It is no secret that the main water companies in England and Wales are currently facing a lot of different problems, many of which are no secret to business water customers who have worked within their power to audit their water use, switch service providers and minimise waste.
Whilst all of us are doing our bit to work within the system as it currently exists to provide the best water quality, best prices and most effective service, ultimately the water industry is a natural monopoly, where the source of the water every company has access to is based on geographical location.
This is a problem if, for example, a company is serviced by the biggest water company in the United Kingdom that is loaded with £19bn of debt (and counting) with existing shareholders declaring it uninvestable and credit rating agency Standard & Poor downgrading its bonds to “junk” status.
Beyond financial issues, although this is something that will inevitably come up again, the water industry is facing regulatory issues, complaints both about the quality of service and the quality of customer service, and growing protests calling for a fundamental change to the system.
These protests, made up of 130 environmental organisations and thousands of people dressed in blue, called not only for efforts to clean Britain’s waterways to be stepped up but an end to the private water sector entirely, something that has been ruled out as unthinkable.
However, with the major problems surrounding the industry, is the unthinkable the only option?
Back In Public Hands
Of the four countries that make up the United Kingdom, England is the only one that has a fully privatised water industry.
Scotland’s water supply is managed by Scottish Water, a statutory corporation owned by the Scottish Government and essentially nationalised in all but name since 2005.
Similarly, Northern Ireland Water has been owned by the government since 2007, and Welsh Water is operated as a not-for-profit company, coincidentally making it the water company with the strongest credit rating.
In the midst of the largest report on the water sector since privatisation, one option that has continued to be rejected is to bring England in line with Scotland, Northern Ireland and Wales, running the vital utility as either a not-for-profit company, a public-private partnership or returning it to public hands.
The stated argument is that nationalisation would take too long and would be too expensive, citing a 2018 report commissioned by the Social Market Foundation that claimed that the total cost of renationalisation would be £90bn, based on water company accounts, the London Stock Exchange and Ofwat data.
However, economist Sir Dieter Helm blasted the report and its findings as economically illiterate at the time, and others have criticised the findings in recent months.
Most recently, The Guardian made the argument that the SMF’s report was commissioned by United Utilities, South West, Severn Trent and Anglian Water, the latter of which is the only water company of the four to receive the current highest Ofwat rating of “average”.
Moody’s, the other major credit rating agency, disputed the £90bn figure, arguing that it would cost £14.5bn to nationalise the water industry again.
To put into context how much this would change the financial argument, Thames Water are looking for a tenth of that before Christmas and have a total debt load that is 25 per cent higher than the total cost of renationalisation according to Moody’s.
It is not the only option, of course. Several rules to better police the sector have already been announced, and one suggestion that has not been ruled out is banning water companies from taking profits out of the company in an arrangement similar to the one Welsh Water already has, and both Northern Ireland and Scottish Water inherently have by being publicly owned.
The Millstone
The concern regarding a lack of decisive and significant action on the water sector is if nothing is done quickly, a potential collapse could destabilise and create a domino effect that could make the situation significantly worse and significantly more expensive to fix.
In 1994, the entire railway network, including tracks, signals, crossings, most stations and tunnels was moved from British Rail to a private group of companies collectively known as Railtrack, where it lasted less than a decade before being renationalised again as Network Rail.
Similarly, Bulb Energy was placed in an arms-length nationalisation system known as a Special Administration Regime, something that would be the outcome for Thames Water if they failed to secure long-term investment, something allegedly predicated on significant increases to water bills.
As Thames Water is by far the largest water company in England, any collapse to them would impact the entire sector. In some respects, this is already the case as a result of reputational damage to the sector both in its actions, inactions and requests for further increases to bills.
Whilst it is unclear exactly what will change within the water sector, it is abundantly clear that the current state of affairs simply cannot continue.
