Over the past year, one word has dominated discussions surrounding the British water sector, either as a potential salvation that will lower business water rates in the long run or as a worst-case scenario for the current status quo.
Given the precarious situation Thames Water finds itself in, running out of money and with disputes between its creditors when it comes to a market-based solution, according to BBC News, there is a possibility that the company will collapse into administration before a buyout can take place.
The result of this would be a Special Administrative Regime, an insolvency process designed around critical industries which simply cannot be liquidated and shut down.
It has been compared to nationalisation, where governments take control and actively run industries previously owned by private companies.
Whilst the SAR of Bulb Energy highlights the difference between the threatened special administration compared to nationalisation, the latter concept has become hotly debated.
With ever-increasing calls for the government to actively consider nationalisation, both from an ethical and financial standpoint, it is worth exploring the process of nationalisation, how Britain’s water supplies were initially nationalised and why it ended.
Why Was British Water Nationalised?
The initial British water supply was operated by private companies, but as early as 1884, political figures such as Joseph Chamberlain were arguing that the interests of private companies and the interests and rights of citizens were almost impossible to reconcile.
Whilst there was local authority oversight, it took until 1973 for the entire sector to be completely nationalised, creating 10 regional water authorities that took control from the previous smattering of water supply organisations.
These included 64 local authorities and 101 joint water boards, as well as 1300 sewage disposal organisations.
The system was praised at the time for its efficiency, particularly compared to the patchwork quilt of public and private sector organisations previously in charge of Britain’s waterways.
Why Was British Water Privatised?
This all begs the question: if Britain’s Regional Water Authorities were working so well, why were they privatised and brought into the hands of the water companies that own them today?
The reasons were primarily ideological, and this viewpoint led to the downfall of the nationalised water industries.
In 1979, following a controversial confidence vote on then-Prime Minister James Callaghan that passed thanks to a single vote and a subsequent General Election won by Margaret Thatcher, a new wave of neoliberalism and privatisation swept Britain’s previous nationalised industries.
Each public service was privatised in a different way, and in the case of the water industry, it took eight years and two general elections before the water sector was privatised. It was politically very unpopular to do so, and the main strategy was to deprive the RWAs of funding and blame them for issues caused by underfunding.
Following the 1987 election and having up to five years of wriggle room to implement their privatisation plans, Mrs Thatcher’s government worked quickly to establish the ten privatised RWAs, as well as Ofwat, the Drinking Water Inspectorate (DWI) and the National Rivers Authority (later the Environmental Agency).
As part of this plan, all of the water sector’s £5bn of debts were written off by the government, and a £1.5bn “green dowry” was given to the new privatised water companies. Both elements of the plan would ultimately have far-reaching effects decades later.
Why Is Nationalisation Being Considered Again?
The green dowry and the debt relief may have inadvertently given a false sense of security to the new water companies, particularly once they were bought by private equity firms such as Macquarie, that the business of water was guaranteed money that required little to no investment.
This level of debt has vastly increased the price of water for both business and domestic customers, with a 2017 study by the University of Greenwich reported by the Financial Times suggesting that it costs £2.3bn per year for customers than it would have had the water sector remained nationalised.
With significant increases in bills, huge amounts of debt, raw sewage being dumped into historic waterways and areas of outstanding natural beauty and several companies at the brink of collapse, any “market-led solution” is increasingly considered to be a delay to the inevitable.
There is a growing number of views, amongst the general public, in the media and in the political sphere, that believe that struggling and failing water companies should be nationalised, as any alternative is delaying the inevitable moment when the government is required to intervene.
