The government and the water companies are taking us for fools. Again.
At the end of 2024, Ofwat agreed to increase customer’s bills every year, for the next 25 years, to fund the investment needed to expand sewage treatment works. Government and the water companies say that this programme will cost £56bn at 2022 prices, and every penny will be paid by us through our water bills, rather than by government or the company owners.
That figure excludes inflation and the likely possibility of serious cost overruns. As a result, water bills are going to get a lot more expensive, every year, for 25 years.
Some argue that there are alternatives to making us pay for this capital investment. So, what are they?
Nationalisation is not a solution, it’s an illusion
The most frequently mentioned alternative is some form of public ownership, including nationalisation. Many environmentalists favour this.
Marinet (Marine Conservation and Environmental Campaign Network) – a UK-based environmental advocacy organisation focused on marine and water-related environmental issues – argues, however, that nationalisation is politically and financially unrealistic.
The organisation says that the nation would have to compensate shareholders for the value of the companies, with estimates commonly placed at around £100bn. Raising that figure through taxation or borrowing, Marinet argues, would be unacceptable to the Treasury and most MPs.
Some campaigners say that struggling companies, such as Thames Water, are nearly bankrupt and so are, in reality, worth considerably less. Marinet believes that taking that approach would simply raise another problem.
The Treasury’s dependence on foreign capital
According to Marinet, much of the UK’s water industry is almost completely foreign-owned, reflecting a wider pattern of overseas ownership across much of the UK’s infrastructure, including electricity generation, energy distribution networks, airports and Royal Mail.
Marinet asserts that acquiring these assets for significantly less than their market value could damage investor confidence and, in the longer term, discourage crucial overseas investment.
For that reason, Marinet believes that nationalisation is highly unlikely to gain government approval.
Meanwhile, it says, customers are being made to fund water companies’ clean-up through higher bills.
Looking water company owners in the eye
Marinet proposes a different approach.
“There is another solution,” says Marinet director Stephen Eades, “but we refuse to see it, although it is staring us in the face.”
That solution, according to Marinet, is to make the owners of the water companies provide the investment capital themselves, either by injecting their own money or by issuing new shares to raise additional capital.
“Actually, it’s the obvious solution,” says Eades. “Water companies are shareholder-owned companies, and under this model of running companies the obligation to provide the investment capital the company needs falls upon the shareholders. This is how every limited company works. It is company law, pure and simple. This way, we make the owners provide the funds, not the public.”
Restoring the power of market forces
Marinet argues that the government should compel all water companies to relist on the London Stock Exchange, returning them to public markets, rather than remaining privately owned.
It believes that publicly-traded companies would once again be subject to market discipline. Poor performance would reduce share value and put pressure on company owners to improve operations.
“At that point,” says Eades, “government and a strengthened regulator that is proposed in legislation later this year can go to the high court and ask it to enforce the laws that forbid sewage pollution.”
Marinet cites the Environment Act 2021, which states that the polluter (the owner) must pay for cleaning up pollution. It also cites the 1991 Water Industry Act and the Environmental Permitting Regulations 2016, that place a legal obligation on all water companies to have adequate treatment capacity at all sewage works.
If these existing obligations are actually enforced, says Marinet, storm overflows of raw sewage will almost entirely cease.
“The law is really specific on this,” says Eades. “government should get the high court to enforce the law. The court must say to the owners that they have got five years to supply and use the capital that’s needed to enlarge all of their sewage works and, most importantly, the court must insist that the owners alone provide the capital.”
Imposing severe fines on the owners of the water companies
“At that point, the court also fines the owners the same amount of money that’s required to deliver this upgrade but waives payment for the five years needed to make the upgrade. Then, after five years, the owners must return to the court, and if the regulator says they’ve failed to make the upgrade, the court enforces payment of the fine and government uses the fine to deliver the upgrade.”
According to Marinet, in this way the owners pay for the upgrade, rather than customers.
Because the companies would once again be listed on the Stock Exchange, the market would judge the owners’ performance and thus the value of their shares. In other words, markets would control the industry, rather than the state.
“We’ve explained this,” says Eades, “to over one hundred scientists, politicians, academics, environmental NGOs and the water company CEOs. We’ve told them, here is the way we solve the industry’s financing and solve sewage pollution and keep the financial burden away from the public and government. It’s very simple, take capitalism at its word, and make the owners pay.”
But will anyone listen?
So far, says Marinet, no one is listening.
The organisation argues that the answer lies in market discipline and the use of existing laws and the high court to compel water company owners to meet their legal obligations. If that happened, then company owners, rather than customers, would pay to eradicate sewage pollution.
The question is, is anyone prepared to make it happen?
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