When the water industry was in public hands, it was said that it worked neither for its owner – the state – nor for the public. Since being privatized in 1989, water companies have enriched investors and top executives, but failed to invest adequately in infrastructure. Shareholders have received £72 billion in dividends. The cash came from big debts, with companies borrowing £56 billion, and big bills, with prices rising by 40%. The efficiency of the private sector did not provide better service, but it did allow companies to be milked for cash.
The urgent concern of the companies was to make money rather than giving much thought to the challenge of the climate emergency. So water companies will impose hose bans during record-breaking summer heat despite up to a fifth of water being lost through leaks. Two companies that restrict water use, South East Water and Southern Water, have some of the worst environmental records. Thames Water, which will ban lawn watering for its 15 million customers, was fined £20m in 2017 for dumping 1.4 billion liters of raw sewage into rivers. Last year, the company was found to have illegally dumped untreated sewage for 735 days.
These deficiencies are met by water companies with bromides designed to create the illusion of solving problems. The companies get away with it, because the water dogs’ bark is worse than their bite. The Environment Agency has said the bosses of the water companies responsible for the worst pollution should be jailed. There is no indication that any executive directors face criminal charges. In February, industry regulator Ofwat said Britain’s privatized water companies should link executive pay to performance. This summer, Thames Water boss Sarah Bentley will receive a total of £700,000 as part of a £3m ‘hello golden’ pay package, just weeks after the appalling pollution record of your company
The sound most often heard in regulatory circles these days is that of the stable door closing long after the horses have been penned. In June, Anglian Water, one of the UK’s biggest companies, announced it would pay a £92m dividend to its owners. A month later, Ofwat proposed new powers to prevent dividends being paid to shareholders.
The government has signaled that post-Brexit regulations are likely to be less, not more, onerous. Voters have every right to feel let down. There is a very good argument that privatized companies have been overcharging customers of natural monopolies by cheating the regulator and paying shareholders by loading themselves with debt. It seems that this outrageous behavior has been exacerbated by a collective failure to make the investment that society needs.
Britain’s private utility model is broken. Clearly, the state can manage services in a way that makes sense. Railroads have proven ill-suited to conventional capitalism. The government has already announced plans to nationalize key parts of the electricity grid to help meet climate targets. The Treasury was forced to pick up the tab when gas suppliers collapsed. Global warming is making water shortages and leaks worse. To prevent companies from gaming the system and shirking their responsibilities, a measure of state ownership will be needed.
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