Despite the damning evidence the government is clinging on to private ownership of water, which has fleeced customers for 36 years.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

This week, US private equity conglomerate KKR withdrew its possible £4bn bid for Thames Water, a company that supplies water and wastewater services to 16m customers in London and the South East of England. Perhaps, it escaped a disastrous takeover. Since privatisation in 1989, Thames Water has secured at least 187 criminal convictions. KKR has been sanctioned over 217 times for predatory practices in the US since 2000 and paid financial penalties of $678m.

Thames Water’s woes were deepened by the 2006-2017 private equity ownership led by a consortium controlled by Macquarie. Financial engineering, low investment, profiteering, asset-stripping, tax dodges and borrowing money to pay dividends were the norm as Macquarie extracted average annual average returns of between 15.5% and 19% a year.

The government is obsessed with private ownership and is hoping that someone will rescue Thames Water. Meanwhile, Thames Water’s £19bn debt pile has increased by another £3bn, borrowed at interest rate of 9.75%. It is paying £200m a year to business advisers and nearly a one-third of its customer’s bills service company debt.

Other water companies operate with similar business models. The entire water sector in England is now controlled by companies with over 1,135 criminal convictions. Due to leaky pipes, more than 1 trillion litres of water a year is lost. In 2024, companies dumped raw sewage into rivers, seas and lakes for 3.62m hours. Asset-stripping is rife. In the 35 years before privatisation, almost 100 reservoirs were built. In the 35 years since privatisation, not one major English reservoir has been built. Thames Water has sold-off at least 25 reservoirs since the 1980s. Southern Water is due to decommission 43 of 93 reservoirs by 2030, and may possibly add two. Since privatisation companies have paid nearly £85bn in dividends and billions more in debt interest. They have accumulated debt of around £70bn and gearing/leverage ratio of 85%, sustained by high customer bills. In the last decade, directors collected £112m in bonuses and incentive payments

.Despite the failure of water privatisation the current Labour government, just like its Conservative predecessor, is opposed to public ownership. It counters public calls for nationalisation with a number of blunt tools. These include expressing faith in market solutions, promises of heavy fines for sewage dumping, ban on undeserved dividends and executive bonuses, and claims that public ownership is unaffordable. Such tools lack substance and cannot provide stability, and are a vote loser.

There can be no durable market-based solution to the crisis. Companies have a monopoly on the supply of clean water and disposal of wastewater. There is no competition. There are no substitute products and services. Customers are captive and cannot switch to any alternative product or supplier.

Water infrastructure needs an investment of at least £290bn over the next 25 years. Any corporation would want returns and that would mean even higher debt, interest payments and bills. In public ownership there would be no dividends. Instead money would be reinvested, just as £85bn already extracted would have been invested in the absence of privatisation. Borrowing by the government is always cheaper than borrowing by any company and that again would save billions for reinvestment. Any continuation of private ownership will inevitably repeat the follies of the last 36 years. 

A game of obfuscation with fines is being played. On 28 May 2025, Ofwat announced a penalty on Thames Water of £104.5m for sewage dumping events going back a decade. The press release also referred to a £18.2m fine for breaching dividend rules. On 4th June 2025, a penalty of £15.7m was announced on Northumbrian Water for sewage dumping going back to 2013. Except, these fines were not new. The above fines for sewage dumping were first announced on 6 August 2024. The Thames Water fine for breaching dividend rules was first announced on 19 December 2024. As part of PR, the fines are being spun to create the impression that the government is being tough. Water companies are permitted to negotiate the amount and timing of penalties, a privilege not available to any citizen. 

The fines are being used to correct the infrastructure neglect by water companies. The notice relating to Northumbrian Water stated that the money would be used to install smart sensors and monitors at sewage stations and improve the environment. This forced investment will obviate the need for companies to invest. It will improve their balance sheet and regulatory capital value (RCV), enabling them to extract higher returns from customers. This policy is akin to a motorist knowingly driving with faulty brakes and bald tyres and threating public safety. When caught s/he admits guilt and is fined £1,000, but the judge immediately hands the money back to the driver to enable him/her to buy new brakes and tyres. There is no penalty and no deterrent. Yet that is the government policy.

Customer anxieties are being soothed with claims that companies won’t be allowed to extract excessive dividends. The policy is unlikely to yield the claimed objectives. Water company accounts do not disclose distributable reserves, which govern the amount of dividends which can be paid. The focus on dividend payments in cash neglects the fact that shareholders can extract returns in other forms. These include share buybacks, bonus shares, excessive interest charges on intragroup and related party loans and spurious intragroup transactions; for example artificial management fees and other charges. There is no evidence that Ofwat can deal with financial engineering.

Following implementation of the Water (Special Measures) Act 2025 the government has promised to ban unfair bonuses to senior executives overseeing poor environmental and customer outcomes. Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities, and Southern Water bosses are not permitted to receive bonuses with immediate effect.  Thames Water has already indicated that it will circumvent the rules by rebranding bonuses as “retention payments”. More cat and mouse games are inevitable. Companies can reward executives with share options, generous perks and pension contributions. Within a group of companies, executives can be offered multiple directorships to ensure that they collect their loot. The most effective reform would have been to appoint employee and customer elected directors to the boards of companies and Ofwat, and empowering them to vote to executive pay. But democratising corporations and regulators is not on the government’s agenda.

Ministers oppose public ownership by claiming that it would have a high cost. They do so without ever explaining the cost of leaving the industry in private hands, which includes lack of investment, sewage dumping, debt pile, health hazards, profiteering, financial engineering, asset-stripping, water insecurity and high household and business costs. Ministers claim that water nationalisation would cost over £90bn. They amplify a 2018 report by Social Market Foundation, commissioned by water companies. This report is described by a former government adviser as having “virtually no intellectual substance “ and added that renationalisation itself would be “relatively easy, as with the revenues from the water bills, the government would have sufficient income to pay for the assets it acquired”. 

Ministers now say that “if the whole industry was nationalised, shareholders and debt holders would need to be compensated, which could cost over an estimated £90 billion [this is based on Ofwat’s Regulatory Capital Value 2024 estimates]”. This does not stand up to scrutiny either. Regulatory capital value (RCV) is an accounting exercise and does not show market value of companies. In any case, it is grossly inflated as companies have capitalised parts on interest payments and repair and maintenance expenditure. To acquire control, no one has to buy debt and the £90bn tag has no relevance.

The Water (Special Measures) Act 2025 seeks to avoid the chaos from sudden collapse and ensure that the government puts water companies into temporary nationalisation. Companies would be restructured i.e. shareholders would be mostly wiped out and lenders will take a big hit. The government’s intention is to restructure any company brought into temporary nationalisation and then hand it back to the private sector. This can’t solve the problem as we would return to all the chaos of the last 36 years.

Under the Water Act 1991, the government can forcibly acquire control of companies, especially as they have routinely violated their terms of their licence to operate. Their shares are almost worthless. Amounts owed to creditors can be replaced by a government bond, repayable over x number of years. The cost of acquiring companies can be added to the government debt, if the government so wishes. It can instead be loaded to the entity itself, as private equity does for its acquisitions. The cost can be funded by public bonds issued to savers.

Despite the damning evidence the government is clinging on to private ownership of water, which has fleeced customers for 36 years. Profit motive is the key cause of the problems, but the government does not want to eliminate it. Instead, it is implementing policies to control executive bonuses and dividends, and levy heavy fines for sewage dumping. These are unlikely to deliver stability or public satisfaction.

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