Water: the case for public ownership
The picturesque market town of Wadhurst in East Sussex was recently named the best place to live in the UK by the Sunday Times. With fewer than 5,000 residents, it is not much more than a large village. My daughter lives at the edge of Wadhurst in Mount Camphill, an inspirational community and residential college for the learning disabled, clustered around an old Victorian monastery.
Earlier this month the village, the college and the community ran out of water. They had none, not a drop, for a whole week. Humans, horses, sheep and cattle in this ancient corner of rural England, dotted with farmsteads and small fields, relied on emergency supplies of bottled water to survive.
The college was closed, along with other schools in the area. Students were sent home. So were the older residents at The Mount Camphill community. My daughter arrived home to us, grumpy, carrying a week’s washing.
Water shortages in this otherwise idyllic part of England have become depressingly familiar. Residents of Wadhurst went without water for three days last Christmas and in July 2022. It’s not alone. With more frequent, prolonged and severe droughts forecast, our green and pleasant land faces a starkly dry future.
The fact is that Britain’s privatised water industry can’t keep up with demand, as temperatures rise and the population heads to 75 million by 2050. The industry can’t fix our crumbling infrastructure anything like fast enough, partly because it syphons off huge dividends to its shareholders. It’s not transparent and it’s poorly regulated.
The industry’s own estimates suggest that nearly 3 billion litres of water are lost every day through wastage, mostly leaks. That’s equivalent to a staggering 25% of the UK’s daily water consumption. On top of this, England’s private water companies have racked up a baleful record for tipping excrement and waste into our dwindling waterways and the sea, close to our beaches. And it’s getting worse.
The first, detailed independent study of England’s wastewater system, published by the Royal Society of Chemistry recently, concluded: “The chronic undercapacity of the English wastewater systems…[is] a fundamental cause behind the increased frequency and duration of CSO [sewage] spills.”
Ofwat claims that investment in the industry has roughly doubled since privatisation in 1989. But the study concludes that capital expenditure (spending on pipes, pumps and sewers) has in fact remained the same: between £5bn and £6bn a year. Too often OFWAT sounds like a “captured” regulator — supporting the interests of the companies it is supposed to regulate, rather than those of the public. It also escapes proper political supervision by being a “non-ministerial government department”.
Some background: the UK has hundreds of thousands of kilometres of combined sewage and water systems, mainly in built-up areas. These are designed to collect wastewater from domestic, commercial, and industrial activities and stormwater run-off. In heavy rainfall, when the systems are overwhelmed, what are called Combined Sewer Overflows (CSOs) release excess flow into natural water courses. These “controlled” overflows spew often toxic pollution quite legally into our waterways or the sea, posing a threat to sea life, drinking water supplies and public health.
More rain means longer spills and more pollution. Back in 1994 toxic discharges were largely due to failures at pumping stations. Today it’s usually due to water overload. And it’s getting worse. We don’t know how much worse because water companies significantly under-report spillages. We do know that only Albania, Estonia, Hungary, Slovakia and Poland have worse water quality than the UK.
Between 2000 and 2008, just over 3000 km, or just 1% of the sewers in England and Wales, were replaced or rehabilitated. At this rate it would take 800 years to fix them all. Water companies plead that climate change is holding them back. But it’s not that simple.
No other country on the planet has adopted wholesale the English system of private companies – 70% owned by foreign investors, often through opaque offshore entities – controlling both water supply and sewage. Not even the Americans, who are largely served by publicly owned utilities.
Water was sold off by Margaret Thatcher in 1989. It would deliver long-term gains: first by offering cheap water for the consumer; second by providing billions more in investment to modernise the country’s archaic water and sewage system.
The water industry claims that privatisation has improved things: rivers and beaches are cleaner, drinking water purer, leakage is down and water bills have stayed roughly the same as they were 20 years ago, taking inflation into account. That’s not how it feels.
English water companies could equally be described as grasping monopolies, awash with debt, serving the interests of a few shareholders around the world while cheerfully pouring sewage into our waterways and wasting enough water to fill 1,200 Olympic-sized swimming pools every day.
The state of our water industry is likely to be a hot topic in the coming general election. The Lords Industry and Regulators Committee’s report, “The Affluent and the Effluent”, recently called for a major overhaul of the industry. Its chair Lord Hollick commented: “There is an overall feeling of dismay, anguish and anger…about the state of our waterways and the apparent failure to get to grips with the problem.
A key weakness in the argument that this precious national asset is better off in private hands is that 70% is owned by foreign investors: China, the Gulf, Canada to name but a few. These, by definition, are outside the reach of Ofwat. It regulates the tail, not the dog.
A typical example is Wessex Water, with three million customers. Not long after privatisation it was bought by the US corporation Enron which famously went bust in 2001. The following year 55% was snapped up by Malaysia’s YTL Power International. The rest is believed to be in private equity hands. You have to ask: why would a Malaysian multinational lose sleep over water shortages in Hampshire as long as the dividends keep coming in?
Water company dividends jumped to £1.4bn in 2022, up from £540m the previous year, despite growing public outrage at sewage outflows. Paying out huge sums in dividends inevitably means less money is available for investment in critical infrastructure.
English water, says Kate Bayliss at the SOAS department of economics, is the world’s ATM machine: “It’s a crazy system. We’re in effect managing our water in the interests of offshore investors.”
Even more worrying is the opaque way in which dividends are paid. A complex layer of corporate structures, with no obvious benefit to the customer, veils exactly where the money comes from, who it goes to and by what means.
Nick Hood, senior adviser at Opus Restructuring, told the Financial Times it was “difficult to see what purpose such opaque corporate structures serve except ..to make it unduly difficult to trace where money diverted from front line water infrastructure investment is going.” And then there’s those bonuses.
But let’s go back to basics. Water is the most important commodity in the world. It is indispensable for life. Access to water is a human right fundamental to health, dignity and prosperity. It is also a strategic asset. If Vladimir Putin wanted to cripple Britain, one of the first places he’d target is our reservoirs.
The outgoing head of the Environment Agency, Sir James Bevan, says Britain faces what industry experts call a “jaws of death” scenario within 25 years: the point at which we will simply not have enough water to supply our needs.
To avoid this fate, we need to reduce consumption, increase capacity by building more reservoirs and desalination plants, move water from wetter to drier parts of Britain and cut the appalling waste of water leaking from poorly maintained or outdated infrastructure by at least 50%. We also need to bring water – a national asset and arguably the most vital of all public services – back into public ownership where it belongs and where it can be accountable.
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