Most general elections are decided upon how optimistic the electors feel about their future prospects. In 2019, Boris Johnson persuaded a doubtful majority that getting Brexit ‘done’ would open the door to sunny economic uplands. This proved to be untrue, and instead, we have a dysfunctional ‘freedom’, where the economic wolves have been given lamb kebabs at every turn. One very hungry wolf is the water industry – a network of private monopolies that has ridden roughshod over weak regulation administered by the UK government’s ‘watchdog’ Ofwat. Note: This article uses sources that mention the UK’s water crisis. We are, however, aware that Scottish Water and Northern Ireland Water are publicly, not privately, owned.
Since water privatisation began in 1989, these companies – 90% of whose shares belong to overseas investors – have used complex financial engineering and dissimulation to drive up profits, increase bonuses to their chief executives and avoid what ought to be heavy fines for inadequate customer service.
Water leaks are commonplace, supply failures in drought, flood, or almost any weather condition are routine, and sewage leaks often go unreported while the condition of the UK’s rivers and seas has seriously deteriorated. Manchester Ship Canal v United Utilities is a key court case concerning allegations that the water company had contaminated the canal.
Water companies sinking
United Utilities tried to have the liability dismissed but lost on appeal, and they (and other water companies) faced new liabilities. In the past, it might seem the regulator was asleep on the job, but this case might be the dam that broke, leading to many similar lawsuits.
The industry complains that it is not its fault; it is under-resourced and hampered by Victorian-era infrastructure. It blames climate change and a strict regulatory regime and suggests foreign investors will no longer wish to invest in the industry.
Yet, in view of what is happening at Thames Water, one could comment that it might be better for foreign investors to put their investments in an enterprise manner that adds to the nation’s wealth and not reduce, rather than reduce it.
The possible financial failure of Thames Water has cast doubt on much of the water industry’s special pleading. Thames Water is deep in debt, around £17bn, and has just announced a hike in customer charges of about £19 a month. It is in this predicament because of some investors’ deliberate policy of making super profits.
The investors win, and the public loses
There are concerns that complex financial structures are overpricing the cost of infrastructure renewals and new capital works. At the same time, borrowing policies ensure lenders receive above-market rates and are linked to some investors. Thames has been heavily leveraged with each takeover or transaction. The activities of former owners – such as the Australian Macquarie Group – are key to this parlous financial condition.
Notably, as Thames Water sinks, the Macquarie Group continues its unstoppable rise and is now involved with Southern Water, whose performance and public approval are at an all-time low. Many UK customers are now refusing to pay part or all of their water bills.
The pollution of our rivers and seas and the poor performance of the water companies were major factors in the 2024 general election because the Conservative government foolishly tried to ignore or excuse their behaviour.
The incumbent Labour administration cannot now hope the problem will go away. Water privatisation was meant to free the industry from the shackles of the treasury and allow greater investment to bring services to a standard fit for the 21st century.
UK, the ‘dirty man of Europe’
Water was meant to be a boring, solid investment, safe for widows and orphans. Instead, the new owners became financial predators, using their market monopolies to ensure high profits without high service standards.
The water industry claims it inherited polluted rivers and that Britain was the dirty man of Europe, which they have remedied. But much of the pollution came from industry, so when the industries shut down, most pollution went with them. Today, the UK is again the dirty man of Europe, partly because of the water industry. Sewage and agricultural run-off have replaced industrial pollutants.
Under modern law, people cannot live without water, and water companies can no longer cut off consumers. However, governments have tried to exercise control over water companies seemingly without success.
Incentives to invest
The policy of successive governments has been that:
- Privatisation is a good thing, irrespective of evidence to the contrary.
- Overseas investment in any industry is a given, even though the activities of ‘investors’ like Macquarie may be against the public interest.
With what result? The overseas investment mantra has frozen internal investment because our financial industry invests in overseas economies, not our own. Rather than constantly meddling with stop/go investment in public services and capital works, the UK government should create an environment where the public can be incentivised to invest in our own public services.
Many countries borrow from their own population, and the England should do the same. Rather than fine the water companies for no purpose, the penalty for poor service, pollution, lack of supply and investment should be the compulsory equities issue. Instead of being fined, they should be forced to hand over shares.
The mutual model
The shares would be held by a Community Interest Company (CIC) or trust, not to be sold back to the industry at bargain basement prices by any ‘free market’ government. The CIC should be empowered to acquire water industry shares, if necessary, as a controlling interest so that it can appoint directors who would act in the public interest.
The government has shown reluctance to shoulder the costs of renationalising the water industry, even though a majority of the public has, for the past few years, wanted and expected them to do so. But mutualisation, as Wales has done, sets out a workable solution.
If Ofwat does not hold the line against the water industry, it, and possibly the new government, could be swept away by a populist movement that might promise to de-privatise water. Labour’s newly passed (January 2025) water special measures bill at least sets new rules around bonuses and sewage spills, but its effectiveness remains to be seen.
All UK utilities are losing public trust. The telecoms industry applies annual price increases to customers’ fury as a norm on many contracts. Energy costs are the highest in Europe, and the water industry has so little public support that one wonders how it can retrieve its public image. Despite much greenwashing, opaque reporting processes and PR, no one is fooled, and a richly deserved nemesis is coming.
For the public good
Britain has several divisions: remain versus leave, well-off versus the left behind, rural versus urban, etc. However, one of the most recognised divides is between the nation’s managers and the ‘managed’, be they workers or customers.
With few exceptions, management remains as it has been for decades: complacent, sometimes incompetent, often self-seeking, and opting for short-term palliatives to long-term problems. The water industry, whinging and whining about the infrastructure it has owned for over 30 years, is emblematic of today’s British disease, which is an inability to manage for the good of all.
This government has already fallen from a low baseline of popularity. It is casting around for growth solutions, and alienating environmentalists’ support in the process is not helping. However, a mutualisation of the water industry could actually be a win and signal the government’s real commitment to the public interest rather than that of powerful investors.
