In 1989, as England’s water industry was privatised, an advertising campaign declared: “You could be an H2Owner.” The move was heralded by Margaret Thatcher’s Conservative government as an act of popular capitalism that would help forge a “shareholding democracy”. Yet the result has been the opposite: a system of legalised larceny in which profits are privatised and costs are socialised.
Since the 1990s, investment by the ten largest water and sewage companies has fallen by 15 per cent (from £5.7bn a year to £4.8bn). Over the same period, these firms have paid £72bn in dividends, and accrued £60bn of debt. Contrary to the promise of privatisation, it is not ordinary shareholders who are benefiting. More than 70 per cent of the water industry is now owned by foreign investors: Wessex Water is owned by the Malaysian company YTL, Northumbrian Water’s ultimate owner is the Hong Kong billionaire Li Ka-shing, and Thames Water’s owners include the sovereign wealth funds of China and Abu Dhabi.
There is increasing – and justified – public outrage at the industry’s performance: water bills have risen by 363 per cent since privatisation (more than twice the rate of inflation), while the level of raw sewage discharged by firms into rivers and seas last year reached a record high.
Yet a reckoning may be approaching. On 5 April, Thames Water’s parent company, Kemble Water, announced that it had defaulted on its debt, raising the spectre of bankruptcy. Thames Water enjoys a natural monopoly; its 16 million customers in London and the south-east have no alternative provider. Only a dismal combination of greed and incompetence made the present crisis possible. Thames Water’s shareholders last month refused to provide £500m of additional funding after the regulator Ofwat rejected their demands: a 40 per cent increase in water bills, lower fines for environmental breaches and the continued payment of dividends.
“The leadership of Thames Water has been a disgrace,” observed Michael Gove, the Levelling Up Secretary, on 28 March. Customers had, he said, been “taken advantage of by successive management teams that have been taking out profits and not investing as they should have been”.
This tale of corporate avarice is a peculiarly English one: no other country in the world has fully privatised its water and sewerage system. In Scotland and Northern Ireland the water industry remains publicly owned, and in Wales it is run by a not-for-profit firm. A 2017 study by the University of Greenwich estimated that consumers in England had paid £2.3bn a year more in water and sewerage bills than they would have done under public ownership.
Should Thames Water’s attempted debt restructuring fail, the company could be temporarily renationalised, a scenario the government is actively preparing for. But this is the moment for a wider inquest into the water industry and the UK’s ownership regime.
For too long, Britain has allowed its national utilities and flagship companies to be acquired in a largely arbitrary manner. Sales to foreign owners are invariably accompanied by promises of greater investment and lower costs, but these boasts are rarely justified by results.
Over the past 15 years, the state has been forced to take banks and rail-operating companies into public ownership in order to protect consumers. Thames Water may yet join this list of inglorious nationalisations. But such moves are purely reactive – they entail no wider consideration of Britain’s ownership model. As Rachel Reeves, the shadow chancellor, observed in her recent Mais lecture: “We are already stumbling blindfolded into an era of a bigger state, the unavoidable corollary of sticking-plaster politics.”
Labour has indicated that in government it would depart from free-market orthodoxy by deploying the state as an active economic agent rather than merely a backstop. It would establish Great British Energy, a publicly owned clean energy company (42 per cent of UK offshore wind capacity is currently owned by foreign state companies) and a National Wealth Fund to invest in green sectors. These would be welcome steps in rebalancing Britain’s economic model.
The UK’s broken water industry is a case study in the dangers of dogmatic privatisation. National ownership is not an invariable panacea: governments as well as firms can underinvest. But after decades of market failure, now is the time for Britain to wash away old assumptions.
[See also: After neoliberalism]
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This article appears in the 10 Apr 2024 issue of the New Statesman, The Trauma Ward