A vital read. Store the arguments. Nationalisation will be on one of next year's papers (pound to a penny):
It’s a tradition as English as morris dancing. Summertime brings forth hosepipe bans and politicians of a certain hue chuntering about nationalising our water companies. Expect them to begin soon — even as they prepare for holidays on the Med, where some state-owned utilities serve up toxic tap water and lavatories that can’t cope.
There’s no denying that water shortages are a major inconvenience for the good folk of Devon, where hosepipe bans have been in place since last August, and in parts of Kent and Sussex, where thousands had no running water for much of last week.
But nationalisation is not the answer.
Shortages are caused by complex factors, plenty of which have nothing to do with who owns the utilities.
On the demand side, lifestyle changes — power showers, dishwashers, washing machines — mean we use more water per person than ever. Average household use is up 70 per cent since 1985, with a typical person using 149 litres a day.
The nation’s increased leisure time has spurred demand from heavy users such as golf courses and private pools, while our taste for out-of-season fruit and salads has ushered in acres of glasshouses requiring year-round watering. The rising number of cars we own and wash is another factor, as are new housing developments and working from home, which create demand hotspots in areas that have never needed much water before.
Attempts to encourage people to cut down consumption with the use of meters seem to have had a mixed success. While poorer people tend to be more frugal, some water bosses say wealthier customers use more because they no longer feel a sense of shared moral responsibility to preserve a finite resource. One chief likens meter charging to the kindergarten that tried to stop parents turning up late to pick up their children by imposing a fine, only to find it had the opposite effect. While before, mums and dads would try to be on time out of a sense of duty to the teachers, the fine made them view lateness as just another commodity to purchase.
On the supply side, the temptation is to blame underinvestment in fixing water leaks for the problem. But would this be better if we nationalised the companies? The data suggests, not really.
Scottish Water is state-owned, while Welsh Water is a not-for-profit. Figures from Water UK show the utility with the worst leaks in the kingdom is English, but so is the best. The English average, by volume, is slightly better than Scotland’s and slightly worse than Wales and Northern Ireland’s.
England has far more people in cities with ancient Victorian pipes, cracking under roads carrying ever heavier cars and lorries, but even then, on a per-property basis, English firms leak far less than Scotland and Northern Ireland, and a similar amount to Wales.
The sector was privatised in 1989, and capital investment by water companies in England and Wales is 84 per cent higher than it was in the decade before, rising from £30 billion in 1980 to 1990 to about £55 billion in each decade since.
Leakage, according to the regulator Ofwat, has been reduced by about a third since its peak in the 1990s.
The fact is, when the infrastructure was state-owned, it was neglected abominably by governments of all colours for decades. In London, it has been underinvested since Joseph Bazalgette and the Metropolitan Board of Works in the 1860s.
The reason is simple: sewers and pipes don’t win votes, so never get prioritised by politicians.
We can’t even provide adequate, long-term public funding for education and health, so the idea that nationalising water would somehow create a golden age of storm drains is for the birds.
Private companies, properly and tightly regulated, and funded by long term owners, can make years-long spending plans away from the distractions of the electoral cycle.
It’s no coincidence that one of the biggest infrastructure projects for a generation — the Thames “supersewer” — is a private enterprise, kept well away from meddling MPs.
Investors will want a return of a few per cent a year on their money, but since some egregious profiteering in the early days of privatisation, current returns are reasonable. Ofwat sets a base yield of 3 per cent, and most companies have paid their shareholders less than that over the past two years, according to Water UK data.
Add those kinds of yields up into pounds and pence, and you get big, headline-grabbing numbers of hundreds of millions being “extracted” by greedy foreign funds — but that’s just because they invested billions in the first place.
Improvements in water supply are not just about fixing leaks, but building new infrastructure to cope with the increased demand. Here, the problem is often due to the difficulties in obtaining permission from local authorities and the Environment Agency rather than an unwillingness to invest.
If a water company can’t get approval to build additional works when new housing developments go up, of course there will be shortages when the weather gets hot.
There has not been a significant new reservoir built for some 40 years, and not for the lack of trying by the utilities. Thames Water has been seeking approval for one near Abingdon, Oxfordshire, for decades. A proposed reservoir at Broad Oak, Kent, has been planned since the 1970s.
Another round of investor-bashing, demands for dividend cuts and sabre-rattling about nationalisation will only put international pension funds off investing here.
We should instead be encouraging them to come, freeing the firms from short-sighted planners and preparing for a warmer, drier world.
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