The former Conservative leader Michael Howard has stood by the privatisation of the water sector, of which he was a leading proponent, despite the crisis surrounding Thames Water.
The Conservative peer did admit, however, that with hindsight, some companies should have been prevented from taking on so much debt.
This week the Thames Water chief executive stepped down amid huge questions over the heavily indebted company’s future and suggestions of renationalisation.
The government has tried to reassure the markets by saying the company has “secure and committed” funding and reassuring customers that they will not face interruptions to water supplies.
Howard, who served as a minister in Margaret Thatcher’s government, rejected returning the company to public ownership.
“The point about public ownership is this: if you have the industry in public ownership, it has to compete for resources with health, with education, with the police, with all the other legitimate demands on the public purse, and water when it was in public ownership was way down the queue,” he told BBC Radio 4’s Today programme.
“When you release it into the private sector, you have recourse to private capital. You can make the investment that’s needed.”
Total debt in the sector last year rose by more than £1bn from the previous year, to £60.6bn, the watchdog Ofwat has said. Last year it identified four other companies whose financial health it was most concerned about: Southern Water, Portsmouth, Yorkshire and SES Water.
Howard said Ofwat had the power to regulate the industry for consumers, but suggested that rising interest rates may have caught it off guard.
“When interest rates were very low, borrowing seemed a reasonable thing to do, and perhaps Ofwat should have paid more attention to that. But they’re not the only people who have been caught off guard to some extent by the recent increase in interest rates,” he said.
“It’s easy to look at these things with hindsight, and I think I would accept that with hindsight some of the companies have been allowed to borrow too much and should have been raising more of their capital through the issuing of equity.
“I think it is arguable that the companies have been allowed to take on too much debt.”
Andrew Tyrie, the former chair of the Competition and Markets Authority, said he was against renationalising water companies, telling BBC Radio 4’s Week in Westminster: “I think that would be a mistake. I think we’re better off having them in the private sector subject to some discipline in the market.”
He was critical of the regulators, claiming they were “letting the public down”. He said: “Poor-quality regulation is stifling growth. And the government needs to join the dots here and realise that the regulatory failure is taking place across a very wide piece.”
