A FURIOUS row has broken out after the Scottish Government awarded a £350million contract to supply water to schools and hospitals to a private company based in England.

Ministers were accused of privatising water supplies to scores of public bodies after Scottish Water lost out in the tendering process to Anglian Water Business (AWB), which is based in Hertfordshire and owned largely by US and Canadian investors.

The Scottish Government defended the decision, saying it could produce savings of "up to" £40million over four years.

Infrastructure Secretary Keith Brown said his hands were tied by the 2005 Water Services Act, which obliges to government to put contracts out to tender, though the SNP backed the legislation at the time.

Business Stream, the subsidiary of publicly-owned Scottish Water which has been managing water and waste water supplies to more than 100 public sector bodies up to now, said it was "very disappointed".

From December, AWB will take over reading meters, processing bills and water efficiency measures from the Scottish Water firm.

Scottish Water will supply water "wholesale" to Anglian Water Business.

Conscious of potential sensitivities around the decision, the SNP government - which has consistently criticised the privatisation of public services - delayed it until after the General Election.

The new contract was due to have started in April but the competition was extended "to consider initial feedback" from companies.

Mr Brown said the new contract would be run from AWB's Edinburgh office, which double its workforce.

The firm's bid was £5million per year lower than its nearest rival, understood to be Scottish Water Business Stream, and new water efficiencies could push total savings to £10million per year.

Mr Brown said: "This is the best deal for Scotland under the rules that bind us.

"The biggest benefit of all will be the money that can be ploughed back into the services provided by those buildings – the schools, hospitals and public offices – throughout Scotland."

Johanna Dow, the chief executive of Business Stream, said: "We are very disappointed by the outcome, having lost by the narrowest of margins.

"We have a proven track record of delivering excellent results working in partnership with Scotland’s public sector over the past seven years, with savings of more than £36million delivered over the term of the existing contract."

The decision met a furious reaction from trade unions and opposition parties at Holyrood.

Public sector union Union accused Anglian Water of avoiding tax by channelling profits through tax havens.

Head of campaigns Dave Watson said: "We are deeply disappointed that the contract for Scotland’s public sector water and waste water services is to be awarded to a privatised utility."

He added: "This procurement also highlights the importance of addressing tax dodging

Scottish Labour public services spokeswoman Jackie Baillie said: "This decision has effectively privatised water management for our schools and hospitals.

"There were options in the tendering process to break this contract down to deliver a better deal for the taxpayer and keep water management in public hands.

"Instead by accident or design the SNP Government in Edinburgh have handed hundreds of millions of pounds to a private firm, which allegedly practices aggressive tax avoidance, to handle a key public service for our schools and hospitals.

Patrick Harvie, leader of the Scottish Greens,

said: "This was an opportunity to prevent the supply of water services to Scotland's public sector falling into the hands of a private firm whose profits won't benefit the Scottish economy, and specifically a company that paid no corporation tax this year yet handed shareholders a £180million dividend.

Scottish Liberal Democrat leader Willie Rennie said: "Ministers have exaggerated the savings to pull the wool over our eyes.

"This is a private sector deal from a government which has told us it is utterly against such a thing."

An AWB spokeswoman said: "We are delighted the contract award is moving forward."