Water sector debates case for public ownership

Conference panellists explore the case for and against the water sector being renationalised

An academic has claimed “there is no evidence of significant improvement in productivity” among water companies since privatisation, as experts debate the merits of bringing the sector back into public ownership.

Speaking at Moody’s 2017 UK Water Sector Conference yesterday (17 October), Dr Kate Bayliss, a research associate at SOAS, University of London and David Hall, a professor at University of Greenwich presented the case for bringing water into public ownership.

They discussed the finance, affordability and accountability of the sector, drawing reference to their report Bringing Water into public ownership: costs and benefits, which was published in May this year.

Dr Bayliss told delegates the growth in the sector’s regulatory capital value has increasingly been financed by debt, while “pretty much all post-tax profits [for nine water and sewerage companies] has been taken out as dividends in the past 10 years”.

“The average dividend payout over the past 10 years comes to about £75 per household per year, so it seems this is a substantial cost to the sector at a time when many are struggling to pay their bills,” she said.

She explained customers have seen bills increase by 40 per cent in real terms since privatisation and argued that with rising debts and customers struggling to pay bills, and said “reducing costs must be a priority for government”.

“It’s not just about affordability but fairness,” she said.

Dr Bayliss concluded: “A public company could reinvest surplus funds into the utility rather than pay dividends to offshore investors and would be locally owned and accountable.”

Professor Hall discussed the performance of private and public water companies and claimed “there is no evidence of significant improvement in productivity in England since privatisation”.

“The English system is unique in the world. No other country has adopted this model in the last 28 years,” he argued.

Instead, he said, there has been a strong trend in Europe and elsewhere in the last decade to “re-municipalise private water services”.

Speaking as part of the panel discussion, Mark Nuttall, a partner at Linklaters discussed the legal aspects of nationalisation drawing on Northern Rock as a key case.

He advised water companies that the “state has no inherent power to expropriate property” and nationalisation cases must be a “fair balance between public and private interests”.

Looking at the water industry’s legitimacy, he said: “There’s no getting away from the fact the industry can do better; there is no room for complacency and it’s not the end of the journey, but for around £1 a day people in this country have the miracle, which would be a miracle for a lot of people in this world – of waking up to clean, safe water.”

He added: “With some of the commentary about the idea of nationalisation there is a notion of punishing people today for the perceived sins of their fathers.”

Meanwhile, Susan Davy, chief financial officer at Pennon Group said the issue of nationalisation “needs to be debated and is topical” but argued the “stats, facts and figures speak for themselves in what has been achieved [since privatisation]”.

She said there is still “a way to go” but questioned whether the future investment that is needed “could be financed from the public purse”.

Craig Lonie, director of strategy and regulation at Southern Water, added “it would be complacent to assume there is a consensus around private ownership” and the question about nationalisation “is fair and reasonable”.

“But the question of whether the sector is best run in the public or private sector is best referenced to whether prices would be lower or outputs would be different,” he said.

Lonie, explained: “Since the UK’s privatisation experience, it is unambiguously the case that investment has gone up markedly and environmental outcomes have been greatly enhanced and that evidence can’t be ignored.

“That’s not to say the government couldn’t run things better but it is evidence that can’t be disregarded.”

He added: “Public ownership does sit well in public jurisdictions but under previous UK government ownership, the experience wasn’t good.

“I would say the evidence is persuasive in relation to the UK in support of private ownership, but not irrefutable.”