This PSIRU Brief discusses some of the categorical errors mainstream economists make in predicting the outcome of water renationalisation. It argues that these errors are due to the misrepresentation of the ethos and motivation of the public and private sectors.
It's fantastic that the Labour party has committed to bringing water into public ownership! This policy is supported by 59% of Leavers and 63% of Remainers.
Right now in England our water is owned by private companies and the profits go to investors around the world, in countries as far away as Australia, Canada, Malaysia and Hong Kong. It doesn’t make sense! Water is a basic right and there’s no need to pretend we need ‘competition’. In any case, we don’t have a choice about where our water comes from.
235 cities have taken water into public ownership in the last 15 years, many of them in France and the US. Water is already publicly owned in Scotland, while in Wales there is a not for profit water company. So how do we take control of our water in England?
Step 1: Compensate the shareholders
The UK parliament has the power to decide how much to compensate water company shareholders; what is a fair level of compensation. This decision about compensation should take account of the fact that the water companies have not contributed much since privatisation.
- They’ve increased debt from zero in 1989 to a mountain of £42 billion today and used debt to finance investment
- They've kept the overall level of shareholder investment about the same - in fact equity has dropped slightly (see the graph from the National Audit Office below)
- They've extracted profits of around 12% - £1.8 billion - year after year
- They pay the CEOs of the 19 water companies huge amounts - £10 million in 2012
- They've increased our bills by 40% in real terms
Bringing water into public ownership would save us £1.8 billion a year on shareholder dividends alone. If we compensated shareholders for £18 billion – which would be MORE than the £15 billion they’ve put in to the industry – this proposal would pay for itself in 10 years.
Step 2: Create regional public water companies
Create new regional public water companies. These would be accountable to us, the public. They would be owned and run through partnerships of local authorities with representatives from local communities and employees. Take the functions of the regulator, Ofwat, into a government agency, accountable to parliament and required to hold open monthly consultations.
Step 3: Enjoy water that works for people not profit!
After 10 years we could use the money we’ve saved to cut everyone’s water bills, invest in infrastructure or pay off some of that debt mountain the private sector has racked up. Then we can sit back and enjoy having water that belongs to all of us and accountable water companies that put people before profit!
And if you like this plan, please SHARE to spread the word!