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Paul Vallely: Water companies put shareholders first

09 June 2023

They should be regulated properly, or nationalised, declares Paul Vallely

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I SUPPOSE that I should declare an interest. United Utilities, recently named England’s most polluting water company, provides water to my home. It has just announced that it is paying a £301-million windfall to its shareholders — generated from increased bills to customers like me — rather than spending the cash clearing up its record-breaking spillage of sewage into our local waterways.

All across the country, there is growing public anger over rivers filled with effluent and beaches closed for swimming, while privatised water companies paid out £1.4 billion to their shareholders last year. The chief executive of United Utilities alone reaped more than £1.3 million by selling his shares in the business as he retired.

This was not how it was supposed to turn out when the Conservatives privatised the water industry in 1989. Privatisation would increase efficiency and improve service quality, they said. The reality has been under-investment in infrastructure, increased bills to consumers, extravagant executive salaries, massive payouts to shareholders, and raw sewage dumped on an industrial scale.

The ideological imperatives of privatisation were never going to apply to a service in which competition is impossible, because there is only one set of water and sewage pipes to every house or business. Regulation was supposed to make good the deficiencies of this privatised monopoly, with Ofwat as the price watchdog and the Environment Agency as the guardian of river quality.

Sadly, a decade of austerity starved the Agency of funds. And Ofwat was outwitted, as the water companies were bought up by hedge funds, foreign investment firms, and businesses based in tax havens unaccountable to British citizens. Worse still, fancy financial footwork has loaded the water companies with debt, so that they can shift profits offshore and avoid tax.

Listen to this damning verdict: “There has been no investment in new nationally significant supply infrastructure, such as major reservoirs, since privatisation. . . [Water companies] have shielded themselves from scrutiny, hidden behind complex financial structures, avoided paying taxes, have rewarded the already well-off, kept charges higher than they needed to be and allowed leaks, pollution and other failures to persist for far too long.”

The words of some eco-activist? No. That was Michael Gove in 2018, when he was the Environment Secretary. Then, just last month, we learned that, more than two decades ago, ministers were warned about the danger of private equity firms’ buying up water companies. Yet governments have repeatedly failed to act.

Belatedly, the industry has apologised for last year’s 300,000 incidents of sewage pollution, and has pledged to invest £10 billion in infrastructure. But the money is not coming from shareholder dividends. It is to be paid for by increased bills to customers. Almost £1 billion of that will come from me — and other United Utilities customers.

It is as if, in the words of another aggrieved customer, “you went to the garage and the mechanic said, ‘You need to buy me a ramp to service your car properly.’ Would you leave your car with him?”

Privatising a monopoly was only ever going to work with an effective regulator. We need a new regulator with teeth. Either that, or we should restore to public ownership a resource that is part of God’s creation ordinance. That is something in which we should all declare an interest.

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