottish Government seeks to ensure that executive pay is kept under control. It does not sound like it is being kept under control, though, does it?
There are two elements. The pay structure for the new chief executive officer went through a process of rigour internally within the SG. The case for a salary level was made by Scottish Water, initially. Scottish Water provided benchmarking guidance to support that recommendation. Our public pay policy team reviewed it, then the Scottish Government remuneration committee reviewed it but did not agree with it: there was a challenge from the Scottish Government remuneration committee to what the board was seeking as a starting salary.
Eventually, we agreed what that salary would be and Scottish Water advertised that position. The bonus element was a separate consideration, beyond the salary for the chief executive post.
Okay, but does the bonus arrangement not come under the watchful eye of the remuneration committee either of the Scottish Government or, I presume, of Scottish Water, which has its own remuneration committee, has it not?
It does, indeed. Scottish Water’s remuneration committee put evidence to the Scottish Government to go to ministers for consideration of the case. The Scottish Government’s remuneration committee also commented on that particular process. I am content that the process was undertaken in accordance with what we would like to see being done, which is a case being put by the organisation then considered by its remuneration committee, followed by consideration under finance and pay policy within the SG in our remuneration committee, then the fullest possible advice going to ministers for them to make a decision on whether to continue.
So, it is a ministerial decision, in the end.
In the end—yes.
That is fine.
Mr Hinds or Mr Satti, as the regulator and given your terms of reference, do you have any reflections on what has come out in the last few days?
All that I would add is that the role of WICS is to set the lowest overall reasonable cost of delivering the ministerial objectives. Key components of that are a look at Scottish Water’s operational costs and the setting of a global efficiency target. In this regulatory period, it was 1 per cent year-on-year for a collection of costs—we call them tier 1. We measure performance over a collection of costs, rather than any one specific cost.
We do not have a role in the bonuses. What we would like to do—we have outlined this in our methodology for the next price review—is better align the metrics that underpin a bonus scheme with the regulatory settlement during the price-service mix that Scottish Water agrees to for six years. We are looking to create more alignment in the next regulatory period, but generally the bonuses are based on performance, which is something that the remuneration committee of Scottish Water would decide on.
Okay. Mr Simpson wants to come in.
Thanks, convener.
I am sorry, Mr Satti, but I have no idea what you were on about there. I genuinely did not understand that answer. Do you think that the bonus scheme should continue or not?
The bonus scheme has been used throughout multiple regulatory periods as a way of incentivising performance for the organisation. We have seen Scottish Water’s performance increase and improve, regulatory period on regulatory period. We do not have a role in creating the bonuses. All that we do is provide assurance that the organisation is performing in line with the targets that have been set for it.
I see that Mr Brannen, who mentioned you, wants to come in.
That is the independence element of the performance checking, effectively. The scheme sets out exactly what needs to be achieved, and WICS’s role in that is to check the performance against those criteria but no more than that. The scheme is set down by Scottish Water’s remuneration committee and agreed by ministers.
There are two elements to it. There is an annual outperformance incentive part, which is across employees, managers and directors, and there is a long-term incentivisation plan for senior managers. It is quite granular, and it is probably a bit much detail to go through here, but it focuses on the journey towards net zero, the journey towards transformation, success of the capital programme and success of the outperformance in terms of financial mechanisms. All that performance is then independently checked by WICS and then, as I understand it, the remuneration committee’s role is to look at that and decide how much of the bonuses is actually paid, as they are on a sliding scale.
When is the next review of the scheme? You mentioned the regulatory review period. When will the issue be looked at again?
That will be before the next regulatory review period. The current period ends in 2027. When we start to move towards the next six-year period, there will be another opportunity for Scottish Water to put forward a business case. That will be checked by Government teams internally and communicated on to the Scottish Government remuneration committee, and then advice will go to ministers on whether they should continue with that incentivisation.
Would it be possible for a minister to step in before that and say that the scheme should end?
Because the scheme has been set for the whole regulatory period and the bonuses are linked to that performance throughout the period, I do not think that that was the intention. I am sure that ministers possibly could do that, but that is not the intention of the original scheme that was set up.
One thing that leapt out for me was the money that was paid to Mr Plant, the chief executive of Scottish Water, who is on a very handsome salary. He got quite a big relocation package to move up from England, and part of that was that we, the taxpayer, paid his land and buildings transaction tax. We paid his tax bill for buying a house. That struck me as wholly inappropriate. Is that covered by the scheme?
Those are terms and conditions of his salary rather than the bonus scheme—the two things are separate. Terms and conditions of employment are a matter for Scottish Water. The base salary level was set by ministers once we had gone through that scrutiny process.
Maybe Jo Blewett can say a bit more about the package, but I will put it into context. Compared with other salaries in the industry across the UK, the salary in Scottish Water is far lower than what you would expect in other water authorities. When Scottish Water went out to identify whether that would attract CEOs, nobody said that they would come to work in Scotland on that salary. In fact, 50 per cent of people in the next level down said that they would not come here to work for that salary. As you probably know, the salaries in the water industry are significant and, because water is one of our most important assets in Scotland, we have to attract the best talent and capability to drive performance and the approach towards making the best use of that asset.
Jo, do you want to say a bit more about that?
I would just confirm that the public sector policy is that the relocation package should align with the company’s relocation policy. However, I do not have the Scottish Water policy in front of me. I would need to check that with Scottish Water.
It sounds from what you are saying that the relocation package was separate from the bonus scheme.
Correct.
That is right.
So that was part of the lure to get Mr Plant here.
Yes—it was the terms and conditions of employment. It is a contract-based salary, with whatever other terms and conditions Scottish Water negotiated with the CEO. That is Scottish Water’s responsibility.
Am I correct in saying that the bonus scheme applies only to the three executives of Scottish Water and nobody else?
No. As I mentioned, it is in two parts. There is an annual outperformance incentivisation plan, which is open to employees, managers and directors There is a long-term incentive plan that goes over a longer period of three years and then a three-year lock-in, which is for senior managers.
How many people does that apply to? Is it everyone?
I do not have information on the applicability of the bonus scheme in front of me.
Maybe not all workers could benefit from the bonus scheme.
All employees benefit from the AOIP element if there is outperformance.
I know that we do not want to dwell on this, convener, but how are we judging performance to give people a bonus?
That is where WICS comes in with the independent review of the performance of the organisation. WICS’s advice is put back to the Scottish Water remuneration committee to determine whether those bonuses should be paid, and where on the sliding scale they should be paid.
So WICS has a role. It will say yes—
It says that the organisation has either met the performance or not, based on the criteria.
Whatever the criteria are.
David Satti might want to explain that part of the process.
We collect quite a large data set from Scottish Water every year and we produce a performance report off the back of it, looking at the metrics that the organisation has committed to over a regulatory period. As I said, and as we outlined in our methodology, we are looking to strengthen some of those metrics in the next regulatory period. That is the role that we play. We make an independent assessment of Scottish Water’s performance each year.
If it helps, I could get the chair and chief executive of Scottish Water to write to you to set out what the scheme looks like. As I said, it is quite a complex scheme. It is probably harder to explain it verbally than it is to see it written down and see how it operates in practice.
I am genuinely interested, because I am not sure how you can measure the performance of a state-run monopoly. What are you comparing it with? I would be interested in that.
Without going into that in a lot of detail, I will say in passing that we do that in WICS. We look at the performance measures that we apply to what Scottish Water does and we produce an annual report on that, as David Satti said. As part of that, we look at what is happening to the water authorities south of the border. We have a benchmarking process that allows us to make comparisons. Even though they are in a market and we are not, comparisons can still be made.
I want to clarify something that I think you may not have been fully seeing. As WICS, we are saying two things. First, we are saying that the measures that are used to inform the bonus payments for the senior executives are not exactly the same as the measures that we look at when we monitor the performance. You would not expect them to be identical, but we want to make sure that they are better aligned.
Secondly—this where you might not be seeing clearly what is being said—we do not then say, “Because of that, it’s okay to pay these bonuses.” That is not part of our remit—we do not do that. David Satti is saying that, for the next regulatory period, we are looking at how we can make some assessment of whether the bonuses are truly based on the performance of the organisation.
Does that help?
Possibly not, because Mr Brannen said that WICS does advise on whether to pay the bonuses.
That is why I stepped in, because I do not think that that is what he was saying, but I could see that that is what you were hearing.
Yes—it is what I was hearing.
WICS provides advice on the performance of the organisation. The decision to pay bonuses rests with Scottish Water’s remuneration committee and board.
Okay. Thanks.
Kersti Berge wants to come in.
I have one additional point. Incentive schemes are very much the norm; incentivised payment and bonuses for senior management are very much the norm in large corporations. They are genuinely required to attract the calibre of person needed to run large organisations—in this case, it is an asset-heavy organisation. It is absolutely right to question the detail. However, it is very much the norm that there is, in regulated utilities, an assessment of the performance of the company by the regulator. In the competitive markets, assessment will be based on profits. However, this is very much a standard system across the board in a range of industries.
Thanks for that.
Let me disclose that I used to deal with Scottish Water as a trade union organiser. Two out of the three people who are highlighted as receiving those whacking great bonuses are people who I dealt with 15 or 20 years ago.
To recap, Mr Brannen, you are going to supply us with the name of the ministers who are responsible for signing off the framework for the bonuses and you are going to send us details on the bonus scheme and how it operates. Could you also give us some information about the current manager reward review, which is under way in Scottish Water?
11:15
I am happy to do that.
Thank you very much, and thanks for your forbearance with that.
I want to move on to the section 22 report, which we have before us. I begin by asking Mr Brannen and Mr Hinds, in the first instance, whether you accept the findings and recommendations of the section 22 report.
Yes.
Thank you—that was succinct.
Yes.
Mr Brannen assents also—excellent.
Could you give us a bit more detail on what you have been doing to address some of the deficiencies, which I think Mr Hinds described as quite shocking when he first read about and understood them? Mr Hinds, what changes have been made to financial management and governance arrangements over the past year, for example?
If you do not mind, convener, I will ask David Satti to start, because I should give credit where it is due, and this issue started before I joined. However, I can add as necessary.
Of course.
As the Auditor General highlighted when he presented evidence, there has been a robust response by the organisation to the first section 22 report. The first step was to undertake an internal review of transactions, which spanned the 2022-23 year and the final nine months prior to the former CEO’s departure. We then looked at enacting or delivering a 21-point action plan that we agreed with the Scottish Government.
A key element of that was the revisions to the expenses policies and the governance and controls. Those include spending limits for meals; a revised policy on travel; removal of the office credit cards, which we have heard about in previous meetings; the removal of reimbursement of alcohol; and stronger receipt documentation. As I think the Auditor General described it, a lot of those were basics. A lot of that was put in place during the final three months of the 2022-23 year.
As highlighted in the current section 22 report, there were no more instances—the issues stopped in December. In the final three months of that reporting year, we could demonstrate that WICS had changed.
If you like, I can go on to talk about all the additional organisational changes that we have been undertaking.
Please go ahead.
After the 21-point action plan, the focus was very much on the organisational change programme. The first step was to hire human resources support into the organisation. That was the first time that WICS has had HR in-house since 2009. We undertook a review of the leadership team to clarify roles and responsibilities. As part of that review, which was done in full collaboration with the board and with constant dialogue with the sponsorship team, we consolidated five roles of the leadership team—excluding the CEO—into four roles and undertook an independent selection process, not least given the concerns that were highlighted in the SG governance review about how posts were filled in the past.
That selection process was completed. We now have to recruit two external directors for two posts that remain unfilled. Those roles will be market tested and we will undertake a recruitment process in parallel with the recruitment process for the permanent chief executive.
I estimate that, once we have embedded the leadership team in full, WICS will be saving around £250,000 on its leadership team, or around 10 per cent of its remuneration budget, which we can then redeploy into functional gaps in the organisation. That will mean that we have to spend less on consultancy to fill those gaps. That process is well under way and is very much a priority for WICS in the forthcoming 12 months.
Thanks for that. Mr Hinds, do you want to come back in?
I will underscore a couple of points, if I may, convener.
David Satti has been a little bit shy about some of this. The way that he is trying to lead the organisation and help with its reform is to depart from the previous model of what I would call heroic leadership.
I am sorry—“heroic leadership”?
“Heroic leadership”—yes. It is managementspeak, which I am stealing. The idea is that a single person should have a limit to their authority. I think that the history of WICS demonstrates that that approach did not apply as well as it should have done. There was too much authority vested in one individual, hence the “heroic leadership” tag. David Satti’s style of leading is different: he is modelling it with his colleagues and there is a much more collaborative approach.
Management of expenditure was one of the key gaps in control. Now we—the board—see in detail the expenses that go through the organisation. Reports go through a prior process with management, then come to the board, so we are sighted—which I think was not the case previously—on all the expenditure that is incurred. We can, in turn, give assurances to the committee that it is not the case that expenditure is not being scrutinised or governed by the board.
The last thing that I want to say about the restructuring that David Satti has talked about is that there is now clarity about roles and responsibilities. That might sound a bit like jargon, but it matters, because where we did not have that in the past there were gaps through which things could fall. People are now much more clearly aligned in respect of what they are supposed to be doing: they understand their respective roles and there is clearer accountability that funnels its way back to the board. That is still work in progress, because we are still going through the process of appointing people to the new structure, but the culture is already visibly shifting, as a result.
I will ask a particular question about one of the things that is identified in the section 22 report. It is highly unusual and is something that we have not seen before. It is highlighted by the Auditor General that the limit on the amount of public money that can be spent on meals, subsistence and so on was removed in January 2023. I will turn to the Scottish Government first. When did you become aware of that? If you did not know about it, why did you not know about it?
I was not aware of that and I would not, as the DG, normally be aware of such issues. This is an important point about the independence of the body and how it is structured and is set up. Once the body is appointed, with a chair and board members, and they are clear about what the body exists to do, and there is an accountable officer, who has the accountable officer letter, operating in accordance with the SPFM, the body should be operating in accordance with the policies that have been set down by the body itself.
I would not ordinarily see such issues coming up to my level in Government. The sponsor team’s role—we have accepted that this is where there was a breakdown in terms of support and challenge by the sponsor team—is to try to triangulate any such issues that come up and to challenge whether or not spending is appropriate. In this case, that did not happen.
Shall I come in on this? I was not aware that the expenditure limit had been removed and I believe that the sponsorship team was also not aware of it. It was a highly unusual move. If such a limit were to be removed and there was a reason for that, one would expect the sponsorship team to be informed. None of that happened. The bottom line is that the sponsorship team was not aware of the change.
The change was approved by the board of WICS at the time. That is our understanding of what happened: we have been told that.
Yes. I can outline the events at that time. You are right. The board approved a trial to revise the expenses policy in January 2023. That followed a recommendation from the audit and risk committee. The rationale for it at the time was that we were all coming out of Covid, and oil prices—which I think had moved from $80—
Hang on. This was in January 2023.
It was to do with issues that had been identified within the expenses policy at the time, between January 2023, when the revised policies had been established, and when we were looking to trial the revised policies. Ultimately, the reason for the change was that colleagues were highlighting issues in respect of undertaking some international work, particularly in relation to flights, against the backdrop of there being increased air fares. As you have said, the audit and risk committee and the board approved a change to the expenses policy in January 2023, which included removal of the limits. Since then, we have revised our financial policies twice. The first time was to reinstate limits.
Today, WICS is an organisation that is fully compliant with its policies and controls, and we have had more than a year of that being in action. The policies have expenditure limits for travel and subsistence.
Okay. We will come to the international work later in our evidence session this morning.
I turn finally turn to you, Mr Brannen—but feel free to delegate to your team.
I am quite surprised that you did not know that something like that was happening. If the matter went to the audit and risk committee and the board, I would have expected there to be some oversight of it. Do the board and the audit and risk committee not produce minutes? At the very least, did the person who was in Jo Blewett’s position at the time not read the minutes that were generated in order to keep an eye on what was going on in a public organisation like WICS?
I will bring in Kersti Berge, in a minute. As I said at the outset, we accept that there were weaknesses and failures in the sponsorship arrangement. That has been borne out by the internal review that we did on sponsorship, in which one of the issues that was highlighted was challenge of and intelligence gathering of activity at the board by reviewing board papers and risk papers, and through regular discussions.
The current organisation and its relationships are different from what was in place back then. That is the important thing. We have had reviews from Grant Thornton UK LLP, we have had the independent review from the SG and EY, and we have had the sponsorship review. I feel that we now have all the issues out on the table and have put actions in place to address weaknesses, both on the sponsorship side and on the WICS side, and that we have the leadership to drive us forward.
If we come to it in questioning, I can outline what more we are doing across the SG in terms of sponsorship. I now feel much more comfortable that the sponsorship relationship will uncover some of the issues that are still being reported in the 2023-24 report.
I can come in on the back of that. I said in the evidence that I gave to the committee back in September that there were shortcomings in how we had carried out our sponsorship function. I think that that was fair.
Like WICS, we have taken a number of measures to strengthen our role and our sponsorship function. Roy Brannen touched on them, but one of the key measures is that we have strong and effective, but also challenging, relationships at all levels in the Scottish Government. One of the criticisms was that sponsorship was very concentrated in one individual, so we now have regular structured sponsor team meetings. Roy Brannen and I meet monthly with the chair and the interim chief executive. At some point in the future, the meetings will become less regular. Having such relationships at the different levels means that different people bring different perspectives, which I think is helpful.
As Roy said, we have new senior leadership, with Jo overseeing the division, and I have split the sponsorship function from the policy function. They still work together, but there is a bit of separation between the professional role of sponsorship that requires challenge and support from the people who work more closely with WICS day to day.
I think that your point was about assurance. We get information from WICS on changes, through the various meetings, but we also scrutinise written information much more carefully. We look at board papers and at WICS’s risk register, and we monitor progress in the actions that WICS has put in place. We have taken a number of steps and have made a lot changes to the sponsorship function, so that we can provide effective challenge as well as support to WICS. I think that we are doing that.
11:30
I am going to move things on. The deputy convener has some questions in that vein, so I hand over to Jamie Greene to put questions to you.
Good morning.
I will start by reflecting on the most recent correspondence that the committee has had, which is a letter from Ms Berge to the convener of the committee on 14 February. Thank you for your St Valentine’s day letter—it was the only one I got. I want to focus on the content of it and to give you an opportunity to clarify what happened.
My understanding is that when the committee looked at appendix 4 of the business case for the settlement agreement for departure of the former chief executive, the original draft was, of course, famously heavily redacted for us, but there was a signature on the document. The accountable officer stated that the business case was appropriate and that it complied with the Scottish public finance manual guidance. It was signed by Roy Brannen on 4 March 2024. Your letter seems to allude to that being an error. How so?
As you will be aware, the settlement agreement was signed, and WICS then came to us asking for approval of payment of the settlement agreement. The process requires a business case to provide views on the settlement agreement to provide payments. All that happened about a year ago—in March last year, I think.
Normally the accountable officer of the organisation would sign off a settlement agreement. In this case, obviously, the accountable officer was one of the signatories to the settlement agreement. The team at the time was trying to work out what to do in a case in which there is no accountable officer in the organisation. At one point, the team had understood that it was, in the absence of an accountable officer at WICS, the portfolio accountable officer who needed to sign off the business case. It was subsequently clarified that that was not the case: in fact, WICS could designate somebody to sign off the business case, and that happened.
To be clear, the business case process was one that we had to follow. To be absolutely clear, I note that the settlement agreement had been signed and was, to some extent, done and dusted. This was about completing the process.
What happened was that we failed to communicate that to WICS. WICS had, as a placeholder, put Roy Brannen’s name down when we had understood that it was to be signed by a portfolio officer. We failed to inform WICS that what it had done should not be the case and that it had to take his name off. Unfortunately, his name stayed on. When WICS submitted its evidence to you back in July, Roy Brannen’s name had stayed on the document. That was part of, I think, 100 or 130 pages that we sent to you, and we did not pick it up. I wanted to write to correct the record, just to be absolutely clear. Roy Brannen was never in a position to sign off the business case. He did not sign off the business case—that was an administrative error on our part.
Thank you for your candour and what I think was an apology. At the end of the day, we received a document that was key and fundamental to the whole conversation around the business case, as was who signed it off or who did not sign it off. There was a name attached to it, which we now learn was erroneously added to the business case.
I presume, Mr Brannen, that you had no sight of the business case and that you had no involvement in the sign-off. The business case was written after the severance package had been agreed between, and signed by, the two parties, which in itself is a worrying development that the committee has looked at.
Kersti Berge has laid out the circumstances of the error. I picked up on it when I returned from medical leave and it found its way into the section 22 report. I queried it because I remember asking at the time why I was being asked to sign off the business case. The business case was in circulation within the SG, but I queried why I was being asked to sign it off. Subsequently, the team checked internally with the legal team and compliance colleagues, and it was confirmed that I had no role to play in it, because I was not the accountable officer.
The error that occurred was that the name section had been prepopulated in the form—it is a name, not a signature—but was not subsequently removed as it worked its way through the process.
Ultimately, though, the business case was retrospective to the settlement agreement being signed, which was a legally binding position. I think that you heard evidence from the team in September about that. At that point, the decision had been taken that a payment would need to be made as a result of the settlement agreement. The business case was, in effect, the WICS’s board’s justification for how it arrived at the settlement.
The exit, for the record, cost the taxpayer £104,000. Is it normal for agencies that are sponsored by the Scottish Government to come to you after they have spent the money and ask, “Can you retrospectively approve this?”
No.
Is it malpractice?
The Scottish public finance manual is very clear about what we need to do with settlement agreements. The committee has heard that evidence previously, so I will not repeat it, but a sequence of events did not occur. The settlement agreement was entered into faster than the process that would normally have been undertaken would have allowed.
Thank you for your clarification.
Were you involved in any of the discussions at any point around the departure or performance of the former chief executive of WICS?
No. I cannot remember when exactly I knew that he was resigning—I found out about 19 or 20 December that he had resigned. The terms had been checked with the public sector pay policy—the question that had been asked of the sponsorship team was whether it was payment in lieu of severance. Again, as you have heard in evidence, the first that the team heard that the settlement agreement had been used was on 12 January.
Were you involved in the telephone call between Donald MacRae, the former chair of WICS, and a number of Government officials, about which he claims that, in that call, approval was given for the severance? He also states that that was confirmed in a second phone call on 20 December, and that the words that were used were “You can do this”. Were you involved in that?
No, I was not involved in those conversations.
Who was, then?
Can I come in on that and clarify? My understanding is that only one person from the Scottish Government was involved in those telephone conversations.
Did that person erroneously give approval for the business case?
My understanding—and again I was not in the call—is that the discussion was around whether, were the CEO to resign, he could be paid contractual terms, that is, payment in lieu of notice. It was my understanding—this is verbal, but also I think we have records—is that the discussion was around whether payment in lieu of notice was contractual.
I understand that. On 19 September, the former chair said this to the committee:
“we sought approval from the sponsor team for that approach. The approval was given in a phone call involving the deputy director in the sponsor team”.—[Official Report, Public Audit Committee, 19 September 2024; c 30.]
I will repeat the question. Was that approval given erroneously?
The sponsor team confirmed that payment in lieu of notice was reasonable, because that was part of the contractual terms. My understanding is that there was no broader approval around the approach.
I am sorry, I am not trying to be difficult; I am trying to get to the bottom of this. Someone has not been entirely truthful with the committee. Someone is not being entirely honest about what has happened: either the former chair of WICS, in his commentary to us about the approval process, or someone sitting in this room. I want to get to the bottom of it. I know that we have laboured this in the previous committee session, but it is important. Did someone from the Scottish Government give approval for the package? He says that that is what happened.
There was no mention of the settlement agreement in—
There was; it was part of the conversation. He said that there was a phone call on 19 December—
I believe that the chair wrote a follow-up email to the deputy director in the Scottish Government, and there is no mention of a settlement agreement in that email. The first that we heard of the settlement agreement was when WICS contacted us on 12 January to ask for payment for the settlement agreement.
Mr Brannen, does this whole line of questioning not strike you as concerning? We have heard conflicting views from all the protagonists involved and the committee is as yet unable to establish the truth of the matter about this business case. There is an opinion from the board, there is an opinion from the individual who has since written to us about his departure, and there is an opinion from the cabinet secretary, Ms Màiri McAllan, who, in letters to the committee, expressed a view about who was at fault. On two occasions, this committee has heard from members of the Scottish Government about what they think happened.
Our poor clerks have to write a report on this, and I think that they will struggle to identify the truth of the matter. What is your view?
I think that we have tried to lay that out. It was laid out in that session in September—I did not attend that meeting, but Michelle Quinn and Kersti Berge were there—and subsequently in written form. The timeline was very clear. The individual had resigned. It was communicated to the deputy director. The question was asked: is it possible to pay the individual severance in lieu? That was checked internally with the Government, and that was communicated back.
As far as I am aware, there was no communication around the settlement agreement until an email came in on 12 January that stipulated that a settlement agreement had been used. Immediately at that point, the payment was halted, and then we went back to communicating what the process should have been before a settlement agreement had been entered—the need to provide a business case, for views to be sought on that business case internally and for that to be communicated back to the board of WICS.
Let me ask another question on this in light of what we heard in the opening statement from Mr Hinds, the new chair. He said that he was “shocked and dismayed” by the content of the section 22 report. He talked in detail about weaknesses in financial governance and a loss of public confidence in the agency. My question is quite simple: why on earth was the former chief executive allowed to resign from his position? Why was he not sacked?
Again, as I think that you heard in evidence back in September, that was entirely a matter for the board. The Government does not have a role in the employment of the chief executive. The board members gave you their answers back in September in terms of their justification for the action that they took. We did not have a role in that.
What is your opinion as a director general? Is it good practice to allow somebody who is at the top of an organisation that has just been issued a section 22 report from Audit Scotland to be allowed to simply walk away from the process before a public audit hearing?
It depends on the circumstances with the section 22 report and how that individual will face whatever is within the section 22 report.
However, the individual did not face it. That is the problem.
As I say, I was not party to the discussions that went on at the board level with the individual. Those are matters for the board and the individual.
Let us ask the new chair of the board. Mr Hinds, if you were sitting in the position that Mr MacRae was in at the time, would you have approved the resignation request or would you have preferred to go down a misconduct route?
I was not there and I do not want to speculate because I am not aware of all the circumstances.
However, given everything that you said in your opening comments about the behaviour of the management at WICS—
I will answer in the best way that I can. If we had a situation like that now—and we do have people within the organisation who may not be with us for that much longer because of the changes that we are bringing about—I would need very strong persuasion, not just legal advice, which I understand that the former chair took, that it was in the interest of the organisation and its reputation to sever the employment of someone on the terms that pertained in relation to the previous chief executive.
I am not saying that what was done should not have been done in that situation because I was not there, and I am not going to try to be clever after the event, but I would be looking for advice along the lines of the need to weigh on the scales how it will look to the public if we are perceived to be paying people to go without any recourse if they perhaps deserve to be sacked as opposed to going with some severance agreement. Most of the legal advice that I can see that was given to the chair at the time was around employment law, which is complex, and the rights of the individual, which are enshrined in that law. I can understand why he would think that that advice was clear and determining. I would say more than that, because I would ask, “What about the public perception of all of this?”
11:45
And what about the public perception? If anybody in this room had been subject to the damning report that was issued and everything that has since come to light around financial mismanagement of public money, we would have been out the door on our ears in seconds—we would be on the front page of newspapers already. There is no way any of us could walk away from that with six months’ pay. WICS is a public body, and we are talking about public money. Can you understand why there is so much public anger around this?
I can indeed. To echo what the director general has said, as I understand it, the largest part of the money that was paid was compatible with the terms and conditions of employment and the contract of employment of that particular individual. I cannot just dismiss that out of hand as if it did not matter. What matters more to me is the perception that somehow, as a result of a settlement agreement, there is no recourse against the individual in terms of the performance that led to that situation or, indeed, any learning of lessons that might be applied in the organisation following the individual’s departure. That concerns me more.
Is there perhaps a risk that Mr Sutherland has been used as an easy scapegoat for all the failings, given that he is no longer part of the organisation?
My view, as I said earlier, is that the nature of the leadership within the organisation goes all the way to the top, and that would mean the former chief executive in this situation. It is not unreasonable to be looking to that person to be modelling the behaviour that you want. It is clear from the Auditor General’s reports that we did not have the behaviour that we would want. I do not think that I would call it scapegoating; I would say that that is where responsibility ultimately rests.
In November, after the last time we met to discuss this in September, we received a submission from Mr Sutherland, which I want to refer to. I do not know whether you have a copy of it. There is one particular item that struck me as of interest. I am quoting:
“On leaving WICS, I was required to delete or destroy all materials relating to my employment. I did not question this request.”
He goes on to say:
“I was required to destroy any and all materials ... I did so diligently.”
Who asked him to destroy any and all materials relating to his employment, and why?
I can start with that one. WICS follows standard data management processes that were in place during the former CEO’s tenure and remain unchanged. Those processes are there to ensure that individuals retain their personal information and do not take away confidential information. The former CEO was afforded the time to take his personal details, personal notes and documentation from his systems before WICS suspended his access to his accounts before, ultimately, deleting them.
I am pretty sure that, if there was a desire to retain documentation, he could have had a conversation about that with the former chair at that time. All that we were doing was undertaking our standard offboarding processes.
There are lots of other questions around this, but my final one on the severance issue is for the Scottish Government, because, ultimately, you are the sponsor of this public body.
What are you doing differently now, given what we now know about the sponsorship arrangements between the Government and WICS? Can you give me and the public some reassurance that we will not see public money similarly spent and squandered in future?
Yes. As I said at the outset, that is where the journey has been for us in Government on sponsorship in general, building on Eleanor Ryan’s review, and looking to see how we strengthen those particular relationships. I will let Kersti Berge talk about the specifics of the WICS sponsorship relationship, but I think that the fundamental thing that came through the reviews is that there was too much contact resulting in one individual and one relationship. There is now a multilevel engagement process, with different layers. Jo Blewett and Kersti Berge can walk you through that in terms of what that looks like and who is involved.
Separate from that, I have been having meetings with the CEOs and chairs of my public bodies. Between Michelle Quinn and I—Michelle Quinn in my absence—we have covered 17 so far. That has allowed me to triangulate at a different level issues around governance, finance, deliverability and risk and public sector reform, and to ask some very specific questions. The very last thing that I ask each chair and the chief executive is: is there anything else you need to tell me today? That is separate from the daily sponsorship relationships that are going on, and it gives me an opportunity to tease out issues at the portfolio accountable officer level.
It is entirely appropriate that we are not involved in the day-to-day running of these boards. There are 131 boards and, if we set them up properly with individuals who are competent, competent chairs, competent board members and accountable officers who understand their duty under the SPFM, the portfolio accountable officer’s role is to ensure that the sponsorship relationship is well-documented in the framework and that that sponsorship relationship actively provides challenge and support in equal measure through the process.
We are making progress within the DG family and much more widely across the SG. I brought this issue to the executive team of which I form a part quite early in the process, and we have had further deep dives in each of the DG families. We have considered what has come through that, so there are a few additional activities that will be undertaken. There will be an annual deep dive across all the DGs. There will be a peer-support network of sponsored individuals—I think that there are more than 200 sponsor individuals in the organisation. There is a move towards professionalising sponsorship as a role, so rather than there being a side-of-a-desk approach, it will be based much more on professional competencies and on what it is intended that people do, with clear objectives for sponsored individuals as well, so that they are clear about what their roles are and how they undertake them.
Another element involves building more capacity in the organisation, particularly within the WICS team. Some of the errors that you cited earlier were a result of the chop and change that was occurring and also the pressure and stress of dealing with the section 22 report and the follow-up. There is much more breadth and depth in the team now—Jo Blewett can say a bit more about that if she wishes. It is about making sure that you have the capacity and capability in the team to have that good, open, trusting conversation with the public body itself.
I will come back to two points, so that they are clear. The public body is responsible for whatever it is set up to do under statute. There is a process in place to make very clear that governance, risk and accountability lie with an individual.
On the point about the former CEO, the corporate plan made very clear the approach to accountability, financial management and governance—I think that that is set out in outcome 7. The former CEO’s individual letter on accountability would have been clear, in terms of section 15 of the Public Finance and Accountability (Scotland) Act 2000, about what he was personally responsible for. What has come through the various reports is clearly an indication of processes and guidance not being followed. I will leave it there.
Thank you. It is good to see you back in good health.
Thank you.
I have a couple of questions on a similar area to those that were raised by the deputy convener. One is about Mr Sutherland’s written submission, in which he goes further than what has been said so far. He says that he suggested that he should retire in October 2024, but that it was suggested to him by the Scottish Government deputy director that he might want to leave before then, so that he did not have to appear in front of the Public Audit Committee.
I was not a party to those conversations, so I cannot comment much further on what the former CEO has written. What you do not have is the other party’s approach to that.
We may return to explore that a little bit further. Another thing—I have raised this before, so you might be prepared for it—is that it strikes me as quite odd that Mr Sutherland’s contract provided for him to receive 12 months’ notice on dismissal and only 6 months’ notice on resignation. Is that normal in the Scottish public sector, in your experience?
Again, that is before my time. We are looking back at the records on that. In general, I think that those were the terms and conditions in contracts back then, but I would need to absolutely confirm that that was the case. We are talking about two different contracts: one from 2005 and another from 2007. There was a change—
He did not sign the 2007 one, though, did he?
No, but there was a change in the timings for dismissal in the 2007 contract. At some point, policy must have changed between 12 months’ dismissal and—what is now more common—three months’ dismissal.
That is helpful and interesting. What you are saying is that that was not some unique deal struck by the former CEO and the then Government or the board or whatever. It would have been quite common across the Scottish public sector up to the year 2007, approximately.
That is my understanding. Again, we are happy to try to clarify that.
In 2005, there would have been other people who would have signed similar contracts to the one that Mr Sutherland signed up to, with similar terms, notice period and so on. That is helpful. If you could furnish us with more details on that, that would be extremely useful to us.
I invite Colin Beattie to put some questions to you.
Looking at the overall picture, we can see that there have been quite comprehensive changes in WICS. There have been changes of personnel at senior level and changes in processes and almost everything you can think about. Have either WICS or the Scottish Government undertaken any assessment to determine the extent of the issues that have been reported in, for example, the section 22 report and the spin-off from that. Huge efforts have been required to address the issues. Have they impacted on the ability of WICS to perform its regulatory role? I am not sure who would want to come in on that.
I will go first and then perhaps David Satti and Mr Hinds can comment. It definitely has had an impact on the organisation because of the culture and the focus that has been on the organisation, but I do not see any diminution in WICS’s standing as a regulator; it has quite a high standing in how it undertakes its regulation function and holds Scottish Water to account.
Back in 2022, the Organisation for Economic Co-operation and Development cited the WICS approach to regulation as a standard to be looked at. That element of the organisation and its core work is important. We will need that quite a lot as we move into this next strategic review period, which is where we need to focus our efforts. I have not seen any diminution.
Has there been an assessment of that?
No, I have not undertaken an assessment of that.
My understanding is that the international side of its business was frozen.
We have now agreed with ministers that we will pause that until we get through the strategic review period, so that the focus can be entirely on the core function. I do not know whether you want to come back to its international activity later. At the minute, the focus is on getting the organisation to the highest level of governance and operation and on the final determination for the next strategic review period.
I think that the international aspect will be picked up later.
I will go next, and David Satti can fill in because he knows the business better than I do—I am still learning. As I said in my opening remarks, I was concerned about the potential impact, and, as well as trying to help to manage change in the organisation, I have made it my business to understand and assess any impact that it might be having on our statutory role. I can tell you that I do not think it has done.
We have to work to quite a strict timetable for the main and obvious piece of business, which is the regulation of Scottish Water and the forthcoming strategic review of charges. All the milestones on that plan have been hit in the time that I have been involved with WICS, which is the past six months or so, and we are well on schedule to meet our target to complete that piece of work next year. That is the most significant piece of regulatory work. Alongside that, we have a role in regulating the licence provider markets in Scotland. That is not so much driven by timetables as by our determination to make that as effective and as much in the interests of consumers as possible.
David Satti can add an awful lot more detail about that. Papers have come to the board that are impressive in their depth and complexity about how best to do that, and there are consultation processes that we go through with the people who provide those services in the market as well as with those who receive them. All that work is well on track and its quality is very impressive indeed.
12:00That is why I gave credit to the staff and the workforce: they have carried on doing that work while these other things have been going on. As interim chair, I do not feel that there is any great risk to the organisation on the regulatory front, so long as we keep our foot to the floor in sorting out the internal governance and management of the organisation and remove that risk fully.
Has WICS done any tangible assessment of the possibility of any impairment of the ability to perform?
Yes, we have. One element in the governance of WICS that was not as strong as I might have hoped was risk management and our approach to it. We have spent quite a lot of time in the past six months looking at our risk management plan and the practices that we follow to address perceived risks. On the question that you are asking, the risk to the regulatory role and our fulfilment of it is front and centre in that plan, as well as other things.
I am satisfied that we have moved risk management along quite significantly. It goes into the box of work in progress. If I am honest, there is still more that we can and will be doing to improve it; we have it clearly in our sights now. That is an assessment of whether there is any impact that might cause difficulty for our regulatory role.
Leading on from that, I have a question for the Scottish Government. Has any assessment been undertaken on whether, in its regulatory and consultancy work, WICS is value for money?
I am not aware of our having undertaken that as a sponsor team.
The regulatory system in the water industry in Scotland is seen as very well performing. David Satti might know more of the detail about this but there was an OECD report that flagged that. Efficiencies have been systematically driven in Scottish Water. It compares quite well to a number of other water companies, and the regulator plays an important part in that.
On your previous question, there will always be a risk. It is absolutely essential that WICS focuses on making the changes to governance and financial management that we talked about, but it is not without risk. It is difficult for an organisation such as that. There is a risk to its reputation, and there are a lot of talented good staff in WICS who do a fantastic job and are about to embark on the regulatory period.
We cannot say that that is not a risk, but it is important that the organisation is allowed to focus on the change to governance and on the important regulatory job that it has to do, particularly over the next couple of years as it sets up the next strategic review of charging.
Jo Blewett can say a bit more about this, but one of the things that has come out of the sponsorship review is establishing a clear performance framework for the organisation going forward. Perhaps Jo will set out the timetable for that.
As a sponsor team, we already look across the water sector. As you can imagine, it is a big investment programme. We sponsor Scottish Water, WICS and the Drinking Water Quality Regulator for Scotland, and part of our role is to ensure that everybody plays their part in the right way across that programme. We pick up perceptions about one another’s performance through that, and nobody is expressing concerns about WICS’s performance. Over the next year, rather than take a collective view, we would like to pull that down to what it means for WICS’s performance. For example, can we get some more metrics so that we are properly measuring outcomes?
Quite a few people—obviously those who are not involved in this—have questioned whether WICS is value for money. Given that it is the regulator of the water industry, I realise that there is a bit more to it, but, basically, it looks after Scottish Water. There are 20-odd people in WICS. Could that work be done by another body—the Scottish Environment Protection Agency, for example?
WICS is recognised as having done a good job and driven efficiencies in Scottish Water.
I do not think that we are questioning whether it has done a good job. It is a question of its value for money as a stand-alone regulator.
WICS is the economic regulator for Scottish Water, the water industry and the retail market for businesses. That is an economic regulator role, and there are not many other economic regulators. SEPA is more of an environment regulator. The nature of economic regulation is quite different, which is why WICS was set up. I think that it is our only economic regulator in Scotland.
Coming back to the point, have you done any assessment as to its value for money?
As Jo Blewett said, we are doing further work on benchmarking across a range of areas, and we assess WICS’s performance in terms of its regulation of Scottish Water, which, as I said, is recognised as having driven efficiencies over the past 20 years. As Roy Brannen set out earlier, it is making a lot of progress on its objectives in driving net zero and building resilience for the impacts of climate change so that the assets are robust and can serve customers in Scotland. The way in which we assess that is quite a lot about the outcomes of the company that it regulates.
Of course, going back to the other matters that we have discussed in this evidence session, WICS absolutely needs to do that in a way that delivers best value, propriety and regularity. We have seen a number of incidents where that did not happen, and it is important that, as an organisation, WICS addresses that. We are seeing a lot of positive things and a clear reset of the organisation in that respect.
I have just pondered on your question, Mr Beattie. WICS is quite a specialised regulator. Its focus is on the improvement of Scottish Water—our asset in Scotland. It sets quite stretching targets as part of the strategic review period. David Satti can correct me if I am wrong, but I think that the efficiency target was about 1.5 per cent, which is at the higher level of what the industry was expected to deliver.
Without a specialised regulator that understands the sector, there would be a risk that we would go further back from getting the maximum outcomes for the minimum input to our national asset, Scottish Water. That is why it is important that we maintain the focus of the regulator on the improvement process in the organisation that it regulates.
I will move to something slightly different and talk about expenditure. Parts of this have been covered already but I will try to get a little more detail. There were some expenditures—three, in particular—that did not meet the requirements of the SPFM. These related to travel and subsistence expenses. If I remember correctly, not all these expenses were subsequently approved. What does that mean?
Is that a question for the Scottish Government?
Yes, it is for the Scottish Government.
Are you referring to expenses beyond delegated limits?
Correct.
Right. Retrospective approval was not given for expenses beyond delegated limits; it was not provided in those circumstances.
What does that mean?
Do you mean what does it mean in practice?
What is the penalty?
Ultimately, they resulted in a qualification to the accounts.
A qualification to the accounts does not seem even to be a rap on the knuckles.
Well, it results in a section 22 report and attendance at this committee to justify why expenditure was outside delegated limits. It comes back to the point of accountable officers understanding both the framework document that sets the delegated limits and their letter of accountability, which says that they need to operate within the limits of the framework and within the SPFM.
What you are saying, in effect, is that the Scottish Government’s action of not approving the expenses triggered the section 22 report.
The Auditor General would have taken a view on the accounts anyway, but the qualification to the accounts resulted in further scrutiny by him.
Why did you not retrospectively approve the expenses? In other areas that the committee has looked at, there has been retrospective approval of expenses, but, in this particular case, the decision was taken not to approve them.
I think that that was the sponsorship team maturing in line with understanding proper governance. Following the scrutiny that the organisation had been under during the course of the year, it was entirely appropriate for the sponsorship team to take that position. Although it was a legacy matter—I think that I am correct in saying that it came before the 2023 section 22 report—it still would have been important to show the step change that had been made by the sponsorship team in its relationship with those particular issues.
Okay. I will move on to a slightly different point. In response to a question from the convener, I think, David Satti talked about the audit and risk committee and the board approving the removal of limits per head for reclaiming expenses. If I remember correctly, that happened in January 2023, and it was for a trial period. First, how long was the trial period intended to be? Secondly, I did not understand the reference to oil prices and so on driving the change. That does not seem to be a reason.
I can provide clarification, Mr Beattie. You are correct. I did say that a trial began in 2023, for which the rationale—from looking at the documentation and the history—was that there were concerns at the time about WICS’s expenses policy and its ability to undertake some of the international commitments that it was embarking on. The limits on flights, for example, were seen as an impediment, not least because of flight prices in response to increased demand and oil prices. The cost of flights was inhibiting. People could not book flights, given the limits that were in place at the time. That was discussed at the audit and risk committee and at the board, which led to a revision of the financial policies and, ultimately, the approval of the trial, which was initially for a six-month period. The policy was then formally approved by the board later that year.
But surely you would not change an entire expenses policy in such a sweeping way just based on airfares.
No—so that was one of the reasons. There were multiple reasons. For example—
Maybe you could tell us a few.
At the time there were issues about WICS’s policies not being able to separate out certain expenditure, such as business development. In previous evidence sessions, we have heard the explanation about business development expenditure, but that was one of the motivations for looking again at the financial policies and procedures.
So you just take the limit off all the expenses, both for the business development side and for the rest of WICS. Is that the answer?
The revisions to the financial policies and procedures took away limits on the basis that that then put the responsibility on to the individual to demonstrate that a transaction represented value for money.
How would they do that?
They would do that by looking at multiple different options for flights, for example, and being able to demonstrate that the one that they were booking was best value. Following the Auditor General’s first section 22 report and the concerns that were highlighted in it, we again revised—indeed, we overhauled—the financial policies and procedures to bring them much more into line with public sector norms.
To be honest, the reasons that you are giving are fairly thin. There are many different ways—well, not many, but there are a few—to approach this. I speak from my experience in the private sector and, in general, I have never seen or heard of unlimited expenses—taking the cap off—and relying on individuals to decide whether something is value for money and to determine their own flights and all the rest of it. That does not happen.
12:15
That is why we have changed the policy and why it is not WICS’s policy today.
I am relieved to hear that, but opening up a six-month window that could potentially allow a free for all does not sound like the best way forward. I would question why the audit and risk committee would even consider putting that forward to the board. To me that is also unheard of.
Can I come in on that? I agree with you. Let us be clear; David is trying, as best he can, to explain what seems to have happened in the past, not to justify it. I do not think there is any justification for that, notwithstanding that I was not there for those circumstances.
I come back to what I said earlier. This was a form of executive overreach. I think that the chief executive had too much authority, if you like, within the context of WICS as a whole. That was supported by his role in setting up the consultancy work, which brought a lot of income into the organisation. I think that that changed the culture and weakened some of the governance that you would expect. Again, I emphasise that I am trying to understand in retrospect, not to justify anything for a second, but, for me, that goes some way towards explaining the situation.
I also think that the board should have been much stronger in its resistance to the change in the expenses policy that we are talking about. That did not happen, but it is the case now that nothing like this would go through the board. If there were such a request, it would not be entertained. That is not just learning and benefiting from the experience; what happened is not appropriate for a public sector body. I think that the organisation was unduly influenced by the significant amounts of income that were being brought in from international consultancy work. That contaminated the culture of the organisation and its processes. For me, that goes a long way to explain what happened.
Well, we can at least agree on that.
I have one final question. There have been a lot of changes within WICS, and big efforts have been made to bring WICS to the standard that is needed to ensure that all expenditure complies and represents value for money, and that there is also proper scrutiny and governance. Have the changes that have taken place been an overreaction? I do not know—I am just putting this to you. Often what happens when something goes wrong is that you immediately put layer after layer of scrutiny on it, to the extent that that scrutiny itself becomes something that is not value for money. What is your opinion on that?
I do not think that that has happened, but it is a fair question. This comet has got a long tail. The events that surround it and the Auditor General’s first report are only about 15 months old, but the build-up goes back a lot further. There are other things that we have not touched on in relation to expenditure on Queen’s counsels and King’s counsels and all the rest of it. That is what I mean by saying that it has a long tail. I think that we must bear that in mind when we ask whether we are in danger of overreacting in the short term to what was an abrupt wake-up call for the organisation. I do not think that we are there. I think that we are getting to the point of diminishing marginal returns ourselves in archiving the nature of the problem and understanding it. We understand it pretty well now, but I think that there is still quite a long way to go to make sure that the culture of the organisation, in particular, is right.
That comes down to a lot of things and we probably do not have time to talk about them today. I am trying to assure the committee that some of this—quite a lot of it, in fact—is about modelling good behaviours. You can see what happened when they were not modelled in the organisation and the effect that that has had on our processes and our governance and, indeed, in some respects, on the staff. David and I in particular are trying to model different behaviours, and I think that I am beginning to see some of the benefits of that coming through. We are going through an organisational change programme that will facilitate some of the changes in culture that we need. Until we get through that and see it behind us, I will not be able to say whether we have overreacted or not. At the moment, I do not think that we have.
Can I come in on the back of that? I do not think that it is an overcorrection. I go back to my earlier evidence when I talked about the Auditor General’s section 22 reports, the Grant Thornton work, our external review and our review of sponsorship. The examples of non-compliance with guidance and of policies that should have been laid down are quite extensive. However, WICS is on a journey. A sample in the first Grant Thornton report showed 53 per cent compliance, which was up to 73 per cent at the tail end of the period. David can quote the figure of where WICS is now. That is the journey that we need to see for the organisation.
More widely, I think that the situation has helped us to re-establish some rules around sponsorship: not concentrating too much effort on one individual, looking at the length of time individuals are in key posts, and making sure there is a stratification of engagement across the piece with bodies.
Within the wider SG and my DG—and much more widely—WICS and the learnings from it are well known. My senior team is probably sick of me bringing the issue up at senior management team meetings. I have done so on 17 occasions over the past year. It is raised at nearly every DG assurance meeting—we covered it in some detail at the most recent DG assurance meeting, which Audit Scotland attends. I think that it has been useful, although really painful, to try to move us to a position where we can learn from this not just for WICS but so that other public bodies can take a good, hard look at it. I come back to the point that the core functioning of a system, if it is put in place properly, should deliver what is required—an arm’s-length body, a statute under which it delivers whatever it must deliver, a governance structure that is clear about accountabilities, and a sponsor relationship that provides constructive challenge and support in equal measure.
The Auditor General has probably said this already. We have 131 public bodies, but thankfully, we do not have 131 section 22 reports. We have one here. I am not saying that there might not be other issues, but the clear focus now is on trying to get us to a position of having the highest levels of governance and sponsorship arrangements between public bodies and the Government.
Thank you for coming in on that. It was useful to get that on the record, director general.
I will turn to Graham Simpson for a final set of questions. You said that Colin Beattie had asked a fair question, Mr Hinds. All our questions are fair.
They certainly are. One of the reasons why we moved the committee’s meetings to a Wednesday from a Thursday is that that allows us more time to delve into such issues in greater detail. I am afraid that I do not have just five minutes of questions; it will take a bit longer, but we will try to get through them.
Mr Hinds, you said earlier—and you have repeated it—that people may not be with WICS for much longer because of the changes that are being made. I guess that you are suggesting that the headcount may go down. Is that accurate?
Yes.
How many people are you planning to lose?
Well, we cannot say at the moment because we are going through the change process step by step, as you would expect. It starts at the top of the organisation and works through the rest. David Satti can say more about how we plan to do that.
We have just carried out interviews at director level, which is the most senior level in the organisation, apart from the chief executive position itself. I think that David Satti said earlier that the number of directors is going down from five to four, and that will have implications as we work our way through the organisation.
It is hard for me to foresee that that will not mean that we will not have some of the roles that we have now. Clearly, that has ramifications for people. I do not want to be indelicate and I do not want to get into details about those people; I am just being honest about this.
That is one way in which our expenditure will come down. We have already identified a figure. Taken together, one fewer director and some significant salary reductions for the new director posts comes to a reduced expenditure in the organisation of about £250,000. There may be further instalments as we go through the rest of the organisation. However, I do not want to get ahead of ourselves. It is not fair to the staff.
Just to be clear, if I am picking you up right, you are talking about reducing the number of people at director level and potentially changing roles, so you may be asking people to apply for new roles that do not exist now.
Yes.
Presumably you have people in post right now who are being told, “Your role is redundant. These new roles are going to exist. You can apply for them.” Is that right?
David Satti can answer about the detail, but I do not think I would use the word “redundant” in this context.
Well, some roles will not exist. Can I put it that way?
My broad response would be to say that, in my view, there is a separation between the part of the organisation that faces the regulatory role—that is, the one that deals with Scottish Water and other bodies—and the internal, or corporate, part of the organisation. We must look at those parts differently. I think that the corporate part needs a bit more scrutiny as to whether it is necessary and does the job that we want. For example, unfortunately, we have not had any in-house HR support in WICS for a good number of years. Maybe if we had had some of that support, it would have helped to deal with some of the issues that we have had to confront because of the Auditor General’s report. We need to remedy that. By the same token, there might be other aspects of the corporate role that are not really necessary for the organisation going forward.
I do not want to get into the detail of that, but I do want to say that the consultation that David Satti initiated with the staff before we embarked on the organisational review was clear about the process of trying to match people into posts in the new structure, that people would have every opportunity and that, if they were unsuccessful in applying for posts, they would be looked at as we went further into the organisation. That is why I am baulking at the word “redundancy”—we are not talking about that for people at all.
But you could be looking at redundancies.
Well, you have asked me the question and I have said that is not what we are doing. There could be people who decide that, for them, this new future is not what they want. That happens in every organisation.
Would that involve paying people off?
Well, yes, it might. There is such a thing as voluntary severance—we have all gone through that in our organisations.
Have you budgeted for that?
Yes.
What is the budget?
We have got money in the organisation to pay for that. We cannot have a budget for a number of people that we have not yet have a conversation with.
You have just said you have budgeted for it, so what is the budget?
Well, we have a budget in the organisation for dealing with the organisation as a whole.
Yes. Well, what is it?
As Mr Hinds was saying, we are not aiming to invoke any voluntary severance. This is all about role clarity. The organisational change is, from the very outset, all about clarifying roles. As we highlighted in previous evidence, the survey that was undertaken following the departure of the former CEO shows that a lot of staff wanted clarity on what their roles and responsibilities should be. The first step is to do that at director level in a very open way and have people apply for those roles, and then do it for other layers within the organisation so that people are matched with roles. We are only 21 individuals. In response to Mr Beattie’s line of questioning, I would say that, if anything, we are light as an organisation. There are a number of vacant posts, and there is an intention to recycle any savings from reductions in salaries and the like into known functional gaps within the organisation so that we reduce spending on consultancy and achieve better value for money. As Mr Hinds was saying, some individuals might decide that WICS is no longer for them and ask to have a different conversation, and we will deal with that case by case.
Okay. Mr Hinds, as chair of the board, have you had any comments about the culture of the organisation from current or previous employees?
I am not quite sure what the thrust of your question is. Do you mean has somebody written to me about this?
Has anybody written to you about it? Yes, let us put it that way.
Well, not as such. Clearly, we are going through a process, as I have described. There are also other processes internal to the organisation to do with staff discipline and so on. I see some of the paperwork around all of that. I see that, as you would expect, people have raised grievances about the way they think that they have been treated in the organisation, so they will make comments about the culture of the organisation. My reflection on those comments is that they refer to the status quo ante, if you like. My memory might not be entirely reliable here but I do not think that I have received any comments from anybody saying that the current culture of WICS is something that they find deplorable or anything like that. The comments are about the historical events that we are here to talk about.
I am not going to allow us to get into individual cases here. This is not the appropriate forum to do that, just to be clear.
12:30
Not all questions do feel fair—I think we have to be careful about that.
That is fair enough, convener. I will move on.
Mr Brannen, you have said that the international work is on pause at the moment. How long is it on pause for?
We have agreed that we would pause it until the next review period, so it is paused for two years.
From now?
Yes.
Okay. What kind of assessment will be made after that?
Jo Blewett can say a bit more about this. We are going to do a piece of work this spring to look at hydro nation—the water vision, in effect—and the legislation that we may require, and we will do a little bit of consultation on what is appropriate as we move forward. Things have changed since the original hydro nation drive. We are now much more focused on water as an asset and the impact of climate change, so hydro nation needs a bit of a refresh.
We need to take a bit more of a strategic view about where we are collectively going to address some of the challenges and add value. Effectively, we need a business case, and if international work turns out to be one of the areas that we want to continue to focus on, we will need to work with WICS on what that business case is, whether it could be resourced and what the commercial model around it is. A full assessment piece would need to be done there.
If the decision was to not continue with the international work, that would affect WICS’s headcount quite a bit. Even if the headcount is already being reduced, presumably WICS would not need as many people as it would do if that work was going to continue.
I will let David Satti and Mr Hinds consider exactly how much staff resource is going into it now. There was a very clear objective in the corporate plan that the former CEO had a foreword to; that focus on international activity was strategic objective 3. Outcome 7 was very clear that WICS looked to grow that international activity over the course of the plan.
Whether WICS will need fewer staff is entirely a matter for it, as it looks at its organisational design.
I will say one other thing about international activity, which is very important. As we go through this next period of public sector reform, we need our public bodies to think creatively about revenue generation, cost recovery and any activity that will bring down input cost and increase the outcomes for the nation.
It is not so much that international activity or any activity is at fault. It is the functioning of the governance around the finance control that has failed—governance has fundamentally failed, and it is important to get that point across. WICS is well recognised as a regulator internationally. I mentioned the OECD. Other Governments called on the regulator to give them advice about how to do things well. How you do things within operational costs is the important part that has gone adrift.
I would like to come in on that, not least because many in the organisation will be watching this, and I do not want to send the wrong impression, Mr Simpson.
The international part of the organisation was always about managing the workforce. WICS operates over a six-year regulatory cycle, of which some periods are very intense and some are not as intense. My job is to get better planning so that there is not so much ebb and flow. During the first part of the corporate planning period, the organisation exceeded its six-year target as a result of deploying some staff in the international work, and now we are very focused on undertaking a strategic review of charges, on which all the analytical staff are focused, and they are doing a great job. There is no intention to look at headcount. If anything—I made this point earlier—we are looking to recycle some of the savings into known functional gaps so that we are not deploying consultancy expenditure in the way that we have done in the past.
When we look at the international work, after we complete the strategic review of charges, part of that will be asking how we resource it. However, at this time, we are certainly not looking to make any cuts or reductions, because all the staff are needed to undertake the strategic review of Scottish Water charges.
The international work has been controversial and its associated spending has sparked controversy, but it earned quite a lot of money. Correct me if I am wrong, but the figure was about £1 million a year. What was that money used for?
I will let David Satti cover the accounts.
We had a target for £1.3 million over the regulatory period and that was baked into the overall financial package for our corporate plan. Some of that was used to mitigate the levy increase that we would put on water customers and licensed providers. Over the past six years, we have exceeded the international revenue target and therefore we do not need to have conversations about the levy that we place on licensed providers or Scottish Water. In fact, we have elevated cash balances and we might look at distributing some of that back to licensed providers and Scottish Water over the next couple of years.
When we look at the next corporate planning period and make a decision on international work, we will have to look at whether there will be any income from international consultant activities and whether we will have to look to rebalance the amounts that we take and the amount of levy that we get from Scottish Water and licensed providers. We will do that in the coming years, once we have got through the strategic review of charges.
It is worth adding that that leaves us with a more than healthy set of reserves in the organisation’s accounts, which are, I think, much larger than anybody would expect to see for an organisation such as WICS. We are currently undertaking a review about the best way to treat those reserves, which is what David Satti is referring to.
That also tells you part of the answer to an earlier question, which is that the organisation clearly did not gear up its expenditure to match the income that it was generating, otherwise it would not have a surplus that has fed those reserves. A lot of the workload was carried by staff who were paid to do a day job on regulation. We are unwinding that as we go, and the last part of the jigsaw will be to ask what we do with the reserves that have accumulated because of that period.
How much do you have in reserves?
I think it is about £5 million.
That does sound a lot.
It does.
What do you think should happen to it?
We are undertaking a review, so I do not want to second guess that, but David Satti has already referred to looking at how we are funded. Income largely comes through the charges that are levied on Scottish Water and other providers, so we would have to look at that among other things in deciding how best to reduce those reserves.
Could you not pass it to Scottish Water to help it to cut our bills?
That has been done in the past.
It has been done. That is a great idea, then.
It will be part of the review.
Scottish Water is about to whack up our bills by nearly 10 per cent, while paying bonuses to executives.
That is less than anywhere else in the UK, of course, but, yes, 10 per cent is still a lot.
That could be done. There you go, Mr Brannen—a good idea for you. You could press for some of that money to come back.
I feel that I ought to ask about the correspondence that we received from the former chief executive, because he made a couple of points that I want to put to you. He says in his written submission that the corporate plan
“allowed for expenditure to develop”
WICS’s
“international footprint”
and that there was
“an agreed allowance for the development of WICS’ international activity.”
Is that the case? I guess that that is a question for the Government.
We have no record of an “agreed allowance” or what that refers to. It comes back to the point that I have made on several occasions now: international activity could go ahead, but as accountable officer, you would still need to apply the rules of your role, in terms of value for money. Fundamentally, when you are booking accommodation and flights, that is the element that you need to take account of. We do not recognise that there was an “agreed allowance”. I cannot find any record of that. I do not know whether Kersti Berge or Jo Blewett can.
No. It is not clear what that refers to.
Okay. He also said that he felt “consistent” and “considerable” pressure to pursue international revenue.
Again, I do not recognise that but I will come back to the point I made earlier about the corporate plan. Objective 3 in the corporate plan was to undertake international activity. The former CEO wrote the foreword to that corporate plan. Outcome 7 explicitly said that there were opportunities for growth in international activity. The corporate plan was set up at the start with the key functions and direction of travel. I am not entirely sure what other pressure there was or where it was coming from.
I am going to move on. I want to ask about staff education and training, which is another area that has attracted a good deal of interest. WICS has spent around £300,000 on executive education in the form of masters of business administration. I think that you, Mr Satti, have an MBA that you received during your time at WICS, and others have MBAs as well. We have heard about Ms Ashford who went to Harvard. How many of the staff who went on these programmes remain in the business? Obviously you are one, Mr Satti. Of the people who were either sent abroad or elsewhere in Britain on these management programmes, how many are still in the business?
I think that the former CEO in the evidence that he provided made a distinction between the MBAs and executive education courses for senior management. In that context, Mr Simpson, I will answer your question in two parts.
The former CEO referred to two individuals in relation to the MBAs. Only one of those individuals is now in WICS and that is me. The other individual moved roles towards the end of last year for a salary that WICS could not compete with, so now I am the only one who was part of that MBA programme.
The executive education courses were offered to senior members of staff. There are two individuals who took part in them, one of whom you have mentioned.
So, were there two people who went on those courses?
Two senior managers went on courses at the time, as the former CEO articulated when he presented evidence. There was also one individual who was junior at the time—one of the analysts—who was part of the MBA programme.
Okay. Now, I mentioned Ms Ashford and I am not going to go into her case but I understand that she is no longer with the business. I am not asking about the details but am I right that she is not with the business any more?
There are on-going HR and legal processes within WICS that we would prefer not to comment on.
12:45
That is fine. I am not going to ask you about it.
In these evidence sessions—by the way, I hope that this is our last session with you, and you probably think the same—we have heard about various instances of what I might describe as lavish spending. At the last meeting we asked about the money paid to the KC who was on a retainer. We had a figure of travel and accommodation costs in 2023-24 for this KC of £1,441—it does not sound like a big number, but we asked for a breakdown. We received a breakdown of that from the Auditor General, which was very helpful. Of that, £543 was for two nights’ accommodation in Edinburgh in July 2023—that does sound like a lot—and £384 was for return flights from London to Edinburgh, also in July and for the same trip. I would query that. That is a lot. He obviously did not fly on a budget airline or take the train, which would have been cheaper. There is £514 for a meal in London in October 2023 at a restaurant called Smith & Wollensky—the Auditor General has put “Woltensky”—which seems to be a rather high-end steakhouse; that is £541 for three people, which is £177 each. In a previous meeting, I read out a menu with prices. I am not going to do that now, but I have checked the menu and it would be very easy to rack up such a bill at that restaurant. The question we have asked repeatedly is: is this sort of expenditure is appropriate?
No.
Of course it is not. Why did it happen?
That takes us back to some of the earlier evidence. At the risk of repeating myself, I will say that if you look at the detail of that issue you will find that most of it clusters around the ex-chief executive officer and the way that he sought to fulfil his role in the organisation.
As well as the specifics about the use of a KC, previously a QC, that you are drawing attention to, Mr Simpson, I think that it is worth being clear about the fact that we had a retainer arrangement for that individual for at least six years that we are able to ascertain—possibly for as long as 20 years. From the figures that we can ascertain, over six years, something like £250,000 was spent on the services of a KC, previously a QC, of which roughly £100,000 could be related to some activity of a legitimate nature that had we asked that individual to undertake, which was to give us legal advice, leaving the balance of about £150,000 having been spent on the retainer. I take exception to that as a way of spending public money and I think that that is a pretty poor example. In my view, some of the other questions around meals and flights and so on are almost ancillary to that. It just demonstrates that there was a culture of saying, “We can have this information, we can have this advice, and we can travel up and down to London to make use of it if we like.” I do not think that that is compatible with the public sector ethos and it is not something that happens now.
Good. Well, we agree on that. I am going to finish by asking about the area that Colin Beattie was exploring, which is the fundamental question of why we need an economic regulator. I suppose this is a question for you, Mr Brannen and maybe Mr Hinds. If WICS did not exist, would we notice the difference?
The answer is yes, because Scottish Water in a regulated environment is pushed and focused on delivering for the strategic review period: fundamentally, the stretching final determination that WICS sets out is what Scottish Water must deliver over that period. If we did not have WICS then potentially we would not have the impetus to deliver on efficiency saving, reduced taxpayer bills and the improvement of the asset over the period that we are considering. In a regulated market, whether that is rail or water, it is important to be able to push the individual organisations responsible for delivering the service at hand.
Before Mr Hinds comes in, I put it to you that WICS is essentially regulating a Scottish Government body and WICS itself is a Scottish Government body. If we got rid of one level of regulation, Scottish Water could perhaps just report to you as the sponsorship team, and you could regulate it.
That is exactly the argument that I was trying to make earlier about the distinction of arm’s-length bodies. Fundamentally, the gestation of all of that is the 131 public bodies—or at least the 26 of them that I would then look after. That is not how the Government should be running. You set up bodies that are under statute with a clear direction of activity and put the governance structure in around it. To subsume that entirely within Government would be a big mistake.
Could I come in on that? Most regulators sit at arm’s length from Government; it is quite a technical job so they have to have that expertise and they are also arm’s length. For energy, Ofgem is the energy regulator and there will be similar arrangements in other areas. The Competition and Markets Authority is another example, probably.
I am glad you came back to that Mr Simpson, because I think that Mr Beattie’s earlier question was, for me, the right one. Do we need this organisation or not? Well, that is a policy issue; that is the easy answer. If you are looking for an assessment, which is I think what Mr Beattie was looking for, we could spend all morning talking about that again but I will give you a couple of headlines. We think that we can demonstrate over the 20-year history of WICS as it is currently constituted in its relationship with Scottish Water that there has been a 40 per cent reduction in Scottish Water’s operating expenditure in real terms—that is to say it has nothing to do with inflation. That corresponds to roughly £400 million-worth of savings over that longer period. Now, it is always difficult to say with confidence that that would not have happened anyway but what we can say is that the Scottish Water model and the regulation of it is a contributory factor to the efficiency and effectiveness of Scottish Water and that those figures demonstrate quite significant savings to the Scottish public. It takes about £110 off the average household bill, which would be higher if not for what WICS had done.
If you ask about value for money for WICS, we cost roughly £4 million a year—that figure is declining, but that is roughly what we cost. When compared with the figure that I have just quoted about the overall savings because of the regulatory activity, I think that we can make a case for WICS’s value for money.
However, there is an awful lot more that would need to be said, particularly in the light of the most recent developments. It is not unreasonable to ask questions about whether an organisation such as WICS is needed when it has not proven its ability to govern its own arrangements satisfactorily. The baby and the bathwater syndrome would be part of my answer; we need to be careful what would be lost without WICS and anything that replaced it would have to be as effective as WICS has been in its regulatory role. That is important for me as we go forward.
I hope that by the time the committee finishes its deliberations and, within WICS, we get a bit further down the road that David Satti and I have been trying to describe, we will be able to put minds at rest not only about the fact that can we continue to regulate Scottish Water and other bodies effectively but that our own costs in doing so are on the decline.
Thank you. I will leave it there, convener.
I am very conscious of the time but we have two outstanding questions that we want to put to you before we finish—one of them is from the deputy convener. Before we get to that, following on from what we have just been talking about, we were told by the former CEO that there had been discussions—I think that we have alluded to this in previous evidence sessions—about the tension between the regulatory role and the consultancy role and whether there should be a distinct and separate operation. He mentioned that a name for a separate organisation to cover the consultancy work was discussed at the board on numerous occasions and I think that that name was registered but never activated. Can any of you shed any light on why that never emerged as the way to separate out some of the difficult issues that we have discussed this morning and in previous sessions?
I will maybe let Kersti Berge or Jo Blewett come in on that point. To go back to the first point about the tension between the roles, I will quote the corporate plan, which says:
“It should be noted that our involvement in hydro nation work has not been to the detriment of the role we undertake in Scotland. Rather, it provides a number of real benefits that ensures that we are a more effective regulator of Scottish Water.”
So, again, there is a bit of a tension between the evidence that you have received and what was stipulated in the corporate plan, where it is very clearly articulated that the two roles could be managed concurrently. Kersti Berge can comment on the specifics.
It is not clear to us why that did not happen. That is exactly the kind of thing that we are looking at in the work that we are doing in reviewing hydro nation, and, were WICS to resume the international activity, we would look to it taking exactly that approach.
So, do you think that that is the way forward if there is a resurrection of that international consultancy work?
We have covered this quite a bit. There need to be two things. One, it needs to align with the cycle of the really important regulatory work that WICS does, and separately there would need to be some form of separation and clear rules around how it does the international consultancy activity.
Right. That is slightly at odds with what Mr Brannen said earlier, which is that, in the end, it all must be compliant with the Scottish public finance manual and good governance arrangements, value for money and so on.
It would need to do that as well, but there could be some differences and nuances around what was done in some activities compared to others. We have not done the work yet but the expectation would be that it would need to comply with the public finance manuals and to be very transparent. For example, exactly how this would all work would need to be set out in the framework document.
You have had a piece of evidence from the public bodies unit on other bodies that are revenue raising. It is entirely possible to undertake such activity within the confines of the SPFM. What Kersti Berge is describing is if there is something unique about such international activity that requires a different model then that would need to be explored, but I would expect the same principles of the SPFM of accountability and value for money to be applied in whatever structure is put together. You do not disassociate the two things.
Okay, thanks. As I mentioned, the deputy convener has a final question. It might invite a yes or no answer.
This question is aimed at whoever can best answer it. Did the former chair of WICS leave the organisation of his own accord or was he asked to leave and did he receive any financial settlement as a result of his departure?
I will hand over to Michelle Quinn as she was in post when I was absent.
At no time did we ask that he should leave and he did not receive a settlement agreement. He was only paid for the work that he completed.
Okay, so he resigned or he retired. What was the circumstance?
He resigned.
He resigned his position.
Yes.
And that was accepted and hence the presence of Mr Hinds. Okay; that is understood.
Thank you for your forbearance. It has been quite a long session and some of it was quite testing but we very much appreciate your presence here and your willingness to answer the questions that we have put to you. On behalf of the committee, I thank Ronnie Hinds and David Satti from the Water Industry Commission for Scotland, and Michelle Quinn, Kersti Berge, Jo Blewett and director general Roy Brannen from the Scottish Government. As other members of the committee have said, it is good to see you back and thank you all for your evidence this morning. Michelle Quinn even got in just at the end there so I can include her in that vote of thanks. I will now move the meeting into private session.
12:57 Meeting continued in private until 13:11.