Thirty-two years after water privatisation, rivers in England and Wales are not improving, leakage levels are unacceptable, and massive financial engineering has not added to the resilience of the system or the ability to finance the large-scale investment we now need. It cannot and should not be allowed to go on like this.
It is easy to blame the water companies for all this. And they do indeed deserve a lot of the blame, but they are not alone in polluting our rivers. Regulators are to blame too. Ofwat could have ensured water company revenues were used to fund more investment. The way the industry watchdog set the cost of capital provided opened the door for businesses to borrow against their assets – for the benefit of owners, rather than customers. Share buybacks, special dividends and multiple takeovers were never part of the gameplan at privatisation, and nor were the excessive executive salaries. None of this should have been allowed to happen.
In England, the Environment Agency could have led on monitoring pollution. It could have built an open-access digital national database on river quality, catchment pollution and sewage spills. It could have been smarter with inspections and enforcements, even if the fines have been too small. It was very late in the day for the outgoing chair last summer to have called for prison sentences for directors of the water companies in the most serious pollution cases. What exactly has the EA been up to for the past few decades?
This can only be fixed after a clear reassessment of the objectives. Is it really sensible for drinking water to be used to water the gardens and wash cars? Is it acceptable for sewers to be used to deal with wet wipes and cooking fats? Do we really need to build new reservoirs, or should we think seriously about conserving water? Should natural capital measures (such as restoring natural river flows, creating riverbank buffers to protect from agricultural pollution, creating reed beds, planting trees and restoring flood meadows) be deployed on a much greater scale?
Personal responsibilities also matter. The drinking water and sewerage services are for us. The sewage is produced by us. We are the ultimate polluters. We want water companies to do the right things, but we don’t want to pay for it. We keep putting wet wipes and cooking fats down the toilets and sinks, and then demand that the water companies clean it up. Lots of investment but no money is not a recipe for fixing the problems. Blaming the companies is easy; taking personal responsibility to safeguard and fund the system is much harder.
To bridge the current funding gap, it is imperative to tackle pollution at source instead of relying on end-of-pipe solutions. Making polluters pay means that farming is in the frame too. Subsidising farmers to pollute and then demanding that water companies clean it up and pass on the bills to us is not sustainable.
Tackling pollution at source means limiting that pollution reaching sewerage works. Reducing nutrients at source, requiring people to have porous driveways, and store water in tanks and water butts, are much cheaper options.
To make this happen, areas in which runoff water is gathered, known as catchment systems, should be regulated. A catchment-system regulator could replace Ofwat and come up with system plans, decide what the baseline should be for our natural environment, and share open-data platforms with real-time information about pollution and sewage discharges. This could all be aided by citizen science. Integrated plans should involve us, and set out a path for a more enlightened use of the scarce resource that water has become. Once there is a plan, what needs to be done can be auctioned to all those who want to contribute, and not just the incumbent water companies.
None of this is rocket science. None of it requires nationalisation. All of it is doable, and if it is done properly, the cost will be a lot lower. Taken together, the current spending on flood defence, farming subsidies and water bills is a big enough budget if it is competitively provided.
Lots of the right sorts of investment, coupled with the polluter-pays principle, can be done without a big increase in bills. But if we carry on as the EA, Ofwat and the companies have done – treating water companies as silos – nothing much will happen. The environment cannot stand much more of this: it the current approach is unsustainable, and therefore it will not be sustained.
Dieter Helm is professor of economic policy at the University of Oxford and fellow in economics at New College, Oxford. From 2012 to 2020, he was independent chair of the Natural Capital Committee, providing advice to the government on the sustainable use of natural capital
