Editor’s Note: This article was originally published in Summer 2022, when droughts across the UK provided a moment of reckoning for water companies, exposing the extent of their failings. Today (9 August 2023), it has been reported that the public could receive hundreds of millions in compensation as six water companies face a sewage law suit. So we return again to look at the many ways in which water companies have failed.
A particular injustice of climate change is that many of those who could have stemmed its extent or impacts gain financially from their failure to do so. That is writ large in the case of oil companies, which have logged record profits this year even as bills and temperatures soar. And so too, the UK is finding this month, can the inequity apply to water.
As the looming drought threatens to turn fields and waterways to dust, fingers are pointing towards the nation’s water companies. Millions of pounds have flowed to top chief executives – and billions to shareholders – in recent years, despite the same companies being loaded with debt, polluting rivers and failing to provide the necessary investments to fix leaky pipes and store sufficient water reserves.
The rage is understandable. Livestock farmers are having to use up precious winter feed reserves. An Oxfordshire village has become the first in Britain to rely on water delivered by tanker. And as the industry deploys its drought plans – allowing companies to extract more water than usual from already low rivers – vast numbers of already struggling insects, birds, fish and mammals will be thrust into even greater hardship. “When the vegetation has died and gone brown there is no nutritional value,” explained Ben Hargreaves of the Wildlife Trust.
Is renationalisation of the privately owned water companies the answer? The Green Party thinks so. Its co-leader Adrian Ramsay has argued that the “£57bn paid out in dividends” to shareholders of water companies should have gone towards “plugging the leaks”. The Lib Dems are not far behind: the party has called for a ban on executive bonuses till the pipes are fixed.
That the water companies are failing in their duty to consumers and the environment seems increasingly clear. Thames Water, England’s largest supplier, loses 600 million litres of water per day through its pipes – almost a quarter of the water it handles. Across the board, sewage was released 400,000 times in 2020, including when there had been little or no rain. In a letter dated 18 November 2021, the chief executive of the regulator Ofwat detailed a “growing concern” about unpermitted wastewater discharge – and reminded companies that they have “been allowed funding to comply with their legal obligations”.
The problem, says Andreas Bieler, a professor at the University of Nottingham and author of Fighting for Water: Resisting Privatisation in Europe, is that the main focus of the water industry “rests inevitably on profit maximisation”. Public ownership at least creates the possibility for profits to be more easily redirected from investors to system upgrades. However, renationalisation or remunicipalisation do not automatically achieve this in practice, he adds: some publicly owned companies, for example, can similarly focus on maximising returns for the respective municipality, as in the case of Italian cities like Torino and Milan.
Even deeper perhaps than the issue of ownership, therefore, is that of governance. Few could be said to have railed more loudly (or memorably) against the UK water companies’ abuses than the rivers campaigner and former pop-star Feargal Sharkey, but he too points the ultimate finger of blame at government.
[See also: Europe’s worst drought on record needs to trigger a flood of climate action]
“The ownership of the companies is not the issue. What’s triggered this is a failure of political oversight. Drought and sewage is a physical manifestation of decades of under-investment, profiteering and failure of regulation,” he told the New Statesman. Instead of publishing “pleading” letters to the water companies in national newspapers, Sharkey argues, the Environment Secretary, George Eustice, should use his enforcement order powers to stop the companies paying bonuses or dividends “until the issue of water security for South East England’s 25 million people has been addressed”.
“Company directors have a legal obligation to make as much money as they can for shareholders. So ambitious regulation is imperative. And it needs political willpower to make it happen.”
According to Christine Colvin of the Rivers Trust, an environmental charity, for too long the two water regulators – Ofwat and the Environment Agency – have let too many issues fall into “the gap” between their various oversight roles.
There are signs of positive change. Two investigations are now underway, one led by Ofwat into the management of sewage treatment works, and another by the Environment Agency into treatment work permit compliance. Within Ofwat’s investigation there currently are six enforcement cases open, which could result in fines of up to 10 per cent of a company’s turnover.
“Where we find that companies have fallen short, we will act – over the last five years, for example, we have imposed penalties and payments of over £250 million,” an Ofwat spokesperon told the New Statesman.
Earlier this year, Defra also gave Ofwat new guidance on including environmental concerns as part of economic regulation. Historic data on leaky pipes shows that when regulatory bodies have set tighter targets, the industry has met them, explains Stuart Colville from Water UK. New infrastructure for storing and transferring water around the country is in progress. There is also potential for the government to encourage water efficiency by setting minimum standards for products like taps and washing machines as well as encouraging the use of water-saving methods like water butts.
Yet any attempt at reform also now faces an increasingly challenging external context. The current drought is Europe-wide: Germany’s mighty Rhine river is a “sad trickle”; more than 100 French municipalities are relying on drinking water being delivered by truck. According to the UK Centre for Ecology and Hydrology, the UK’s drought conditions are likely to last until October. And as I have written before, climate change is making such catastrophes more likely: western Europe’s current extreme heat trend is set to continue into the 2060s regardless of the success of global emissions cuts, warns the World Metrological Organisation. If the cuts don’t succeed, the situation will inevitably be worse.
A result of such rising water stress will be increasingly fraught decisions about how competing needs should be balanced. Domestic users, farmers, and environmental bodies are all already pressing their cases – and, so far, the regulatory system seems unable to deliver. For Tom Bradshaw, deputy president of the National Farmers Union, food production needs to be prioritised “alongside” environmental protection. Farmers are attempting to trade extraction licences to help those in water-stressed areas, he explains, but “almost two-thirds of applications have been turned down” on the grounds that extraction would pose an environmental risk. “At the moment, the environment wins every time.”
So will this summer prove a moment of reckoning for water companies? Yes, Sharkey believes, but only because he fears bills are going to have to rise in order to tackle the extent of reform needed.
“At a time when energy bills are becoming mind-bogglingly high and inflation is soaring, the water bill is now going to have to go up. Thanks to the water companies’ profiteering greed and the regulatory incompetence, I don’t think people [yet] appreciate the breadth and depth of pain people are going to have to go through.”
[See also: Sewage map shows potentially illegal “dry spills”]
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