9 ways privatised water is fighting for its life

6 July 2023

A debt mountain of £54 billion. Yearly droughts and hosepipe bans that come round like clockwork. Raw sewage pumped into your rivers and seas for nearly 2 million hours each year. And now, England's privatised water companies are on the brink of insolvency.

It is clear the system is broken. No wonder 7 in 10 of us support public ownership.

Even the private water companies and their defenders know the writing is on the wall. But they are not willing to giveup without a fight.

A lot of ink has been spilled since the news on Thames Water’s finances broke.

Supporters of privatisation and industry leaders have been preparing to defend themselves against the public's call for a shift to local, public ownership.

1. Blame the regulators…

No one can disagree that the underfunding of our regulators has left them unable (or unwilling) to rein in even the worst excess of private water.

But when former BP vice-president, Nick Butler, argues the case in The Guardian he fails to draw on important research into the role of regulation which found regulators are “caught in an impossible bind in meeting the contradictory interests of investors [and] end users.”

Fundamentally, regulation was never going to stop the sewage spills, water leaks, and bill hikes because privatisation will always create an incentive to prioritise shareholder value.

2. …and argue for more!

According to Ben Wright in The Times, “the water industry doesn’t need to be nationalised, it needs to be better policed.” This, despite over 30 years of failure.

As we set out in our blog, there are many reasons why regulation simply can’t ever solve the sewage crisis.

The biggest is that while they are run for-profit, water companies will always have incentives to minimise investment and maximise payouts to shareholders and creditors.

The evidence shows they will always innovate new tricks and “innovative financial mechanisms” to dodge regulation, as long as their interests differ from those of the public.

3. Blame the type of shareholders…

Helen Thomas opts for a different tack. She argues that “water has a private equity, not a private ownership, issue.”

Thomas celebrates the private firms listed on the stock market as better. Never mind that the examples she champions, such as United Utilities, have left some of the North’s holiday hotspots no-go zones with sewage pollution.

4. …and argue for more!

Nils Pratley makes the same argument suggesting the solution is to ‘get these firms back on the stock market!’

But we know all too well that this will not deliver the services we deserve. Take the FTSE200 listed FirstGroup which drove TransPennine Express into the ground just months ago.

In the end, it does not matter if the private owners come through private equity or the stock market: they will fail our public services because they are not accountable to service users.

5. Call for privatisation to be… nicer?

What we are really lacking is a kinder water company that really cares. So runs the “public benefit companies” argument, supported by the Lib Dems.

As Will Hutton argues, “no attempt to ensure that privatised utilities would put their social purpose first was ever countenanced.”

But as Feargal Sharkey and others have pointed out, the Companies Act 2006 already requires water company bosses to “have regard to the impact of the company's operations on the community and the environment.”

And public benefit corporations, where they exist, still pay out dividends, making our bills more expensive and holding back progress to clean up our rivers.

6. Celebrate unaccountable “trusts”...

According to Rob Branston, “another way to help clean up the industry”, without doing the obvious and renationalising it, is by following the Welsh Water model.

He claims it is “run solely for the benefit of its customers” by “independent trustees.” He believes this has led it to perform favourably against England's private water companies.

But in December it was named among worst performing water firms by Ofwat and its trustee system leaves it just as unaccountable to the public as in England, as our blog points out.

Most importantly of all, it fails on its own terms. Publicly owned companies borrow at lower rates and so, unlike Welsh Water, pay out much less to line the pockets of private creditors.

In the end, delivering the invesetment to build a 21st century water system is much cheaper under public ownership.

7. …while questioning public ownership.

Despite Scottish Water’s position as the UK’s most trusted utility, another response to the perceived threat of public ownership is to criticise its model.

Discussing this, Douglas Fraser points out that public ownership allows profits to be reinvested and lowers the risks and cost of debt.

While Scottish Water can and should do better, it really shows the need to build and expand a new model of 21st century public ownership, like in Paris where the public have a direct say over services. Scotland also suffers from the legacy of PFI, which has introduced significant profit-seeking into the industry.

8. Lobby like hell. 

Armed with these ideas, water bosses, like Severn Trent’s Liv Garfield, have been attempting to deliver a coordinated movement to prevent an incoming Starmer Government from implementing public ownership.

Their move is simple: get Labour to support “special purpose companies”.

Unfortunately, attempts to prioritise the public over profits under privatisation are doomed to fail. When Norway introduced a law to “de-commercialise” its care system, many private companies responded to the rules by simply creating “not-for-profit” subsidiaries.

Not only does that allow them to keep paying out high executive salaries, but it also lets them retain their control of the sector to the benefit of their shareholders.

Why? Because they can afford to wait 5 or 10 years until a change of Government allows them to lobby a fresh group of ministers to set them free to payout dividends once more.

9. And if all else fails, scaremonger…

It’s a common call from the right: public ownership will cost too much.

Unsurprisingly, Lord Michael Howard, who helped lead the original privatisation three decades ago, says there can be “no free lunch for nationalisation of water.”

This ignores that nationalisation would help keep costs down as we address the big challenge of the water industry: funding our modernisation of England’s sewage system.

Public borrowing is much cheaper than for private companies, no matter whether they’re owned by private equity, floated on the stock market, or held in trust.

Currently, over a billion pounds get paid out each year to shareholders in the form of dividends. Under public ownership, that money would lower bills or pay for investment.

What is more, special administration allows debts to creditors to be reduced, subordinated, or removed, where they would not be “consistent with the purposes of the special administration order.” That means the costs of renationalisation could be significantly reduced or even eliminated.

They will fight to defend themselves. We must do the same.

Not all of these pieces agree. But they are part of a shared motive: to undermine the commonsense move to take water companies into public hands.

It’s clear that privatised water is fighting for its life.

If the water industry, private shareholders, and the media can run an organised campaign to prevent public ownership, we can run one to win it.

Sign our petition here to stop a public bailout of Thames Water and to bring it into public hands, so England’s water starts to work for people and planet, not just for profit.

Do you believe in public services for people not profit?

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Mrs Margaret Morgan replied on Permalink

All services should be nationalised and we need a proper Socialist government to back this .Our country is being ransacked and the government are sitting back and allowing it to happen

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