When the water industry was in public hands, it was claimed to work neither for its owner – the state – nor the public. Since being privatised in 1989, water companies have enriched investors and senior executives but failed to adequately invest in infrastructure. Shareholders have been paid £72bn in dividends. The cash came from big debts, with companies borrowing £56bn, and big bills, with prices rising 40%. Private-sector efficiency did not provide better service, but it did allow companies to be milked for cash.
Companies’ pressing concern was to make money rather than think hard about the challenge of the climate emergency. Hence water companies will impose hosepipe bans in record-breaking summer heat despite up to a fifth of water being lost to leaks. Two companies restricting water use – South East Water and Southern Water – have some of the worst environmental records. Thames Water, which will ban lawn watering for its 15 million customers, was fined £20m in 2017 for tipping 1.4bn litres of raw sewage into rivers. Last year the firm was found to have illegally discharged untreated sewage for 735 days.
Such failings are met by water companies with bromides designed to create the illusion of problem-solving. The firms get away with this because the water watchdogs’ bark is worse than their bite. The Environment Agency has said that water company bosses responsible for the worst pollution should be jailed. There is no sign of any chief executive facing criminal charges. In February, the industry regulator Ofwat said Britain’s privatised water companies should link executive pay to performance. This summer, the Thames Water boss, Sarah Bentley, will be handed a total of £700,000 as part of a £3m “golden hello” pay package, just weeks after her company’s terrible pollution record was officially recognised.
The sound most frequently heard these days in regulatory circles is that of the stable door being shut long after the horses have bolted. In June, Anglian Water, one of the UK’s biggest firms, announced that it would be paying a £92m dividend to its owners. A month later, Ofwat proposed new powers to prevent dividends being paid to shareholders.
The government has signalled that post-Brexit regulations are likely to be less, not more, onerous. Voters have every right to feel let down. There is a very good argument that privatised companies have been overcharging customers of natural monopolies by duping the regulator and paying off shareholders by loading up with debt. Such outrageous behaviour has been compounded, it appears, by a collective failure to make the investment that society needs.
Britain’s private utility model is broken. Services can clearly be managed by the state in a way that makes sense. The railways have proved ill-suited to conventional capitalism. The government has already announced plans to nationalise key parts of the electricity grid to help meet climate goals. The Treasury has been forced to pick up the tab as gas suppliers collapsed. Global heating means that water shortages and leaks are set to worsen. To stop companies being able to game the system and dodge their responsibilities will require a measure of state ownership.
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