Thames Water is on the brink of collapse, with emergency plans being drawn up to take the company into temporary public ownership. It’s an extraordinary state of affairs: how could a business with a regional monopoly over an essential service not manage to maintain a financially sustainable footing? The answer: an extractive ownership model has seen the company loaded with debt, and returns for its investors prioritised over the needs of both people and the environment. As interest rates have risen sharply over recent months, this inherently precarious business model has come under acute and seemingly fatal pressure.
The story of Thames Water is emblematic of wider failures of privatisation. Since the late 1980s, water companies in England and Wales have paid out £72bn to shareholders. To help pay for this generosity, the water companies – which were sold off without debts – have borrowed on an exceptional scale, accumulating a debt pile of £53bn.
What has this meant for customers? In real terms, bills have increased by around 40% since privatisation, yet investment by the companies has gone down by 15%. The consequences are glaringly evident: up to 2.4bn litres of water a day (equivalent to nearly 1000 Olympic swimming pools) are leaked by English water companies. Every day, raw sewage is discharged into our rivers and seas more than 1000 times on average, for a total of over 9m hours since 2016. With this scale of neglect, it’s hardly shocking that just 14% of English rivers have adequate ecological status.
Who, then, benefits from this model, if neither people nor planet? International investors, for one. Indeed, over 70% of English water companies’ value is foreign owned. Thames Water, specifically, counts among its top investors a subsidiary of the Abu Dhabi investment authority, the China Investment Corporation, and two Canadian public sector funds. The Universities Superannuation Scheme, too, has a sizeable stake, in a paradoxical relationship that sees a vital service many beneficiaries of that scheme may use, faltering under the strain of demand for high returns for a pensions system equally under pressure. Neither can we forget the perks for water executives: the outgoing CEO of United Utilities, the UK’s most polluting water company, made an impressive £1.4m this year by selling his shares before his retirement.
It’s a self-defeating arrangement in which England and Wales are global outliers: indeed, they are globally exceptional in having wholly privatised water systems. There is a simple reason for this. Internationally, water is seen as a less attractive prospect for private investors relative to other infrastructure sectors, not least because the essential nature of the service means that operators cannot cut off provision in the event of non-payment. To compensate, government policy has actively made the sector a more attractive investment proposition through an accommodating regulatory regime and by, for example, making it relatively easier to increase tariffs.
Thankfully, there is a wealth of alternative models from which we can draw inspiration. Across Europe, the norm is for water infrastructure and services to be in public hands, owned and successfully operated for the public interest. Nor do we have to look as far as the continent: we have a readymade comparison in Scotland, which effectively resisted the privatisation of Scottish Water. The contrast between the two is stark: users in the rest of the UK spent an estimated 10% more on water bills than those in Scotland, and the publicly owned company invested 35% more per household per year than private firms in England.
What lessons can we draw from this story? That water privatisation has been an unvarnished success in only one way: the enrichment of its overseas shareholders and executives. With Thames Water possibly following on the heels of Bulb’s emergency nationalisation, we should expect the failure of highly indebted, privatised utilities to accelerate. And perhaps above all, the simple lesson that almost every country in the world has learned: that for something as fundamental and so ill-suited to competition as water, public ownership for the public benefit is the only acceptable approach.
Mathew Lawrence is director of Common Wealth and co-author of Owning the Future with Adrienne Buller
