The potential temporary public ownership of Thames Water has brought the privatisation of the water industry back into the spotlight. This move comes after the company’s CEO resigned abruptly, and Sky News reported on government contingency plans for the company’s potential collapse. Over the years, the water sector has faced numerous controversies and scandals, leading to calls for change.
The water industry in England and Wales was privatised in 1989 when Prime Minister Margaret Thatcher sold off the publicly-owned water and sewage industry for £7.6bn. The aim was to stimulate investment, improve water quality, and reduce bills. The government established Ofwat to regulate the industry and wrote off all debts. Supporters argue that privatisation has brought significant improvements, although there is still room for further progress.
Water UK, the industry body representing firms, claimed that there has been a “vast improvement” in the water industry since privatisation. They highlighted a decline in supply problems, pollution, and leaks, which they attribute to nearly £160bn worth of investment over the past few decades. Additionally, they argued that average bills have remained relatively stable when adjusted for inflation. However, these claims are contested by opponents of privatisation.
Opponents argue that water privatisation has resulted in exorbitant bills, subpar performance, and insufficient investment. They claim that the focus on executive pay and shareholder returns has come at the expense of customers. A 2015 National Audit Office study found that average household bills had risen 40% above inflation since 1989. Furthermore, analysis by The Guardian revealed that water companies have accumulated £54bn in debt while paying out dividends of £66bn to shareholders. On average, 20% of bills go towards servicing debt or paying dividends. This disparity has led to calls for the renationalisation of the water industry, with critics describing it as a “rip off.”
Regulatory Issues and Public Opinion
Criticism also extends to the regulatory body Ofwat, which some argue lacks the necessary power to hold water companies accountable. The Liberal Democrats have called for the abolition of Ofwat and the establishment of a robust independent regulator. In response, the government has promised to increase penalties, proposing unlimited fines for firms found guilty of polluting.
Public opinion largely favors renationalisation of the water industry. According to a September 2022 YouGov poll, 63% of the public believe that the industry should be entirely run by the public sector. Even among Conservative voters, 58% support renationalisation. However, despite public sentiment, there appears to be little government appetite for such a move. Even the Labour Party has backtracked on its support for renationalisation.
Scandals and controversies have reinforced public dissatisfaction with water companies. Earlier this year, Water UK confirmed that bills would experience the largest increase in nearly two decades, with the average customer paying £31 more annually. This announcement was followed by a public apology from Water UK due to the release of raw sewage into British waters. The Environment Agency reported that raw sewage was pumped into rivers and seas 301,091 times in 2021. The issue of water leaks has also become prominent, particularly during times of water shortages and high temperatures. South East Water, which recently imposed a hosepipe ban for two million people, faced backlash from customers regarding supply issues. Welsh Water admitted to underreporting the amount of water leakage it was responsible for.
The profitability and excessive pay of water companies have further fueled public discontent. Thames Water, for instance, reported pre-tax profits of £493.5m in the six months leading up to September 2022, despite implementing a hosepipe ban for its 15 million customers during the year. In 2021, the company paid £11m in compensation for overcharging customers. The CEO of Thames Water, Sarah Bentley, resigned amidst these controversies and was expected to receive pay and perks worth £1.6m this year. Bentley acknowledged the historical failings of the company and admitted to decades of underinvestment.
While talks about the future of Thames Water are still in the preliminary stages, the pressure and scrutiny on water companies are unlikely to dissipate soon. The debate over the privatisation of the water industry continues, with proponents and opponents presenting contrasting arguments regarding its benefits and drawbacks.
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