The privatisation of water in England is not the reason for its failings, the architect of the government’s water plan has said, as he warned there was no one “simple solution” such as nationalisation.
Sir Jon Cunliffe, a former Bank of England deputy governor who was involved in reforming banking regulation after the 2008 financial crisis, was enlisted by the Labour government to write a report on the water industry. He was tasked with addressing problems such as the sewage scandal, frequent tap water outages and lack of preparedness for drought.
He said it should be easier to get rid of failing water CEOs. David Hinton, the chief executive of South East Water, has been under pressure to resign after tens of thousands of people in Kent and Sussex faced days, and in some cases weeks, without drinking water.
The government responded to Cunliffe’s recommendations in a white paper this week, which adopts many of his suggestions including a supervisory model, more technical knowledge in a new super-regulator, and turnaround regimes to make water companies fix problems quickly. He was told not to consider nationalising the industry in his review.
England and Wales are the only countries in the world with a privatised water system. This system has come under huge criticism as companies have paid billions in dividends while failing to invest in pipes and reservoirs, so many have called for nationalisation.
But Cunliffe said: “You can’t fix these problems with one simple solution. If we nationalised the system tomorrow, we wouldn’t necessarily solve all the problems that we have to solve.”
He said the report looked at systems around the world and that privatisation was not the problem. He said: “We didn’t think the problems the sector was facing could just be laid at the door of privatisation and profit. We pushed very hard for evidence that shows that other ownership structures are systemically better, and the results were mixed. We didn’t have results that conclusively showed any system was better than any other.”
The current, privatised system “can work”, he insisted, adding: “I do think that’s possible and I do think that is going to require a lot of work and change.”
Campaigners responded negatively to the white paper and said the problems would not be solved while the water companies were still run for profit. The CEO of River Action, James Wallace, said: “None of these reforms will make a meaningful difference unless the failed privatised model is confronted head-on. Pollution for profit is the root cause of this crisis.”
The water campaigner and former Undertones singer Feargal Sharkey said: “Ministers have failed to grasp the underlying issue, which is corporate greed. The only people who will be paying for this are customers and bill payers.”
Cat Hobbs, the CEO of the campaign group We Own It, believes water companies should have anti-sewage groups and representatives of households on the board. She said: “Water is an essential natural monopoly and we have no choice about which company to use. With public ownership, we could have households and anti-sewage groups on the boards of water companies to make them truly accountable.”
Hinton has faced calls to resign after being absent from the media and public spotlight during two major water outages caused by a shutdown of a water treatment centre and burst pipes. He has a base salary of £400,000 and received a bonus of £115,000 last year.
Cunliffe told the Guardian he had proposed measures that would make “senior managers personally accountable”. He said: “In the financial sector it can lead to managers resigning but we have to see how far Defra [the Department for Environment, Food and Rural Affairs] are going to go. Something that holds them accountable in that way will make a big difference.”
He said the situation in Kent and Sussex was “clearly unacceptable”.
The white paper was criticised as it contains measures that could let water companies off fines. The idea behind this is that failing companies cannot improve their performance if they are spending millions on fines rather than investing it in their infrastructure. Thames Water, for example, is on the hook for more than £120m of fines for sewage dumping and other failures.
Cunliffe defended this, saying: “You have to make sure that [letting companies off fines] isn’t an easy option – there need to be sanctions for poor performance. But if your answer to poor performance is to take money out of the company which they cannot invest, or leave with a shadow hanging over it for five years, it is not going to help customers to get things fixed.”
He added: “If you just punish them you end up with a dead water company, which is in no one’s interest.”
