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21 January 2023

Water, Water Everywhere, Nor Any Drop to Drink[i]

Tag(s): Sustainability, Politics and Economics, Current Affairs
Last summer when the unusually high temperatures threatened to cause a drought there was a great deal of criticism of the water companies by both politicians and the press. In an extensive survey over two thirds of the public wanted to see the private water companies renationalised. This was even true of Conservative voters and was a higher percentage of the public than for those who also wanted to see energy companies, railway companies and other formerly national bodies renationalised. I did not blog about it at the time as it seemed that everything that could be said was being said. But several months later nothing seems to have changed.

In 1989 the government led by Margaret Thatcher privatised water in England and Wales. In Scotland and Northern Ireland water remained a public utility which makes it possible to make interesting comparisons between what has happened under these different forms of ownership. Welsh Water is now a not-for-profit organisation. It is only in England where the companies are private. Initially all the companies were listed on the London Stock Exchange. Gradually the great majority of them have been taken over by private interests. Only three now remain listed. More than 90% of the ownership of the rest is by overseas shareholders. For example, Thames Water is partly owned by investors from United Arab Emirates, Kuwait, China and Australia. Northumbrian Water is owned by a Hong Kong businessman Li Ka Shing. Wessex Water is 100% owned by Malaysian company, YTL.

Privatisation was intended to have a number of benefits. Firstly, it was felt that the state was actually not very good at running such organisations and it would release a burden by turning them into public companies owned by private shareholders. In general the private sector consists of competitive markets where competition leads to improvement in quality of service and lower bills.
Otherwise, businesses can go out of business whereas nationally owned state monopolies never go out of business even if they are inefficient. However, in many cases and certainly in the case of water, privatisation did not create a competitive market. All of the water companies are monopolies and I’m not sure if a private monopoly is any better than a public one, indeed it may well be worse. One can apply this argument to other privatised industries. For example, when I take a train into London I only have one choice of company to travel with. The only real competition here is between different forms of travel but the rail companies do not compete with each other[ii]. In the case of water there is no alternative. We all need water and we can only buy it from one source.

Since privatisation shareholders in the water companies have received £72 billion in dividends, about £2 billion a year on average. Meanwhile the water companies collectively have £53 billion worth of debt, much of which has financed dividends, while investment has gone down by 15%. The chief executives of these companies are paid enormous salaries and bonuses, on average £1.7 million a year while one chief executive is paid nearly £3 million a year. Scandalously since privatisation the water bills have gone up in real terms by 40%, perhaps not surprising when there is only one supplier for any particular household and water is essential for life.

The environmental record of these companies is also a disgrace. Every day they discharge raw sewage into the rivers and seas, more than 1000 times on average. According to river conservation charity The Rivers Trust only 14% of these rivers are now considered to be in good ecological health, meaning they are not able to withstand the additional heat stress and low flows caused by drought. Water companies leak 2.4 billion litres of water a day, up to 25% of their supply. The Environment Agency has said that by 2050 some rivers will see 50 to 80% less water during the summer months. However, no major new reservoir has been built in the UK for more than 30 years. There has been a long-term plan to create a National Water Grid so that water can be piped from the west of the country where there is greater rainfall to the east side just as electricity can be moved around the National Grid. However, while the politicians frequently refer to this idea nothing whatsoever has happened.

I mentioned that because of the different ownership models comparisons can be made. Publicly owned Scottish Water has spent £72 more per household per year, that is 35% more than the English water companies. If England had invested at a similar rate an extra £28 billion could have been invested in the infrastructure to tackle problems like leaks and sewage. In Scotland bills are lower and rivers and seas are cleaner.

We can also make comparisons internationally. In France several cities have brought water back into public ownership. Unlike England where the government sold off all the assets, the reservoirs and pipes and so on, in France they just sign contracts to run the water service and therefore can just wait until those contracts come to an end before taking it back into public ownership at no cost. In Paris water came back into public ownership in 2011. The now publicly owned company L'Eau de Paris has built still and sparkling water fountains throughout the city.

I’m not sure what it would cost the taxpayer to take back ownership of the water companies. As most of them are held privately it is not a straightforward exercise to make the calculation unlike with public companies which have daily valuations on the stock market. The TUC has said it will cost just £2.8 billion. I think that is extremely unlikely since last year that’s how much the water firms made in operating profits. Even the Labour leader Sir Keir Starmer, while concerned about the water company’s performance, does not believe that renationalisation is the answer. Instead there needs to be substantial reform. At the very least the regulator Ofwat and the underfunded Environment Agency need to be strengthened rather than just issuing the odd press release voicing their concerns but not really taking any serious action.


[i] The Ancient Mariner Samuel Taylor Coleridge
[ii] But they do in some European countries where national railway systems were privatised and competitive markets created. Prices went down while service levels went up.
 
Sources: various




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