2014 02 – Editorial

 The Great British Water Robbery

Anyone who believes in the value of the state takes the view that its fundamental functions include the protection of citizens. This specifically includes the taking of precautions against danger such as invasion from hostile powers. Liberal theory, such as is to be found in the work of Locke, also maintains that no-one has the right to degrade natural resources through their exploitation. They are there to be used by all and must be left in at least as good a condition as before they were first exploited. Fundamental amongst these is water. A state unable or unwilling to defend its citizens from depredations of their natural resources is failing in its most basic ‘night-watchman’ function.

Just as no serious state can claim that defence is not necessary as no attack is imminent, as an excuse for not maintaining a nation’s defences, it cannot be a defence of the lack of care over natural resources like water that the population is not actually dying of thirst or through infection. It’s not enough to say it isn’t happening – you need to make sure that it isn’t happening. Yet this seems to be what has been happening to the water supplies of England since the late 1980s when Thatcher privatised them.

At the time we were told that privatising water would ensure much-needed investment in water and sewage pipes, as if this was not anyway public duty of the state. Much more recently we have learned from a BBC Radio programme, File on Four, just how bad the stewardship of our water supplies by the privatised companies has been. Thames Water is a particularly shocking case of what has been happening to our water. Currently, bills are going up faster than inflation and some people are having to ration the water that they use. At National Debtline water bill related calls were actually higher in volume than those relating to rent or mortgage arrears, from 3% in 2007 to 14% in 2012. Currently Thames Water wants bills to rise 11% above the rate of inflation.

The fundamental problem with privatised water is that it is regulated to suit the water companies, not the population who need clean and fresh water. The internal structure of the water companies is senselessly complex, and so is their pricing structure.   Or rather, it is senseless if the main intent is to supply clean fresh water.   If the intent is to avoid tax and avoid public scrutiny, it all makes perfect sense.

They are sold and resold to a variety of remote capitalist structures whose interest lies in maximising share value and income, not in providing a good service. Thames Water, for example, is a structure consisting of eight levels, at the top of which is a shareholding entity called Kemble Consortium, owned by an Australian bank, Macquarie, which manages a range of investors, including sovereign wealth funds in Abu Dhabi and China. These investors have no interest in providing a good water supply, just in a good rate of return. They can bail out of our water supply at any time that suits them.


There is a requirement on the water companies to maintain an investment grade credit rating (which Thames does, but only just) but no regulations about the proportion of profits to be reinvested and there appear to be no regulations preventing shareholders and senior managers from, in effect, looting the company. All  that they need do is cash in on the results of their own stewardship of the company.   This is mostly quite legal.   Even when improper conduct is suspected and alleged by mainstream financial journalists, it has proved almost impossible to punish top managers.

Future income from water supply is turned into a series of financial instruments, the construction of each of which commands a fee which is a component on your water bill. Other water companies such as Yorkshire Water, Southern Water and Anglian Water engage in the same kind of behaviour. There are only about 40% of water companies in England and Wales whose company’s shares are traded on the stock exchange – foremost are United Utilities and Severn Trent.

The problem of the abuse of our water supplies has now got so bad that a Tory MP, Charlie Elphicke, a former tax lawyer, has taken an interest. He has found out that some companies, such as Thames, have for some years being paying out more in dividends than they are making in profits. Thames’ ‘gearing’ – the ratio of its value to its debts, increased from 56% in 2005 to 93% in 2013. Paying large amounts of interest in debt also means that they can defer payment on corporation tax.  This level of debt is not due to the need for investment, but to the legal looting of the company.

It is possible to calculate what would have happened if Thames had paid out 50% of their profits in dividends since 2000 and invested the rest for a large project such as the Thames super-sewer, the Tideway Tunnel. A  consultant for the European Bank for Reconstruction and Development has calculated they would currently have at their disposal 50% of the funds needed for the project and shareholders would still have made a healthy 8-9% return on their investment. Thames wants to raise prices to fund the project. Borrowing is likely to be expensive because of the low credit rating that the company enjoys, itself a function of its rising debt levels.

A reasonable interpretation of what has been happening to our privatised water companies is that shareholders have been rent-seeking through the possibilities offered through loose regulation. Senior executives, incentivised by share options, if they are unscrupulous, can also make serious money by puffing up the share price at the expense of the company’s financial health and then cashing in on the results of their own stewardship of the company.

Water, a vital resource for British people, has not been properly looked after by the privatised companies. They have been given a free ride at the expense of the public and have abused this vital asset, potentially imperilling our health and causing many people difficulties in accessing adequate supplies of water. Successive governments have been negligent in not bringing these companies to heel. Welsh Water is owned by a not-for-profit company (as noted in Labour Affairs January 2014) and Scottish and Northern Irish water are still publicly owned.

It is only in England that this situation has been allowed to continue unchecked. The Labour Party should promise to bring water back into common ownership in some form or other as soon as it gets back into government. Not only is it necessary but it will also be a highly popular move. Once the public realises what is being done to their water they will back any such move strongly. The cost of buying these companies back should reflect the neglect that they have suffered at the hands of their owners.

We live in a state governed by three liberal parties. Conservatism is ignored by the Conservatives and socialism is scorned by Labour. But liberals like Locke could see that there has to be stewardship of natural resources, even in a liberal state. One might have thought that liberal privatisers would have ensured that the regulation of utilities provided some protection for those who depend on them. This however is not the case. The regulatory bodies were set up to protect the private interests which own them. The interests of the population were subordinated to the need to establish these companies as profitable entities. But there is no countervailing force to make sure that they do not just address the needs of their shareholders but of those who depend on them for life and health. It is a scandal that Labour allowed this situation to continue and actually for the conditions of the companies to deteriorate during its thirteen years in office. If even some Tory MPs are worrying about the abuse of our water, it is high time that Labour promised to provide protection.

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