The UK’s water industry is in disarray, this cannot be denied. Water bills are on the rise, as are pollution levels and illegal sewage discharges by suppliers. Dividends are being handed out in record amounts, despite a lack of investment in much-needed infrastructure… and both the general public and the environment are bearing the brunt of it all.
Since the industry was privatised back in 1989, the water company web of ownership has become increasingly complicated, with recent research by the Guardian (published in 2022) revealing that private equity and foreign investment firms, pension funds and businesses in tax havens now own over 70 per cent of the sector in England.
Dr Kate Bayliss, research associate with the department of economics at Soas University of London, said at the time that this structure of ownership means that accountability and transparency are somewhat limited.
She told the news source: “This is quite a different model to how one might expect a private company to operate. It’s not simply a case of the owner aiming to raise revenue and lower costs and keep the profits. Private equity earnings are more likely to be achieved by restructuring company finances or financial engineering than productivity improvements.
“There is a much stronger focus on extracting revenue, rather than the long-term health of a company … It creates risky financial structures. We’ve seen some retail companies collapse with this private equity structure.”
Present day
Fast-forward two years or thereabouts and this is exactly what we’re starting to see with some utility companies, Thames Water for one.
When the water supplier was privatised back in 1989, it had no debt to speak of but, since then, it has gone on to borrow heavily and is now around £15 billion in debt, with analysts suggesting that its current debt levels make up around 80 per cent of the business’s value… which makes it the most heavily indebted of all water companies in England and Wales, according to the BBC.
Thames Water itself is owned by a series of different investors around the world, including Canadian pension fund OMERS, the Universities Superannuation Scheme in the UK, the Queensland Investment Corporation and other sovereign wealth funds in China and Abu Dhabi, among others.
The company, along with the rest of the industry, was privatised under the Thatcher Conservative government, with £5 billion worth of debt wiped off and the sector given a blank slate to start afresh… along with £1.5 billion in public money.
The rationale behind the (wildly unpopular) idea was that private companies would finance the necessary investments to meet EU water quality standards at the time without having to rely on public borrowing.
But, some 30 years down the line, water prices are up, bills are ever increasing, debt has been piling up and company environmental performance is in freefall.
What’s the solution?
Industry regulator Ofwat’s latest annual water company performance report (published on October 8th) was disappointing to say the least, with suppliers falling even further behind on key targets for both pollution and internal sewer flooding, and an increase of pollution incidents in 2023.
However, it seems that Ofwat may well be something of a toothless dog, lacking any real bite – something that water companies will likely take advantage of if they can, using the price regulation system to boost their profits and dish out healthy sums to shareholders, without the fear of being held properly to account.
In fact, it’s now being suggested that the regulator could be abolished altogether as part of a government review of the sector, the largest of its kind since privatisation.
The aim of the review will be to assess how best to deal with inherited systemic issues in the water industry to reverse environmental degradation, protect the nation’s waterways, drive economic growth and meet the challenges of the future.
It is also possible that we will see the industry renationalised, an idea that has become significantly more popular over the last seven years, with 82 per cent of people keen to see the water industry run in the public sector.
This is something that Labour MP Clive Lewis has renewed calls for just this month (October 16th), introducing a private member’s bill on the future of water ownership and management, and arguing for the establishment of a citizens’ assembly to make the sector more democratic and remove boardroom decision-making.
As the Guardian reports, Mr Lewis said: “This is a conversation that must take place in broad daylight, not behind the closed doors of boardrooms or through opaque industry lobbying. Water belongs to all of us, so how it is managed is a question of economic democracy. This should not be difficult for any government to grasp.”
He went on to note that the bill would aim to prevent water mismanagement, working to change the rules and “create a new political reality”.
Environment secretary Steve Reed, meanwhile, has thus far refused calls to return the industry to public ownership, instead holding an investors’ summit last month (September) as part of a private funding drive… which some critics have said is much the same as reprivatisation.
Although private member’s bills are very rarely passed in their original format, content contained therein is regularly adopted by the government if there is enough support… so there may well be light at the end of the tunnel for the nation’s water supplies if Mr Lewis’s bill is backed.
