This week started with the news that the water industry was looking for approval of plans for a £96 Billion investment in the water and sewerage network. The sting in the tail is that the industry is looking to you, the customer, to cover the cost of this investment and would have the average water bill increasing by £156 a year by 2030.
The end of the week had Southern Water being named as the most complained about water company by the Consumer Council for Water who say it has, following water shortage and spills, received three times the average level of complaints made to water companies.
There is little doubt that investment is required to update the water infrastructure. Apart from providing the water that we all take from the tap, the other main function of the water industry is to deal with our dirty waste water. The many failures of this service and the end result, polluted rivers and beaches, has become a major issue in much of the country.
Save Our Seas (SOS) Whitstable have just held a major rally to publicise the issue in the Whitstable area where they see Southern Water as letting the area down due to the number of releases of raw sewage into the seas of Whitstable. This rally was attended by over 2,000 people and heard speeches from guest speakers including Feargal Sharkey, of Punk fame and now noted environmental campaigner, Baroness Jenny Jones who sits in the House of Lords for the Green Party, and Cat Hobbs from the We Own It pressure group.
Ed Acton of SOS Whitstable said at the rally that “in 2022 Southern Water had 648 hours of sewage discharge into the local seas. In 2023 Whitstable so far has had 595 hours of discharge with three of the wetter months of the year yet to come.”
Some releases are legal and permitted. This is meant to allow for times of heavy or prolonged rain where there is a danger of the system backing up and dirty water running back into homes. This is due to the way that the systems for taking rainwater away are not isolated from the sewerage system. There has recently been an investigation by the BBC into potentially illegal discharges where raw sewage is released into rivers and seas on dry days which suggested that, of the three companies that they investigated (which included Southern Water), there was evidence of 3,500 hours of “dry spills” in 2022.
Not only is a dry discharge legally questionable but its effect on the environment is worse as, without rain water to dilute it, it is much more environmentally harmful. Mr Acton commented that “last year Southern Water had 195 incidents of permit breaching releases, representing 35% of the national total.” This is a disproportionately bad figure as Southern do not represent anything like 35% of the size of the sewage industry.
SOS Whitstable contends that there are three ways that Whitstable is impacted by Southern Waters failures. These are:
- Human – the health effects of contact with polluted seas
- Environmental – the impact of discharge pollution on nature
- Economic – the effects on the town’s tourism and fishing industry including the famous Whitstable Oyster trade.
A consistent theme from the rally was of the necessity to take the water companies back into public ownership. There was a strong message that the needed investment was not happening under the privatised model.
When the water industry was privatised in 1989 it had no debt. It now has a debt mountain of around £60 billion and has paid out £72 billion in dividends. There are studies that question if any significant investment has been made by shareholders.
Sheffield’s Professor of Accounting, Richard Murphy, has calculated the combined figures for the nine sewerage companies. In his tax research blog he says that they have a “staggeringly high” operating profit margin of 38% of turnover. In other words, for every £100 we pay them they make £38 before interest charges. He then goes on to show that, before the latest hike in interest rates, they pay 20% of turnover in servicing debt and that they pay an average tax rate of 19%. So, despite this high operating margin of 38%, interest and tax charges wipe that profit out and yet they still manage to pay shareholders 15% of turnover as the average dividend. He says, “in other words, the shareholders have taken 15p in every pound paid for water. There was nothing left for reinvestment, at all.”
The idea that shareholders are not making the investment to update our Victorian water system is further supported by a study by Greenwich University which, in its summary, says “in reality, investments have been entirely financed from customer payments, almost every year. Investments have been paid for by consumers, and not involved any finance from shareholders.”
Richard Murphy contends that water companies only have the high share price that they currently enjoy because they are a monopoly that is weakly regulated. His belief is that, should the regulators properly enforce their environmental operation, this would significantly suppress their dividend paying ability and thus their share price. Professor Murphy’s view is that the only reason the water companies are making a profit is because they are not paying for the cost of the environmental damage that they are doing and therefore are “environmentally bankrupt”. In other words, if they were forced to meet the cost of their environmental impact, their shares would be close to worthless and any compensation for re-nationalisation would be small.
Cat Hobbs from We Own It says that “privatisation is a disaster that is not fixed by regulation.” She believes that, “the privatisation experiment with essential utilities that are natural monopolies has failed” and that water companies “need to be run for the benefit of our citizens not to line the pockets of largely overseas corporate shareholders.”
She suggests that there are several ways of renationalising water companies that will not be a cash drain on the Treasury. She proposes that a first step would be to “change the way that penalties for breach of licence conditions such as pollution incidents are dealt with. “If instead of a monetary fine, such as the £90 million fine that Southern Water recently paid, the penalty was in the form of shares that the Government then held in the company, this would act as a much more powerful deterrent to companies and would mean that ownership of poor performers would transfer to the public sector almost by default.”
One thing that is sure is that things cannot stay as they are. The investment suggested by the water industry of £96 billion, which will be paid for by customers not shareholders, is thought to be unlikely to solve the problems. The House of Lords, in an independent report, have estimated the cost of just updating the infrastructure to eliminate storm overflows alone will cost £260 billion.
Cat Hobbs says she was disappointed that “nothing seems to have been said about this major issue at the Tory party conference this week” and she wants to see “if the Labour Party conference next week will address the issue” and she hopes that “groups like SOS Whitstable will keep up the pressure to try and get our water clean again.”