Thirty years on, what has water privatisation achieved?

This summer marks the 30th anniversary of the 1989 Water Act which privatised water in England and Wales, selling it to private water and waste water firms for £7.6 billion. The Environment asked supporters and opponents how they rate the sell-off’s outcomes

Water UK chief executive Michael Roberts

The water industry in England has been transformed. It’s easy to forget how bad things were. After decades of government underinvestment, water quality was poor, rivers were polluted, and our beaches badly affected by sewage. The water industry was not high on ministers’ list of priorities.

Since privatisation, investment of nearly £160 billion has seen strong, steady improvement, giving customers world-class drinking water. Leakage is down a third since the mid-1990s, two thirds of beaches are classed as excellent, compared with less than a third 25 years ago, and wildlife has returned to rivers biologically dead since the industrial revolution.

At around £1 a day, average bills are broadly the same as 20 years ago, taking inflation into account. According to Ofwat they are around £120 lower than without privatisation and tough, independent regulation. Customer satisfaction for water and sewerage services is around 90 per cent, and there is high trust in water companies.

These successes have taken determination. We don’t want things to go backwards – we want to go further. Individual company five-year business plans submitted last September set out proposals to 2025, summarised for companies in England in Water UK's Manifesto for Water.

Those proposals included £50 billion on improved services and the most ambitious leakage-reduction programme in 20 years, cleaning 8,000 km of rivers and delivering a real-term reduction in bills.

But our ambitions don’t stop there. In April, water companies in England set out in our Public Interest Commitment how they intend to tackle wider social and environmental challenges. This set out five challenging longer-term, broader goals to reduce leakage and promote social and environmental progress.

Thirty years is a long time. It’s understandable that people forget what the English water industry was like back then; starved of funding, failing to deliver a good service and damaging the environment.

And it’s understandable that people don’t automatically know how much has changed. That’s why the water industry must point out the last three decades’ successes. Companies have been at the forefront of a remarkable turnaround, achieved within a robust framework overseen by a trio of independent regulators.

The alternative – nationalisation – carries great risk, at great cost to water quality, taxpayers and the environment.

We have some big challenges ahead, making sure we can provide enough water to a growing population as our climate is changing. The English water industry is up to meeting these challenges, looking to the future. Privatisation is working for water and will continue to work for many years to come.

Shadow chancellor of the exchequer John McDonnell MP

Thirty years ago our water – something we all owned – was sold off. Privatisation has largely enriched private shareholders who have done little to invest in this essential public service.

When the water companies were sold off, the government took on their historic debts. Since, they have accumulated over £45bn of debt that is ultimately the responsibility of billpayers or governments.

We were told privatisation could do things more cheaply but water bills rose by 40 per cent in real terms, according to the National Audit Office.

We were promised that privatisation would unlock more investment but less was invested in 2018 than in 1990.

We were told that nationalised industries wasted money, but one water boss took home £2 million after venting 4.2 billion litres of sewage into rivers – over which his firm eventually paid £20 million in fines.

Over a decade, the nine large English companies have paid out as much in dividends as they have made in profits.

All for providing a service in a “market” in which they don’t compete for customers, when fines for non-compliance with drinking-water quality standards have exceeded £1.5 million over the last five years, and where we lose enough water for 20 million people to leaks every day.

It’s hardly surprising that support for public ownership of water, at 83 per cent, is higher than for any other utility.

Labour has laid out plans for what that public ownership will look like; regional water authorities whose boards comprise local-government representatives, employee representatives and representatives of community, consumer and environmental bodies.

The real expertise sits with the workers who ensure our water arrives reliably and cleanly into our homes.

We want those real experts at the heart of making sure we have environmentally sustainable, safe and affordable water.

Thirty years on from the Conservatives’ historic mistake we can’t wait for the chance to reverse it.

Conservative peer, Baroness McIntosh of Pickering

Britain had the reputation in the 1980s of being the dirty man of Europe because of pollution of our bathing waters and rivers and poor-quality drinking water. Then came Margaret Thatcher's groundbreaking speech on the environment in 1988 and privatisation of the water companies in 1989.

Private water and wastewater companies have enabled unprecedented spending and cleaning our beaches and rivers to reach record quality levels.

Investment through privatisation reduced pollution and delivered, in a remarkably short time, cleaner, better quality waters. Access to private capital markets and the ability to borrow transformed how the water sector delivered services through a restructure of the industry and regulated oversight. Investment almost doubled yet customer bills were lower.

Water quality has improved, pollution is down and leakage came down by a third. Relying on the tax payer for investment would not have enabled these spending commitments, due to demands on the public purse.

The challenge now is how to continue with environmental improvements and deliver a safe, sustainable and affordable water supply, given mass house building programmes. Water companies are addressing bad debt, water poverty and leakage.

Water companies undertake environmental work and create renewable sources of energy. They work with drainage boards, the Environment Agency, local councils and the government to deliver environmental projects such as flood prevention and a functional catchment-management system.

Water stress is an increasing challenge, yet water companies must automatically connect clean water into new housing developments and take waste water away. The automatic right to connect should cease and water companies become statutory consultees on major housing developments.

We need greater use of sustainable drains in such developments to prevent the horrors of combined sewer overflow.

Private companies will continue to deliver though innovation in the regular price reviews in a regulated market. Water companies in the private sector are uniquely placed to tackle the effects of climate change through innovative measures to improve resilience to floods, to reduce water stress and to mitigate and adapt to extreme weather.

This could form the basis of an environmental and social contract with the consumer in the years ahead.

Green Party co-leader Jonathan Bartley

Thirty years of privatised water has had one major impact – transferring the benefits of improvements from millions of consumers to a handful of shareholders.

We’ve seen improvements in water infrastructure – albeit funded by private-sector debt. However consumers have not seen the benefits of these improvements. Since privatisation water bills have increased by 40 per cent.

In contrast shareholders in the privatised water companies received an impressive yield. Over the past decade, water and sewerage companies have paid more than £1.8 billion a year in dividends.

The profit tunnel-vision of the privatised water industry has also pushed environmental conservation down the list of water-management objectives. 2017 was a record year for Environmental Agency penalties against water companies, with fines for environmental offences totalling £21 million.

This shift – from water as a public good to be nurtured to private commodity to sell – becomes evident when we scrutinise individual water companies.

Thames Water – which supplies more than 15 million people – has not paid UK corporation tax for ten years. Instead of tax receipts, it has clocked up an impressive score sheet of public misconduct, from dumping 1.4 billion litres of raw sewage into the Thames, to a formal warning from Ofwat for shortcomings in data handling, on a scale that customers – says Ofwat – “cannot be sure that information presented by Thames Water is complete and accurate”.

With records like this, it is perhaps no surprise that recent polls show that 83 per cent of British people favour renationalisation of all water services.

Water privatisation has turned a natural resource, held in common by all, into a money-making machine for the few. This betrayal of the concept of environmental stewardship is privatisation’s primary achievement – and the legacy of the Water Act 1989.

CIWEM past-president Professor Chris Binnie

I was involved in the company asset-management plans for floatation. For the decade before privatisation in 1989, the Treasury controlled investment in the public water authorities to less than £2 billion/year, so there was little improvement.

However the UK was becoming subject to European directives, including the 1998 Drinking Water Directive and the Urban Wastewater Treatment Directive, compliance with which would be mandatory.

Drinking water measured at the tap has improved from 99 percent passing to 99.96 per cent. Properties at risk of low pressure have fallen from 2 per cent to 0.001 per cent. Properties subject to unplanned supply interruptions of 12 hours or more have dropped from 0.4 per cent to 0.003 per cent.

But although leakage dropped from 4,980ml/d to 3,306ml/d in 2000, it reduced only to 3,183ml/d last year. Thames Water alone lost 695ml/d, some 20 per cent of the industry total. Customers considered 25 per cent leakage excessive and wasteful; it puts them off reducing their water use.

Trade body Water UK has accepted the National Infrastructure Commission’s challenge to reduce leakage by 15 per cent by 2025 and halve it by 2050.

Since privatisation there has been emphasis on demand management, making water-using appliances more water efficient. Household meter penetration has increased from zero to 55 per cent and most companies plan 80 per cent by 2040. Per capita consumption has fallen from 155 l/h/d to 141 l/h/d now. And so, although the population is increasing, the water into supply has decreased.

Household properties at risk of internal sewer flooding reduced from 32,000 to 3,000 in 2010 and remain at that level.

Historically, foul water discharged to sea had little treatment and London’s STWs dumped most sludge into the North Sea. Now the Urban Wastewater Treatment Directive decrees treatments for discharges. Non-compliance with the Bathing Water Directive has dropped from 16 per cent to about 1 per cent.

Household consumers are now designated as customers. Failures to respond within 10 working days to written complaints have dropped from nearly a third to 0.4 per cent failure within five working days.

To achieve these improvements, public-sector annual expenditure of less than £2 billion has increased, under privatisation, to £160 billion over 30 years – more than £5 billion a year.

The number of water companies has reduced from 36 to 15. Many are owned by foreign investors, some with opaque ownership. Some companies have had a high level of dividend dispersal, sometimes declaring dividends in excess of earned profit.

Recently, Water UK, has announced the Water Industry Public Interest Commitment. This goes beyond regulatory compliance to demonstrate long-term stewardship of the environment, tripling the rate of leakage reduction, and achieving net zero carbon by 2030.

Privatisation has created a water industry that performs to much higher standards and, on most aspects, has a high reputation from its customers. It should be proud of those achievements.

Visiting professor at University of Greenwich Public Services International Research Unit (PSIRU) David Hall

Privatisation of water was deeply unpopular and remains so. In July 1989, as the private companies took over, a poll showed 79 per cent of people opposed. In 2017, after more than a quarter of a century’s experience, 83 per cent wanted water returned to public ownership.

The economic rationale offered for privatisation was that private companies would finance the investments required by EU standards without the burden of public borrowing, bringing their own money and greater efficiency into the system.

But after 25 years, water prices had risen by 40 per cent above the general rate of inflation, and the amount of shareholder money in the companies has reduced in real terms.

Despite acquiring the companies debt-free, the owners have accumulated debt of more than £50 billion, effectively used to finance dividends of over £50 billion. The annual cost of these dividends and interest on the debt is £2.3 billion a year more expensive than it would be under public ownership.

The companies’ performance has been equally poor. Sewage flooding remains a major problem, with repeated problems and fines. Thames Water has been a repeat offender, but the new super sewer being constructed to deal with the problem is another economic problem. As Thames refused to finance it by itself, the super sewer is financed by government loans and by an extra charge on consumers even before it is finished.

There is underinvestment in water-resource management, with too-easy recourse to hosepipe bans, while water leakage runs at 3.1 billion litres per day – between 15 per cent and 30 per cent of water produced.

The system also lacks effective public accountability. Southern Water is being investigated for breaching its statutory duties by Ofwat, the Environment Agency, and reportedly could face a Serious Fraud Office investigation.

But the ineffectiveness of Ofwat is another failed aspect of the system. Companies have been able to repeatedly game the price-regulation formulae to boost profits and extract dividends without critical scrutiny. They rely on Ofwat to act publicly as their defender – rather than a protector of consumer rights.

The privatised water system is leaking sewage, water and money. The Labour Party policy to bring it back into public ownership is massively popular and would bring England and Wales back into line with the rest of the world, including Scotland.

The law on compensation means that could cost £14.5 billion, according to Moody’s; the savings of £2 billion per year would provide a very good public return.

SumOfUs campaign manager Sondhya Gupta

SumOfUs aims to hold corporations accountable for their actions, to forge a new, sustainable and just path for our global economy. Water in England and Wales was privatised during the aggressive phase of core utility and public sector sell-offs following Margaret Thatcher’s 1987 election victory that stopped just short of the NHS.

This wave of for-profit restructuring ceased to consider water a public health necessity – a basic human right provided on the basis of social equity – and became a commodity.

So what has water privatisation achieved? In short, an increase in inequality, harm to the most vulnerable in our society and a shortage of our planet’s most vital resource.

According to the National Audit Office, water bills have increased 40 per cent above inflation since 1989. To add insult to injury for those struggling to pay household bills, since 2010, shareholders have enjoyed dividends soaring upwards of £13.5 billion. That’s almost the amount the companies raked in in pre-tax profits.

Around the time of Thatcher’s mass privatisations, we heard the first warnings of global warming. Thirty years on, we are in a climate crisis that, at best, private companies are ill-equipped to tackle. At worst, they are its main driver.

Rising demand from a growing population and declining supply, due to increasing droughts, are putting our water supply under ever greater strain. But facing this looming crisis, the corporations granted stewardship over our precious resource have one priority – maximising profit.

The drive to satisfy the short-term demands of shareholders mean the water companies carelessly waste water, refusing to plug 3 billion litres of leaks.

England is on course to run short of water in 25 years. Corporations that often think only in the short-term about protecting their profits over conserving our natural resources are not well placed to act to avert this catastrophe. It’s time to put our water back into public ownership.

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