It is perhaps rather safe to say that the English water sector at its highest levels is facing an image problem, as the perception of the major water companies has perhaps never been lower since privatisation in 1989.
With the problems surrounding Thames Water, the issues with poor performance relative to business water rates, and changes to the regulatory body, a lot of questions have been asked about the changes that need to be made to the sector that transcend the practical and financial and enter the realm of the philosophical.
With Ofwat set to be abolished and calls for major fundamental changes to the water sector and how it is managed, one of the big questions that is asked is a matter of purpose.
What should a water company be? How should it be managed, and how can the seemingly mutually exclusive goals of high-quality service for customers, low bills and profitability for stakeholders possibly be met?
Who Should A Water Company Be Run For?
Water companies are natural monopolies; whilst you can save money through choosing the right subcontractor for your company’s needs, your region will largely determine who supplies homes and businesses with water.
This means that, unlike many businesses, such as food, fuel and to a lesser degree energy, many people do not have a choice as to where their water comes from at the highest level; people in the North West will be supplied by United Utilities, people in London by Thames Water and so on.
This means that a water company is a fundamental part of the area and has a responsibility for providing a high-quality service.
After all, customers who have to deal with burst pipes, poor sanitation and blockages within the network cannot simply switch providers, which is the power customers have in other industries.
This means that the approach that Thames Water, in particular, took to prioritise shareholders over customers meant that customers had to pay more for a worse service, whilst the company was, according to the BBC, loaded with additional debt.
By 2025, that debt had increased to £20bn, and the danger of insolvency is increasing by the day.
What Are The Main Goals Of A Water Company?
In a privatised water market, there are three main goals that they should aim to accomplish.
These are:
- To provide a high-quality level of service to ensure that water is safe, secure and that the infrastructure is fit for purpose now and in the future.
- To provide good value for money for customers through charging reasonable rates for water relative to the service they provide.
- To provide a return on investment for shareholders by maximising profits by lowering costs, increasing revenue or a combination of the two.
As has become abundantly clear, these goals are to some degree mutually exclusive; a high quality of service requires investment, which either increases bills or decreases returns for shareholders, for example.
Part of the reason why nationalisation, or placing some or all of the water companies in a special administration regime, is popular amongst the general public is the perception that without a profit motive, a water company (or regional authority) would focus on providing the best service it can.
This is the opposite of the intention of privatisation, which was predicated on the logic that businesses would strive for efficiency as the main way they would make a profit.
In 2024, the then-Water Minister Emma Kennedy noted that there was no incentive to be responsible stewards for the environment or critical industries unless there was a genuine risk of serious consequences, such as special administration or a loss of licenses.
How Does This Relate To The Water Sector?
Thames Water has constantly been in the news, not only for its particularly unique set of troubles, but for what they represent in the wider water sector and how the three main goals are mutually exclusive.
By prioritising shareholder profits and executive bonuses over customer health and affordable bills, the ownership of Thames Water has sacrificed quality, whilst bills have increased exponentially.
What turned out to be a somewhat brazen act of greed put Ofwat in an uncomfortable position; water companies needed investment to improve, but allowing for significant bill increases, given the situation Thames Water put itself in, would be seen as a reward not only for failure but contempt for customers.
As of early December, before the bill increases up to 2030 are finalised, Ofwat has split the difference, which has satisfied nobody.
There are ways to run water companies better than this; aside from nationalisation, public-private partnerships allow for the level of scrutiny and regulation necessary to maintain a high service whilst allowing for private funding for infrastructure improvements.
