The private sector provision of water services in England is an oddity in the world: 90% of countries run state-owned operations. Even in Europe, it is the only country to have sold its water resources – including pipes, reservoirs, boreholes and treatment plants – to private owners, now mostly a collection of sovereign wealth, infrastructure and pension funds. The decision to put water – a natural monopoly – in private hands defied the Thatcherite logic of competition and efficiency. There was never any possibility of pitting rival companies against each other to raise standards. No other water supply is competing for a household’s business.
The result has been the creation of a series of sinecures upon which large firms and their executives stake their claims, protected from competition by legal rights over scarce liquid resources. The hundreds of thousands of pounds paid in bonuses to the bosses of Severn Trent and South West Water’s parent company, despite the companies pumping sewage into Britain’s rivers, seems a textbook example of rent-seeking by oligopolistic capital. Rather than invest in infrastructure to deal with a growing population, the country’s private water monopolies, which began life with no debt, borrowed £64bn over the past three decades and paid more than £78bn in dividends to their owners.
If that was not scandalous enough, since 1989 the firms have neglected to upgrade their water and sewage network, preferring instead to abstract water from rivers and natural underground aquifers. There was little money to fix pipes that leak a fifth of the water they carry; to build a single new reservoir; or to deal effectively with raw sewage spills that deplete the stock of clean water. With warnings that global heating could see parts of Britain run dry, it is no surprise that about seven out of 10 people think the water companies should be in public hands.
A week after a new government arrives, the industry regulator, Ofwat, will decide whether to greenlight the water industry’s investment plans – and crucially how to spread the estimated £100bn cost between shareholders and customers. Labour would like to toughen regulation – but the party should go further. It might be forced to if Thames Water, the UK’s largest water company, collapses. Thames Water is seeking a cash injection of £750m to help meet the rising interest rates on its £18bn of debt. There are already contingency plans to nationalise the business. The industry is allergic to state control, arguing that the taxpayer may end up footing the bill.
Yet that supposed risk is easily managed by the best-performing water business in Europe: the public sector water operators in the Netherlands. The Dutch system produces less than a quarter of the leakage seen in this country. Its state-owned water firms are funded by a state-backed bank specifically designed to lend at rates equivalent to those offered by the government. Experts say public ownership could cut bills. Welsh Water is a not-for-profit. In Scotland, water is in public hands. England should emulate European success in the governance and ownership of scarce resources, rather than persisting with a failed system of privatisation for what appear to be reasons of ideology.
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