37 years of privatisation has been a disaster

In the era of predatory capitalism people are routinely fleeced by giant corporations. England’s privately-owned water and sewage companies lead the field. With the full approval of the state, they continue to fleece people.

Water companies lose over a trillion litres of water a year to leaky pipes. Sewage is dumped in rivers, lakes and seas for nearly 4m hours, damaging human health, biodiversity and marine life. Since privatisation in 1989, water companies have been convicted of over 1,200 criminal acts but none had their licence to operate revoked.

Customer bills have increased by record real-terms. Instead of investment, companies chose to pay over £85bn in dividends to shareholders and financed it by borrowing around £82.7bn.  An average of 35p in every pound paid by customers for water goes on interest payments and shareholder payouts.

People struggle to pay water bills and arrears stand at around £2bn. Customer complaints have surged by over 50% in the last year. There isn’t any relief on the horizon as successive governments have been obsessed with keeping water in private hands and protecting water companies from their own follies.

Almost every trick in the political book is being used to keep water in private hands and guarantee corporate profits. One of these is to claim that the government is tough on failing companies and levies heavy financial penalties. The reality is that water companies are allowed to negotiate the amount and timing of fines, and in some cases are not paying any of the headline-grabbing fines.

The evidence is stark. The key point to note is that fines are “proposed”.

Indulging Thames Water

Thames Water has nearly 200 criminal convictions. On 6 August 2024 Ofwat, the regulator, proposed a fine of £104m for sewage dumping. This was followed by a proposed a fine of £18.2m for breaching the law on payment of dividends. However, the company was allowed to negotiate the fine. On 7 July 2025, the Minister told parliament that “Thames Water now has until 20 August 2025 to pay the fine. How much has since been paid?

In response to a question in the House of Lords, the Ministerial letter of 13 November 2025 stated the following:

“Thames Water have paid 20% of the two total penalties, amounting to £24.5m, by the agreed date of no later than 30th September 2025. The payment of the remaining 80% of the penalties will take place on the earliest of three possible events:

• 30 calendar days after the implementation of a restructuring of the company’s finances such that there is improved cash liquidity in the business;

• if the company enters the Special Administration Regime (SAR) under the Water Industry Act 1991, 30 calendar days after it exits SAR; or

• a backstop date of 31st March 2030.”

So, Thames Water may never pay the headline-grabbing fine, or may pay them by 2030.

Yorkshire Water and Northumbrian Water

Yorkshire Water and Northumbrian Water have nearly 200 criminal convictions between them. On 6 August 2024, Ofwat proposed fines of £47m and £17m respectively for the companies for sewage dumping. Did the companies pay them?

On 13 November 2025, the Ministerial explained that “Yorkshire Water agreed an enforcement package of £40m to address the failures that the investigation found, including £36.6m during 2025-30, to prioritise work on some of the most problematic storm overflows in environmentally sensitive areas to ensure they spill fewer than 20 times a year.

“In June 2025, Northumbrian Water agreed an enforcement package with Ofwat of £15.7m to be paid by the company and its shareholders as part of a commitment to address the failures identified by the investigation”.

In other words, companies have not paid any financial penalty. Instead, they took guided remedial work i.e. invested in infrastructure, something they should have done anyway. The forced spend boosted their balance sheet and claimed investment, and ability to extract higher returns from customers in the future.

To put it into clearer terms – suppose someone drives dangerously and routinely inflicts harms on innocent parties. Eventually the person is caught, found guilty and fined. At that point, the judge decides to hand the entire fine back to the reckless driver to enable him/her to buy new tyres and brakes; something which increases the value of the jalopy. There would be an outcry, especially as no penalty is levied. Yet, this practice has been normalised for water companies without any explicit announcement in parliament.

In the absence of any penalties on water companies or their executives there are no incentives to curb predatory practices. Indeed, water companies have shown willingness to circumvent curbs on payment of executive bonuses.

Cost of public ownership

The second major trick used by the government is to frighten people with the possible cost of public ownership. It claims that it would cost over £100bn to bring water industry into public ownership, a calculation not supported by any academic study or research by credit rating agencies.

The £100bn is a rolling amount calculated by Ofwat and is described as regulatory capital value (RCV). The essential method is to take the RCV at the beginning of a financial year, multiply it by the rate of inflation (RPI) during the year, add investment during the year and subtract depreciation and capital grants. This gives RCV at the end of the financial year, which is currently around £100bn. The RCV is used to fix prices and guarantee real returns to water company shareholders. It is fundamentally flawed. 

The amount of RCV is grossly overstated by billions of pounds because all water companies capitalise part of interest payments and repair and maintenance costs, just like Carillion did. The multiplication of the opening RCV by RPI assumes that asset prices increase in line with inflation. This takes no account of markets or technological change. In estimating the return for shareholders, Ofwat assumes that water companies have 45% equity and 55% debt. Yet, water companies are highly leveraged. Their capital structure does not come anywhere near the Ofwat assumption. For example, Thames Water has leverage (or gearing) of over 80%. The upshot is that erroneous assumptions by Ofwat enable water company shareholders to extract high returns, charge higher prices and claim higher value for their investment.

The Ofwat and government approach leads to non-sensical answers. Suppose you bought a car in 1989. Since then every year you multiplied that price by the rate of inflation, added investment and adjusted for depreciation. The answer would be a sum total of random numbers. It would not give you the current market value of your car, which is determined by market specific factors and technological change.

The government could have settled that argument by inviting the Water Commission to consider the possible cost of bringing water into public ownership. It didn’t do so. People aren’t even told what the cost of continued private ownership would be. Companies raise capital from customers instead of shareholders. The promised £104bn infrastructure investment by 2030 will come from customer pockets, not shareholders. Customers will foot the bills; shareholders will own all the resulting assets and income streams.

In the case of Thames Water, major shareholders have written-off their investment. Its debt is being sold at a deep discount. It is paying its business advisers around £200m a year to manage its precarious position. The government’s dithering is resulting in higher borrowing costs, adviser fees and customer bills.

Water company assets have little alternative-use value and in the event of bankruptcy will need to be sold at knock-down prices. The government would be able to buy such assets cheaply. In public ownership, water companies would not be required to pay dividends. So, the £85bn or so paid in dividends so far would have gone into infrastructure investment. In public ownership, underwritten by the state, water company cost of borrowing would be significantly less. The savings would be ploughed back into infrastructure. There would be no need to pay vast sums to business advisers.

No doubt, some neoliberals would claim that the government would need to borrow money to pay for a bankrupt company’s assets. They forget that the government’s balance sheet would show matching assets too. So, the net cost would be zero. The government can also eliminate the cost of public ownership from its debt by issuing bonds directly to households i.e. let the people own the water industry.

The real barrier to ending the water crisis isn’t financial. It is the ideological obsession that privatisation is somehow the answer to everything. Water is a natural monopoly. There are no substitute goods and competition is not possible. After 37 years, water privatisation has failed to deliver security, efficiency, investment or value for money. Public ownership is the only viable alternative.

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