Research suggests privatising water industry has cost consumers billions

Study claims household bills would be lower with if industry was renationalised

Privatised water has cost consumers £2.3 billion more a year than it would have if it had remained state-owned, research from the University of Greenwich has claimed.

The study, as reported in the Financial Times, indicated that the cost of maintaining and improving infrastructure since privatisation has been covered almost entirely by increased debt, which has risen from virtually nothing in 1989, to £40 billion in 2016.

Interest payments on such loans have subsequently increased household bills.

The study also showed that there has been little investment of shareholder equity, with water companies instead paying large dividends.

From a combined £18.8 billion in post-tax profits between 2006 and 2016, water companies paid out £18.1 billion in share dividends. Three companies – Anglian Water, Severn Trent and Yorkshire Water – paid out more in dividends than their total pre-tax profits over the decade.

Dr Kate Bayliss, who co-authored the study, said “It seems remarkable that nearly all the £18.8 billion post-tax profits of the last 10 years have been used to pay dividends.  Clearly, water customers would be better off if a much higher proportion of the surplus were reinvested in the utilities rather paid out to private owners.”

The report makes comparisons with a 2011 study conducted by Ofwat to assess the benefits of regulation in the water sector. Ofwat estimated that bills had become 30 per cent cheaper since privatisation—around £110 lower per household.

Ofwat has pointed out that its own study was not intended to be used to assess the benefits of privatisation versus public ownership, but rather to assess what private companies might charge in the absence of regulation.

Bayliss insisted: “One simple difference between ourselves and Ofwat is that our calculation is forward-looking – what would be saved from a return to public ownership – whereas Ofwat are making claims about the past.”

She added: “Another [difference] is that our calculations compare public and private cost of capital, whereas it is not clear what assumptions Ofwat make about the counter-factual performance of the sector if it had remained public.”