The Water Industry: A Case to Answer
UNISON commissioned us to write this report, which presents a summary picture of the main features of the water industry, to help raise awareness of it and encourage a wider discussion. In broad terms, it covers three areas:
- the ownership of the industry and the way that has changed since privatisation;
- the economic performance of the industry: including prices, profits, investment and debt;
- how the countries of the UK compare, with one another and elsewhere beyond.
Except where stated otherwise, references to the ‘industry’ refer to England and Wales (this being the extent of OFWAT’s jurisdiction).
The water industry in England is beginning to receive the attention that energy companies have long been used to. Whilst there has always been criticism of high water prices in some regions (notably the South West), stagnating living standards mean this is spreading. Austerity has seen more attention focused on the tax practices of large companies, water included. Water company ownership has also come under scrutiny as a result of the private equity consortium behind Thames Water being unable to finance the ‘super sewer’ project without government help.
A variety of political voices are expressing concerns with this industry. The most recent price rise moved the Daily Express to suggest that there was ‘mounting evidence of consumers being exploited by highly profitable companies’, and that the industry is ‘effectively competing for shareholders.’ Pointing to weakened balance sheets, high dividends and low tax payments, the Guardian declared that the industry had ‘a case to answer’. The controversy has sparked proposals from Will Hutton on borrowing and ownership, and from former the Director General of the water regulator OFWAT, Sir Ian Byatt, on competition and prices.
In writing this report we have inevitably started to form our own view of this industry as it approaches the 25th anniversary of its privatisation in 1989. In short that view is that this is now a very odd industry indeed, one whose ownership is opaque, whose consumers are powerless and whose profits are high –30% (more than £100 a year) of the average water bill – yet which is also unable to finance key investment without government help. The report concludes with six questions which we summarise here:
- Why has the ownership of this industry changed so much since privatisation?
- Why have water bills trebled in 25 years when inflation overall has only doubled – and can the share of the average bill that goes to profit be justified?
- What can consumers do if they are unhappy?
- What dangers lurk in the industry’s dependence on debt finance?
- What is the alternative to the government taking on some of the industry’s risk?
- What would a ‘responsible’ water industry look like?
About this report
This full report was commissioned by the UNISON and written by Adam Tinson and Peter Kenway. All responsibility for errors, omissions and opinions rests with the author alone.