Water is literally the stuff of life. Human beings, and most flora and fauna cannot do without it for very long. When water was privatised in 1989, ostensibly because of fears about future investment and EU water quality directives, I doubt those promoting that privatisation, could have understood clearly what their legacy was likely to be, 36 years later.
Water is an essential. At a pinch you can do without energy, telecommunications, housing even, while food can be obtained from various sources, but water is owned by a series of monopolies that control nearly all water supplies in England. Adam Smith, the free marketeer’s 18th century economist of choice, criticised monopolies as being detrimental to economic prosperity and societal wellbeing.
Karl Marx thought that monopolies were a force which would exacerbate exploitation and create new forms of inequality. Finally, influential economist John Maynard Keynes felt that monopolies disrupt perfect competition and require intervention to address market failures and instability.
So there you have it from right, left and centre, monopolies are a bad thing, and require intervention by the government.
A failing regulatory system and public distrust
So one must ask, why have we allowed these monopolies to exist in the first place, and why is there a regulator so patently toothless as Ofwat, when there are numerous daily failures in terms of water leakage, lack of investment, and multiple sewage outflows into England’s water courses? Why is there structural instability, in terms of debt management, particularly at Thames Water?
For all these many failings, the public must be happy with the cost and the level of service, otherwise there would be changes made. A deep dive into public perceptions of the UK’s water sector by the Chartered Institute of Water and Environmental management (CWEM), suggests a curate’s egg of public opinion, good in Cumbria, parts of the South West, and East Anglia on customer service, but deep concern about those sewage outfalls. This survey did not mention Thames Water and Southern Water customers, and it was completed before the latest round of price rises. Water magazine says there is a low public understanding of UK water sector which is leading to public distrust.
Politicians seem hamstrung by the industry, even though public anger on the industry’s failings seems to rise daily. For example at a recent visit to Deal in Kent by the environment secretary, Steve Reed, his sole contribution was to tell Deal residents that “solving water issues will not come quick”, and that “we have over £100bn of investment coming in to modernise our sewage and water systems.” In fact the ‘investment’ is being made by water company customers, who are expected to pay now, and maybe in 10 or 20 years’ time, the water courses of England, might be less polluted than they are now by sewage.
Southern Water is “working tirelessly”, mainly by trying to deflect criticism, while pointing out “Thirty years ago, people weren’t so concerned, now they rightly are”. They go on to say that the public must use less water because South East England has low rainfall. We do indeed need to build more reservoirs, and we also need to install grey water systems, water butts and permeable road surfaces as indicated in my Plan 2030 (see below). Southern Water is now tied to the Australian asset management giant Macquarie, who previously loaded Thames Water with debt before selling it off in 2017.
The crisis at Thames Water
The water industry seems keen to add to its unpopularity by complaining to the competition and markets authority (CMA) about the charges increase allowed by Ofwat. The recent BBC2 programme Thames Water: Inside the Crisis, laid bare an industry under siege, and living in a dreamworld of its own. The management seems unable to accept that they are the problem, and by borrowing yet more money at almost payday loan rates, or discussing passing the whole parcel to an American hedge fund, Kohlberg, Kravis, Roberts (KKR), they are adding to, not solving the insolvency issues at the heart of Thames Water.
Keir Starmer says he wants a reset on external economic relationships, fine, but the water industry needs fixing now. An independent commission on the water sector has been set up. Its chair Sir John Cunliffe says there needs to be a reset, but it is hard to see how that might work, when faced with an industry that is both intransigent and belligerent in its actions.
Plan 2030: a new vision for water
I have a set of proposals which I call Plan 2030:
- Structural reform: Defra, Ofwat and the Environment Agency are broken up, as all have failed to stem the flow of sewage into our waterways. In future there should be a Department of Water and Infrastructure with powers to compel, not just regulate the water industry in order to mend its ways. This will require new more dynamic leadership, which means a cabinet reshuffle. If we separate rural affairs and farming , and leave it to Defra and instead create a new ministry of infrastructure and public services, it will leave the energy ministry to concentrate on low carbon generation, while coordinating infrastructure construction, repair, and improvement under one body. At the moment everybody does their own thing in an uncoordinated way.
- Ownership model: Mutualisation not nationalisation. I have thought hard about this, and I have concluded that it is not necessarily a good idea to nationalise the industry as a future government can always reverse this. Not for reasons of cost either, as most of the water companies are heavily leveraged, and therefore their true value is far less than what the treasury makes out. Instead, I would suggest forming a mutual organisation owned by the public, and therefore impervious to re-privatisation in the future. This new body will either own all the water (such a model would also work with the electricity infrastructure). By allowing the public to invest in its own country by diverting tax incentives away from ISAs and Buy to Let and instead towards the mutual ownership of key parts of the infrastructure by means of bonds and where applicable equities. These would be guaranteed by the government.
- Stronger penalties: Southern Water has just pleaded guilty to unpermitted discharges carried out up to six years ago, it takes far too long. Fines are almost part of the business plan, where fines are contingencies within the overall water company budget, and serve no deterrent effect as intended. Instead, by no later than 2030, I propose that the fine is in two parts. The first is cash, to clean up the pollution the water companies create, and the second is in the form of company shares to be held by the new infrastructure holding company, as punishment.
- Fairer billing system: in future, as of 2030, the water charges should be in two parts. The first part is a reasonable charge to cover the running costs of the water companies, determined by the independent water commission set up by this government. The second part is an investment in improvements to the infrastructure repaid in shares to be held by the new infrastructure company, who will, after a period of time, own a controlling interest in all of the water companies. The customers will, for once, be getting a return for a change, instead of only the water company management and private shareholders benefitting from investment.
- Urban runoff reform: One issue where water companies do have a legitimate case is stormwater runoff in urban areas. By 2030, non-permeable surfaces constructed on our driveways and housing estates should be banned. Non permeability is a cause of storm water overflow. So I propose that the planning regulations being amended for housing estates to install permeable surfaces on drives and roads. In our urban spaces, car parks should start to be re-laid with permeable surfaces in the coming decades when maintenance is due. Urban planning needs to adapt effectively to climate change, and this should form a part of that adaptation strategy.
- Rainwater harvesting: By 2030 every household should be able to claim a free water butt from the water companies, with the proviso of proving that the water butts were correctly installed. If a household wants more water butts they should be provided at a discount, and of course every future housing estate should be fitted with water butts and preferably grey water systems. Rather retro fitting these items, they should be fitted as the house or factory is being built.
- Sewage outfall monitoring: Finally, Reed was saying it would take a decade to set up monitors to measure sewage outfalls. This is not acceptable. Plan 2030 would require all sewage outfalls to be monitored by 2030, and if the water companies don’t know where all the outfalls are, as Reed suggests, I am sure the public will help the water companies find all the relevant pipes and sewers outfalls in England.
Time to act
There you have it, Plan 2030. As Churchill would say “action this day”, it’s time to speak clearly to the water industry. Between them they have become totemic of the “Broken Britain” clamour often expressed by the public. If this government has the determination to bring the water industry to heel, it may well be a good reason to expect a higher opinion poll level than it does now. This should not be seen as anti foreign investment, but instead channeling that investment into worthwhile schemes that are beneficial to both the public and the environment.
Editor’s note: Southern Water makes available its business plans at https://www.southernwater.co.uk/about-us/our-plans/business-plan-2025-30/ for those interested to see which local areas have priority for work to stop sewage overflows. Notable for Kent is that the Margate/Whitstable water infrastructure is in the priority list.
