Government plans published earlier this month around the water sector in England and Wales were heralded as a “once-in-a-generation” opportunity to transform the system. However, despite the confidence of UK environment secretary Emma Reynolds, the long-awaited plans raise significant concerns. This is a reform agenda for water as a business – but not a vision for managing a vital public and environmental resource.
The fully privatised water system in England and Wales has been facing two (self-inflicted) crises in recent years. First, companies have failed to invest enough in infrastructure and have been pouring untreated sewage into rivers and seas.
Second, some companies (acting primarily in the interests of their shareholders) have hiked up debts while still paying out dividends. The largest company, Thames Water, has been teetering on the brink of financial collapse since 2023.
Occasional but serious interruptions of water supplies prove that all is not well in water service delivery, and there is growing recognition that the water system is unfit for purpose. We, as academics who helped set up a research body called the People’s Commission on the Water Sector, would have to agree.
But crucially, missing from the government’s white paper detailing the new policy is any reflection on the processes that led to this situation. It acknowledges that companies have behaved badly and that some water companies and their owners have prioritised short-term profits over long-term resilience and the environment.
This is a serious understatement. Underlying the outcomes of the past few years are the profit-seeking activities by private investors. Private companies cut back on costs and manipulated finances to benefit shareholders.
Water users and the environment suffer the consequences. And the regulators, Ofwat and the Environment Agency, were ill-prepared for the scale of the private sector’s extractive practices.
The bottom line is that the profit motive is incompatible with treating water in a way that is socially and environmentally equitable.
Now, the government is proposing a new single regulator with dedicated teams for each company, rather than the four institutions that have been in place until now. In addition, there are plans for better regulation and enforcement for pollution, and improvements to infrastructure (the white paper reveals how little is known about water company assets).
However, the language around regulation is confused and contradictory. On the one hand there is talk of being tough: Reynolds says there will be “nowhere to hide” for errant water companies. And there could be criminal proceedings against directors, who may also be deprived of bonus payments.
But on the other, the language is remarkably accommodating in its approach to the firms that have put the whole system in jeopardy.
Those that were behind the sewage crises and the perilous state of water company finances are to be helped to improve through a “performance-improvement regime”. Considerable attention is devoted to creating an attractive climate for investors, where returns will be stable and predictable. This, despite the fact that recent unpredictability was largely due to the activities of private companies.
Power and politics
If water in England and Wales remains in private hands, the unresolvable tension between the drive for profits alongside controls to protect consumers and the environment will persist. The demands of capital tend to prevail, with considerable government attention devoted to ensuring that the sector is attractive to investors.
As an example, the government claims that the next five years will see £104 billion of private investment. But this ultimately is funded by the planned 36% rise in bills (plus inflation). And a fifth of this (£22 billion) is set aside for the costs of capital, to cover interest payments and dividends.
The focus on regulatory and management measures obscures issues of power and politics in water governance. Water is supplied by companies whose shareholders have immense political power.
Private equity investors BlackRock, the biggest asset manager in the world, has stakes in three water companies – Severn Trent, United Utilities and South West Water (via Pennon). Keir Starmer, the prime minister, entertained BlackRock’s CEO in November 2024 where an overhaul of regulation was reportedly promised.
And Hong Kong-based CKI, once a contender to take over Thames Water, is the majority owner of Northumbrian Water. It also has stakes in Britain’s gas, electricity and rail networks, as well as owning Superdrug and the discount store, Savers.
A similar story is told in other companies. These are global behemoths that have influence and huge resources, and as such may seek to shape regulation in their own interests.
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The system in England and Wales is an outlier. No other country has copied this extreme privatised model. In fact, many have taken privatised water back into public hands. In Paris, the public water operator Eau de Paris is an award-winning example of transparency, accountability and integrity in public service.
It demonstrates that it is possible to create public services that are fair, sustainable and resilient. Key to this process has been the vision of water as a vital common good rather than a commodity.
The government’s plans will patch up the water system, particularly with the boost in revenue from bill payers. But the private sector has found unanticipated ways to maximise profits in the past and may well do so again. Rather than continually tweaking the failed private model, the only real route to operating water in the public interest is for it to be in public ownership.
