From privatisation to profits: How providing clean water became a murky business

Fury over sewage, leaks and supply problems – amid a backdrop of soaring profits and pay packets for firms – have fuelled calls for reform of the water industry.

The revelation that ministers are considering bringing Thames Water into temporary public ownership has reopened the fierce debate over the privatisation of the country’s water industry.

The sudden resignation of the company’s chief executive and Sky’s exclusive report into government contingency plans for the firm’s potential collapse comes amid growing calls for change following a string of controversies and scandals to hit the sector in recent years.

‘Vast improvement’

The current system of private monopolies dates back to 1989 when Conservative prime minister Margaret Thatcher sold off the publicly-owned water and sewage industry in England and Wales for £7.6bn.

She vowed it would lead to a new era of investment, improve water quality and help bring down bills. Her government also wrote off all debts and established Ofwat to regulate the industry.

Supporters argue that the water industry is now significantly better, while also acknowledging improvements are still needed.

Water UK, the industry body which represents firms, said on the 30th anniversary of privatisation in 2019 that the situation had “vastly improved” with a fall in supply problems, pollution, and leaks thanks to nearly £160bn worth of investment over the decades.

It also claimed that “average bills today are broadly the same as 20 years ago, once inflation is taken into account”.

However this is disputed.

‘The most egregious rip off’

Opponents say privatisation has led to soaring bills, poor performance and years of under-investment, and claim that the pay of executives and shareholders has been prioritised at the expense of long-suffering customers.

They also point to a National Audit Office study in 2015 which found that average household bills had risen 40% above inflation since 1989.

Water firms have also accrued £54bn in debt since privatisation – but paid out dividends to shareholders of £66bn, according to an analysis by The Guardian newspaper last year, with 20% of bills going towards servicing debt or paying out dividends on average.

Those calling for renationalisation include Labour’s former shadow chancellor John McDonnell, who responded to Sky’s latest report on Thames Water by describing it on Twitter as “the most egregious rip off” of all the firms.

Regulator row

Meanwhile regulator Ofwat has also been accused of lacking the necessary teeth to take on water companies.

Critics include the Liberal Democrats, who have called for the body to be abolished and “replaced with a tough new independent regulator with real powers”.

The government has vowed to increase penalties, with Environment Secretary Therese Coffey proposing earlier his year measures including unlimited fines for firms caught polluting.

Public opinion

Most of the public support renationalisation of the water industry, according to opinion polls.

YouGov found in September 2022 that 63% of the public believed it should be run “entirely in the public sector”.

Even among Conservative voters the idea is popular, with 58% in favour, according to the same survey of more than 1,700 adults.

However there appears to be little appetite for such a move from the government, while Labour has backtracked on supporting the policy.

Scandals

For or against privatisation, public dissatisfaction at water firms remains following a string of scandals and controversies.

Water UK confirmed earlier this year that bills would see the biggest increase in almost 20 years from April.

The 7.5% hike means average customers are now paying £31 more annually this year – taking the typical bill to £448.

The industry body then made an an unprecedent public apology following mounting fury over raw sewage being released into Britain’s waters.

Figures from the Environment Agency revealed it was pumped into England’s rivers and seas at least 301,091 times last year – an average of 824 a day.

Water UK said campaigners had been “right to be upset about the current quality of our rivers and beaches”.

But there was then further anger when firms admitted a planned £10bn investment in measures to tackle the issue would be funded by a “modest increase” in customers’ bills.

Water leaks have become another major issue – especially at a time of shortages and record high temperatures.

South East Water, which this week introduced a hosepipe ban for two million people in Kent and Sussex, has enraged customers over supply issues.

Residents in East Sussex said they had been left without water for 23 days despite the firm admitting that its reservoirs were topped up and said its infrastructure had struggled to cope with demand.

Meanwhile another firm, Welsh Water, admitted earlier this year that it been under-reporting the amount of leakages it was responsible for.

Multi-million pound profits and eye-watering pay packets for firms have further fuelled discontent.

Thames Water reported pre-tax profits of £493.5m in the six months to September 2022, despite the firm introducing a hosepipe ban for its 15 million customers during the year.

In 2021 the firm paid out £11m compensation after it was caught overcharging customers.

The boss of the company who resigned, Sarah Bentley, was reportedly set to receive pay and perks worth £1.6m this year.

It came after Ms Bentley said earlier this year how she was “heartbroken” about the company’s historical failings – while admitting there had been “decades of underinvestment”.

Sky News understands that talks over the future of Thames Water remain at a preliminary stage and the contingency plans may not need to be activated.

Either way, the pressure and scrutiny on such firms is unlikely to go away any time soon.