The question of who owns the country's water shot to the top of the political agenda last night, after the Liberal Democrats unveiled radical manifesto plans to turn Scottish Water into a mutual company.

The question of who owns the country's water shot to the top of the political agenda last night, after the Liberal Democrats unveiled radical manifesto plans to turn Scottish Water into a mutual company.

Regardless of which party wins the most seats on May 3, the LibDems are likely to be part of any coalition, and the idea could be one of the big shake-ups in the next parliament.

The LibDems said the plan would secure the future of the nationalised utility and ensure an improved service for customers.

However, critics said mutualisation - where the company would be owned and run by its customers rather than the state - would inevitably lead to all-out privatisation.

Launching the plan, Environment Minister Ross Finnie said Scottish Water had made "excellent progress" since it was formed from the merger of three regional water boards in 2002.

But he added: "Now we're ready to take the next step.

"Mutualisation would free Scottish Water from the constraints of the public sector and allow it to operate in the most efficient manner possible.

"As a mutual company, owned by its customers, Scottish Water could deliver a better-quality service at lower cost to Scottish householders and businesses.

"The proposed change in ownership would make Scottish Water directly answerable to its mutual holders - the Scottish public - and all profits would be retained for further investment and customer savings."

He said the LibDems were "totally resistant" to privatisation, and would legislate to prohibit any future de-mutualisation or privatisation.

South of the border, where English water companies were privatised in the 1990s, Welsh Water is held up as an example of how mutualisation can keep prices down for customers.

In Wales, a special company was created to run the water industry on a not-for-dividend basis using bond issues to finance its investment.

Critics fear a mutualised Scottish Water would be forced to turn to banks once its access to government borrowing ended.

As these private lenders would charge a higher rate of interest than government, mutualisation would thus be "privatisation by the back door", say opponents.

The LibDem call for mutualisation echoes that of Sir Ian Byatt, the Water Industry Commissioner for Scotland, who last June said the utility needed to change if it was to carry on its £1.8bn investment plans.

Labour MSP Mary Mulligan said that her party had a commitment "to keep Scottish Water in public ownership and under public control". An SNP spokesman said they wanted to keep it in the public sector, but failed to spell out whether that meant the status quo or mutualisation.

The Tories said their preferred option was the not-for-dividend Welsh model.