There is no more basic service for public health and welfare than providing clean water. Yet Britain’s water industry has acquired a reputation for incompetence and excess that is deserved and self-inflicted. It is exemplified in sewage spillages and even disease for consumers, alongside high financial rewards for water companies’ executives and dividends for shareholders. The water industry might almost be a Brechtian parable of the iniquities of capitalism. That would be wrong, but supporters of the market economy need to explain why this industry is exceptional while pressing for tougher consumer protection against its failings.
In the past few days 46 cases of a waterborne disease causing diarrhoea and vomiting have been confirmed in an area of Devon, and more than 100 other residents have reported similar symptoms. South West Water has found what it terms “small traces” of a parasite associated with this disease in a local reservoir, and advised households across the area to boil water before drinking it.
This is not merely an oversight. It is part of an established pattern of errors of omission and commission. There are 11 regional water and sewage companies in England and Wales, with a further five water-only companies. Together they make up a sector that is loaded with debt, even while paying out handsome dividends, and has a dismal record of raw sewage discharges in rivers and on beaches, and inadequate investment.
The costs of failure appear to be minimal. Severn Trent Water, which services more than 4.5 million households and businesses in the Midlands and Wales, was responsible for more than 60,000 sewage spills last year while its chief executive, Liv Garfield, had a compensation package worth £3.2 million. United Utilities, which supplies water in the northwest of England, declared a dividend increase of 9.4 per cent this week, almost exactly coincident with reports of its failure to stop or promptly report a sewage discharge in Windermere, in the Lake District, in February.
While financial rewards for agents and principals in water companies are ample, bills for consumers have risen by more than 40 per cent since the industry was privatised in 1989. It is hardly surprising that populists see it as an example of what is wrong with a market economy. It would be an error to heed their message but policymakers need to address the sector’s dire performance.
There is nothing wrong with high pay for bosses in companies and sectors that compete successfully in a global marketplace. That does not apply to the chief executive of a water company that enjoys an effective monopoly. Ms Garfield’s pay package (and she is not the only one) brings the industry into further well-deserved disrepute. It also lends superficial plausibility to the case that a Labour government, likely to take office within months, should nationalise the sector.
In truth, public ownership would not resolve the problem of poor infrastructure and, for some companies such as Thames Water, financial fragility. As this newspaper’s Clean It Up campaign argues, water companies need to spend more on investment to expand reservoir capacity and fix leaks. Ofwat, the regulator for water and sewage in England and Wales, ought to be far more insistent on investment targets, and ensure that the burden is borne equitably by shareholders and customers.
And on no account should a financially stretched water company be bailed out by taxpayers; there is no systemic threat to the economy, and the costs should fall on holders of the company’s securities.
Water is a test case for capitalism. Because regional providers do not have obvious competitors, the easiest route to generating profits is to skimp on investment, raise bills and pump sewage into rivers. This government and its successor must ensure that stringent regulation puts a stop to this business model and serves the public instead.
East Devon Watch 