Our privatised water system has failed – it’s time to look for alternatives

Image: akamarpreet, CC BY-NC-ND 2.0

One of the most remarkable aspects of Joseph Bazalgette’s London sewage system was its pump house. The elaborate ironwork at Crossness pumping station transformed a home for raw sewage into a monument to public utilities. As one construction worker in BBC Two’s new series The Five Billion Pound Super Sewer put it, the pump house is so splendid, “it could be a hotel”.

Bazalgette’s tunnels were built in 1865 to accommodate the waste of 2 million people. Since then, London’s population has ballooned to 9 million, putting pressure on its creaking sewers. The BBC’s Five Billion Pound Super Sewer series focuses on the present-day solution to London’s sewage problems: a new “super sewer” that will stretch 15 miles and collect excess waste from the Victorian network before transporting it towards the East End.

But the series washes over the super sewer’s murky finance structure. Thames Water, the private company responsible for London’s sewers, claims it was too burdened by debt to pay for the sewer project. Instead, the new pipeline will be financed through price increases on water bills charged to London residents, which are set to rise £20 to £25 per year by the mid 2020s. According to the Consumer Council for Water, among household outgoings citizens are most likely to be in arrears with their water bills. Meanwhile, Thames Water will continue to pay millions of pounds in bonuses and dividends to its directors and shareholders (its CEO Steve Robinson is set to receive a £3.75 million bonus in 2020).

Together with the UK government, Thames Water has created a separate company, Bazalgette Tunnel Ltd, which borrowed £1.2 billion from a package of investors and £700m from the European Investment Bank. The government has promised to step in and shoulder the risk lest the project encounter financial difficulties – which looks likely, given the complications inherent to drilling a subterranean pipeline.

Thames Water has a dodgy history of siphoning profits while dumping toxic sewage. Every year, 39 million tons of raw sewage makes its way into London’s river. After UK water regulator Ofwat hit the company with a record £20 million fine in 2017, Thames Water promised to change direction. It elected a new CEO, and said it would stop dumping untreated waste. But such retroactive regulations are a sticking plaster.

England’s water industry was sold off in 1989. During the first decade of privatisation, household water bills soared by 147%. Thames Water is the perfect example of why privatising natural monopolies is a terrible idea. Arguments in favour of commercialisation go something like this: in order to be successful in a competitive marketplace, a company has to acquire the best possible knowledge of market conditions. Incorrect knowledge will lead to mistakes that will eventually bankrupt unsuccessful firms. Unlike the government, which does not exist in a state of market competition, successful companies will possess the best knowledge of market conditions and consumer preferences, and will therefore be better placed to act competently and efficiently when delivering services. Market competition will ensure both citizens and governments get a better deal.

Yet this Darwinian picture doesn’t apply to essential resources like water. First, as the case of Thames Water shows, market competition doesn’t function when you’re dealing with a resource that has to be managed at scale and is necessary to all humans. Thames Water is a monopoly with no competitors. Without competition, there is no incentive to provide a better service to customers. This is why Thames Water has idled into complacency, extracting profits and dumping waste without investing in the infrastructure that London’s sewers require.

Competitive markets normally offer consumers an array of options that differ in quality and price.  But there’s no such choice with water bills. Either you pay up, or your water supply is turned off. The truth is, citizens aren’t really consumers. The consumer is the government that has outsourced water supply, while the citizen is little more than a voiceless service user without any of the choice benefits typically associated with a market system.

Second, a company cannot have perfect knowledge of a market beyond the immediate future, particularly in a world where environmental conditions are rapidly changing and deteriorating. There’s a difference between knowing how an industry works at present, and knowing how decisions will affect that industry in the future. Thames Water’s decision to pollute the ecosystem with untreated sewage is a case in point: the present-day impetus of generating shareholder value eclipses the long-term degenerative effects of pollution. Instead of leaving crucial decisions about environmental stewardship to for-profit companies, water should be managed with greater public involvement and participation, giving people a say in how this common resource is safeguarded for the future.

Paris is one example of how this works in practice. After years of price increases under a water system controlled by global giants Suez and Veolia, mayor Bertrand Delanoë put water remunicipalisation on the ballot paper. In 2008, the city transferred water services from Suez and Veolia to the publicly owned Eau de Paris. Since then, Paris’ water prices have fallen below the national average, saving approximately €76 million in water bills from 2011-2015. Instead of paying dividends to shareholders, Eau de Paris reinvests profits into the system. It has increased free access to water and sanitation in addition to maintaining water supplies for those living in squatted accommodation.

The UK Government, in line with the United Nations, recognises water as a human right. But it doesn’t stipulate how water should be managed. Instead, the government says, “the [UN] right does not prescribe any particular model or role for public and private sectors”. This cynical sleight of hand cedes power to the private sector. As water activist Meera Karunananthan notes, sanitation companies have lobbied hard since the UN recognised the right to water, positioning themselves as best placed to deliver this right by claiming that governments don’t have the funding or expertise to do so.

Thames Water exposes the holes in these arguments. It has siphoned rents to shareholders without investing in infrastructure or showing any regard for its environmental impact. It has brought virtually no competitive benefits to government or water users. Instead of prolonging Thames Water’s extractive reign, it’s time to look for alternatives.

  • Well Well Well,

    I really do hope we can kickstart the debate Hettie O’Brien as I do feel the water industry is going down the tubes.
    Take Paris for example now publicly owned though i do not know what the water infrastrcture leakage rate is.

  • Alasdair Macdonald

    Water is still in public ownership in Northern Ireland and Scotland, so this article is essentially about England and Wales and, specifically, about one company, Thames Water.

    While I think that water and sewerage should be a public utility, I feel irritated by the tacit assumption that the experience of someone in London is the same as that for everyone else in England, and those in Northern Ireland, Scotland and Wales.

    • hettie.veronica

      I agree that London is by no means a model for the rest of the UK. But, as with GMB’s proposal the following day to remunicipalise water, my intention was to shed light on an issue that receives far less public attention than it should – particularly in light of the BBC documentary on Thames Water, which focused on the infrastructure project without critiquing the company.

      • Alasdair Macdonald

        Thank for the clarification and your recognition that Thames Water is a specific case. Although London has a large population – it is only around 15% of the UK – it receives a grossly disproportionate amount of infrastructure spending, with the North East of England receiving a pretty derisory amount.

        Municipalisation of water is undoubtedly a feasible way of having public control. The example of Glasgow Corporation in the 19th century is an excellent example of municipal initiative.

        Although water, per se, is an important case for public control, it is but a part of the wider issue of the constitutional reorganisation that is required in the UK, with powers located irreversibly at local levels and devolved as far as feasible to even more local communities. This also has to be accompanied by a change in the voting system.

        I am not convinced that the Labour Party and the central management of the major trade unions wants to see Westminster ‘lose’ powers to local areas. They are as determined as the Tories to be able to exercise Westminster’s powers, albeit from ostensibly different value perspectives. I was a career long trade unionist and my father was a member of the old boilermakers’ Union, and, while I am a strong supporter of TUs, I am wary of the goal displacement which occurs in all large organisations from such as RBS, via trade unions like GMB, to third sector bodies like Oxfam.

        • hettie.veronica

          In agreement that London receives a shameful proportion of the UK’s infrastructure spending while the rest of the country struggles by on patchy bus services and pacer trains. I also agree, regrettably, that without devolution of powers both economic and political we have little chance of realising a remunicipalisation agenda. But I’m not sure that I agree with you on Labour – the argument that they are as determined as the Conservatives to exercise centralised powers seems contradicted by promises of a “local government renaissance” or “municipal socialism” – unless you think these policies are just hot air?

          I hadn’t heard about the Glasgow Corporation, but this sounds fascinating and is definitely something I’ll look into.

          • Alasdair Macdonald

            There is a good piece on the history of Glasgow’s water supply on the Scottish Water website. It is by the late George Wyllie, an artist who was lovably eccentric. There is a fountain in Kelvingrove Park in Glasgow which was erected to mark the opening of the system.

            With regard to Labour, my scepticism is down to the fact that Labour is pretty severely riven, with a very large number of MPs openly hostile to Mr Corbyn’s leadership and the agenda he and his colleagues have set. In Scotland, he has made a number of statements which have been sympathetic to the aspirations of the Scottish Government, or, at least, not hostile to it, only to be very quickly forced into a retraction by the Scottish Labour MSPs, most of whom, with the exception of their leader, Mr Richard Leonard, are opposed to him. Devolution is further advanced in Scotland than elsewhere – indeed, it is close to 50/50 regarding independence – but, of all the Scottish parties, including the Tories, during the Smith Commission consultations, Scottish Labour was the most hostile to further devolved powers.

            There is still amongst Labour MPs (yes, MPs) an attitude that they know what is best for the rest of the UK. Harriet Hartman and Yvette Cooper, for example were opposed – contemptuously – to devolution of powers on abortion being devolved to Scotland.

            So, what you say might well be true about Labour’s stated policy, but I fear that when it comes to governance, they will revert to the dirigiste, ‘WE know what you need.’

          • Arthur Blue

            It was municipal Water Boards who were responsible for all the UK’s big water and sewerage schemes of the 19th and early 20th centuries. Not central government and not private companies. And these Boards were in every way far ahead of Thames Water and its like.

  • CommentTeleView

    I can see the validity of the arguments that water supply is a natural monopoly, and therefore the benefits of a free market won’t be realised. But when discussing the performance of State utilities, reference to end-user prices are irrelevant and misleading. If prices are lower, it might just be that the service is subsidised. Water could even be supplied free of charge – the public pays either way. The important metrics are the quality of the service, and the total cost of providing it, including a market- and risk-related return on investment.

  • xxyyzz123

    Whilst some of the content is accurate – particularly in reference to Thames Water’s financial structure – the article is woefully short on substantive detail about WHY the industry was privatised in 1989. After 40 years of state ownership , the infrastructure was in a state of permanent collapse, with leakage at roughly 40% and sewers simply not being replaced. Infrastructure investment simply hadn’t happened because there are no votes in water and waste water. Since then, billions upon billions have been invested on the infrastructure and on water and sewerage treatment processes. Demand grows at approximately 1% per annum but supply does not. The South East of England has less water per capita than Sudan or Syria, yet it only costs a couple of pounds a day per household to have a limitless supply of clean safe drinking water. For the vast vast majority of people in the UK this reality is true 365 days a year, 24 hours a day – yet still people bleat about the industry, as if privatising it will somehow cure its ills.

    Isn’t it a happy coincidence that, after years and years of private company investment in the Parisian water infrastructure, when the state took over the bills could fall. No doubt they could do the same over here now that loads of work has been done but, as sure as eggs are eggs, the investment will not be maintained when funds dry up elsewhere and that money is needed for the NHS, or public transport, education, roads, social services etc etc. Then the rot will set in once more.

    This is an ideological, socialist argument dressed up to pull on the anti fat-cat sentiments of jealous individuals. It doesn’t stand up to scrutiny and completely ignores history and human nature. The real problem is that the market is not allowed to operate properly – it is regulated by OFWAT, who are, quite frankly, useless. Do we want £1 a week off our water charges, or £500 million invested in fixing / preventing leakage? Ofwat has repeatedly gone for the £1 a week option. Since privatisation, it has repeatedly failed the consumer and has incentivised the wrong behaviours.

    How about a real value being put on water – such that it becomes a valued commodity that people won’t recklessly use sprinklers on their gardens or won’t flush 2 gallons down the loo to get rid of half a pint of urine? Nobody blinks at £2.50 a day for a latte, £45 per month for their mobile phone, £70 a month for Sky TV and £200 a month for a brand new lease car – but £2 a day for unlimited water and waste water disposal? Never – it’s a rip off Tory thing and must be nationalised…really?

    Be careful what you wish for.

    • Arthur Blue

      It was votes in water and waste water ( although there was no general suffrage at the time ) which impelled Bazalgette to start his work.
      You’re right though about the public’s undervaluing of one of life’s necessities, though this doesn’t actually let Thames Water off the hook.

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