Publicly-owned water sector ‘makes economic, social and environmental sense’

Water has become the poster child for Labour’s renationalisation plans so it is little surprise that industry figures have taken a unanimously critical line. However, sector veteran Jacob Tompkins, believes this defence of privatisation has gone too far and that the industry should instead focus on why Labour’s plans have caught the public mood.

Despite wide-scale public backing for water renationlisation, there has, unsurprisingly, been little support for Labour’s programme from senior executives of England’s private water companies. Indeed, there has been a flurry of reports, statements, polls and calculations, purportedly demonstrating the amazing success of privatisation.

When I worked at Water UK (a long time ago) it was fastidiously neutral on the issue of public versus private, highlighting the pros and cos of both, and pointing out that it had members spanning a wide spectrum, from private in England, mutual in Wales, GoCo in Scotland and a branch of government in Northern Ireland. But, over the years Water UK seems to have become a champion of privatisation.

At a time when a majority favour renationalisation, Conservative ministers are highly critical of the English water sector and there have been a number of record-breaking fines from the regulator, you would think a little more humility from the sector would be in order.

Let’s look at the basics. Public ownership makes economic sense. The government can borrow much more cheaply than the private sector, resulting in a saving of £2.8 billion per year. In addition, nationalised utilities won’t pay dividends, resulting in service improvement, increased investment or lower prices. This was demonstrated when Paris took water back into public ownership, saving €35 million in the first year and leading to price reductions of 8 per cent. By comparison, prices in England have risen by 40 per cent above inflation since privatisation.

The recent rhetoric lauding the success of water privatisation contains implicit and explicit comparisons of the current private sector performance with that of the 70s and 80s when it was publicly owned. Obviously this is a false comparison. Do you hear anyone from the IT sector saying “Look how much better things are now than in the 1980s”? Of course things have improved – technology, knowledge, investment and regulation have all played a part in this. The comparison should be between today’s private water companies and today’s publicly owned water companies.

Comparing like with like

In terms of service levels and quality there are lots of carefully chosen statistics showing that private is better than public, but this is just not true. Yes, we should be proud that the UK performs well and is one of the best water sectors in the world, but there is little difference between the performance of privately-owned English water companies and publicly-owned Scottish Water. And the figures from the European water association, Eureau, show that the state-owned utilities in many other parts of Europe are on a par with the UK.

We should also consider that public water utilities, by their very nature, would deliver greater transparency and accountability and rectify the democratic deficit in the way our water is managed. Nationalised water utilities would be accountable to local people with elected representatives. By comparison the private companies only set up customer bodies when they were forced to by Ofwat.

Public ownership would more easily enable integrated water management that meets multiple objectives, from maintaining supplies to tackling floods and droughts, and restoring the environment. The current model still rewards companies for pouring concrete and building big fixed assets rather than using soft engineering and behavioural approaches to problems. This is why we see much better coordination of water infrastructure in places like the Netherlands, because the Dutch decided to municipalise their water companies at about the same time we privatised ours. Therefore, Dutch companies’ priorities are aligned with those of the local people. This public oversight and coordination is particularly important because of the actions the water sector will have to take to mitigate and adapt to climate change.

Pension panic

There are claims that nationalisation would hit ordinary Brits through the impact on pension funds. This scaremongering is easily debunked by looking at the ownership of English water companies. Yes, there are pension funds invested, but these are a very small proportion of the total investment and very few of them are UK pension funds.

The private sector companies seem to forget that they operate with the will of the people. The government gave them a licence to print money and run a business with fixed prices selling something that everyone uses in regional monopolies. Surely it would be impossible to mess that up? A combination of captive customers, filled prices, subsidised assets, monopoly status and weak regulation meant that water companies couldn’t lose. But, in my view this also led to a feeling of infallibility and self-belief that businesses operating in a real commercial market wouldn’t have.

Even if Labour’s renationalisation plans don’t materialise, the situation has already changed. The public mood has shifted and I haven’t seen the current government defending the private sector water companies. Indeed they have been calling for firmer regulation and more scrutiny. I would suggest that a big dose of humility might be in order. Instead of focusing on trying to discredit public sector ownership, perhaps the water companies should consider why people want to see them renationalised and spend more time on improving governance, transparency and accountability. More focus should also be given to their societal value than their regulatory asset value.

Perhaps in the end it comes down to ideology. Do you think that water belongs to all of us and should be managed as a natural asset with profits shared with the people and reinvested into the networks? Or do you think that water assets are better managed by private companies to be run at a profit for shareholders?

Jacob Tompkins is co-founder and CTO of The Water Retail Company. However, the article above is written in a personal capacity.