Thames Water shows privatisation has failed
3 min read
Privatising England’s water and sewage industry was always a bad idea.
The Conservative government more than three decades ago, listed the benefits of privatisation as lower household bills and improved water quality, delivered by increased investment.
The Labour Party and local authorities, whose ratepayers had paid for and created the water industry, were unconvinced. Manchester and Birmingham led a two-pronged campaign against the privatisation, because the prospectus was beyond credibility, and for compensation for local taxpayers if the government persisted.
Bankruptcy is the cure for incompetent and predatory business
The government persisted and despite challenge in court, because of a legal quirk, ratepayers did not get their money back. On the other hand, and extraordinarily, the water industry was handed over to the new private investors, tax-free. Not only had local taxpayers been cheated, but national taxpayers had been ripped off as well, picking up the debt of an estimated £5bn at today’s prices.
I don’t think even the government was surprised when the new owners did not create a more efficient and effective business.
They took the easy option, invested less and loaded their new “debt-free” asset with £15.4bn worth of debt.
Water bills, rather than reducing, increased by 40 per cent in real terms. Productivity underperformed the almost static national figures. Our seas, rivers and waterways have become more polluted. One judge called Thames Water disgraceful for illegally dumping the equivalent of 1,700 Olympic-sized swimming pools full of sewage into the Thames, but only fined them £20.3m.
The public haven’t benefitted from privatisation, so who has? The nine chief executives have been paid £25m since the last election. A reward for failing their customers and enriching the risk-free investors. And 75 per cent of these investors are foreign, many based in tax havens.
Expert financial analysts have tried to work out the detailed ownerships but have found the opaque structures have defeated them. It has, however, been possible to ascertain that the largest investors are from the United States, Australia and Canada, but there are also large investments from Asia, including from China and Abu Dhabi.
I have no doubt that these difficult if not impossible to understand corporate structures are there to stop democratic accountability as the owners go about their core business of extracting revenue, and not providing a sewage and water business.
The regulation of the water industry at privatisation was weak and was meant to be weak. Not only has the regulation been poor but so has the regulator.
We are now coming to a point where Thames Water is finding it difficult to meet even its modest regulatory investment requirements, pay its debt and continue to pay its dividends. It would like to increase its charges from £433 to £627 for household bills, and pay £2bn in dividends to shareholders. If it is not allowed to do this, bankruptcy stares it in the face. The government appears reluctant to allow a straightforward insolvency.
Privatisation was a mistake that has increased pollution, cost taxpayers, rewarded overpaid bosses and enriched foreign governments and hedge funds based in tax-free havens.
It would be adding insult to injury if any help whatsoever was given to these arrogant bosses and parasitic capitalists. Bankruptcy is the cure for incompetent and predatory business. We have travelled in a short period of time from a locally owned and transparent industry whose purpose was to provide domestic and industrial water supplies and sewage services, to one whose main purpose was to supply easy money to hedge funds and foreign governments.
The government should ensure water and sewage services continue and return to the more rational system we used to enjoy.
Graham Stringer, Labour MP for Blackley and Broughton
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