The case for nationalisation of water companies

England’s privatised water companies are leaders of predatory practices. In 1989, the industry was privatised for £7.6bn and had no debts. It joined Chile and a few US states in handing life’s essential resource to the private sector to exploit. Today, about 90% of England’s water industry is owned by foreign investors, often holed up in secretive tax haven and treat customers as cash cows.

Water companies have recently modelled the use of ‘dynamic pricing’, also known ‘surge pricing’, to charge higher prices during shortages. On an island surrounded by water, crisis has been manufactured by water companies. Dynamic pricing is another strategy to make bigger profits. In a slick PR move, the plan is presented as a water saving tactic. Following critical public reaction and intervention by the Prime Minister, the regulator said that “water companies can’t “surge price” during a drought” and any “new charging structures must strive to make bills fairer and more affordable while encouraging water efficiency”, whatever that means. The retreat does not mean that the idea won’t be resurrected.

To secure emancipatory change, people need to resist the short-sighted policies of the water industry by citing counter evidence and arguments. This article presents a few examples.

Profiting from a Manufactured Crisis 

Since privatisation, customer bills have increased massively in real terms. Instead of investing in infrastructure, companies have paid more than £88.4bn in dividends to shareholders. Billions more have been extracted through intragroup transactions such as management fees, royalties and debt interest paid to affiliates. By 2025, the industry borrowed nearly £83bn. Around 35% of customer bills cover financial and related costs.

The UK’s water network is among the oldest in the world. A large part was installed 130 to 150 years ago. Infrastructure at Thames Water has an average age of 79 years, compared to the industry average of 56 years. 40% of Thames Water assets are over 100 years old. Its IT systems date back to the 1980s.

The required level of investment has not materialised. Around a trillion litres of water a year, 20% of all water pumped, is lost through broken pipes. Hosepipe bans save around 577m litres of water a day. Since privatisation, over 41.4 trillion litres of water has been lost through leaky pipes. At the current rate of investment it will take 700 years to replace the water network.

Despite population increase and climate change, no new water reservoirs have been built since privatisation between 2009 and 2013, the storage capacity of the Abberton reservoir was expanded from 26bn litres to 41bn litres. Most of the reservoirs are shallow and lose water through evaporation in hot weather.

Companies dump untreated sewage into rivers, lakes and seas. In 2025, raw sewage was dumped in rivers for 1,8m hours, threatening marine life, biodiversity and human health. Major companies don’t even have a full map of sewage networks, making remedial action difficult. Only 14.3% of England’s rivers are in good ecological health, severely restricting the ability to extract drinking or agriculture water from them.

To manage public opinion fines are announced, but then quietly waived or deferred. Despite over 1,200 criminal convictions, no director is prosecuted and no company had its operating licence withdrawn. The legislation empowers the regulator to ban unjustified executive performance bonuses. Water companies escape regulatory action by reclassifying executive bonuses as “retention payments” and “signing-on fees”. Payments are also routed through parent companies rather than through the directly regulated entity.

Arguments Against Dynamic Pricing

The logic of dynamic pricing is that higher prices during times of scarcity (e.g. droughts) would force people to use less water and therefore conserve it.

Dynamic pricing by theatres and airlines may persuade customers not to buy products or shop around, but the same logic cannot apply to water which is an essential resource. Unlike airlines and theatres, water companies do not face competition and there are no alternatives. People need water for drinking, cleaning, showering and flushing toilets. The usage depends on circumstances. For example, a family with young children or people with medical conditions can’t easily reduce water usage. Dynamic pricing would penalise the poor and vulnerable.

Some discounts are already given to low-income and vulnerable households, and in principle these could be expanded. However, the cost of discounts is not borne by water companies. It is passed on to other customers in the form of higher prices.

The super-rich could afford to pay higher price for filling their swimming pools, but a vast majority of the people can’t and would end up paying more. In the absence of compulsory smart water meters, it would be hard monitor usage during droughts.

The dash for extra profits has social consequences. By using less water for daily essentials people may face health hazards leading to greater pressures on the healthcare system. Absenteeism at work may increase. Higher water bills would reduce disposable incomes, forcing people to spend less on other things. 

There are also consequences for businesses. Farms, cafes, steelworks, pubs, restaurants, hotels, care homes, hospitals, datacentres and more reply upon steady availability of water. Dynamic pricing would increase business costs, hit jobs, and increase poverty. Higher prices and profits from captive customers do not provide the water firms incentives to mend leaks or be efficient.

Climate change would affect the supply of water. New homes and industries cannot be built without water security. By 2055, England’s households are likely to face a shortfall of 5bn litres of water a day, and a further 1bn litres a day deficit for wider economy. Therefore, conservation and efficient use is vital. Investment is needed to fix leaks; build better reservoirs, desalination plants; restore wetlands and rivers, recycle water and make all homes and businesses water efficient. 

The Need to Nationalise Water

For 37 years, privatised water companies have fleeced customers, prioritised shareholder returns and underinvested. There is an increasing public consensus that water industry needs to be brought into public ownership though the Prime Minister advocates “public control”. The two are not the same.

Mutualisation of the water industry is an example of public control. Under this, the control would pass from shareholders to a not-for-profit co-operative of stakeholders. Monies due to shareholders would be converted to interest-bearing bonds, eliminating the need to pay dividends. The £83bn debt owed to lenders would be transferred to the new entity in the form of repayable bonds. Effectively, the new mutual would pay for the abuses by previous owners. In addition, new investment would be funded entirely out of customer bills and borrowing. Compared to the government’s cost of borrowing, the mutual entity would incur a considerably higher rate of interest. Removing shareholders does not end financial extraction and lenders would de facto control the entity.

The mutual model is used by Welsh Water. It loses 41% of its annual revenues to meet financial costs. Despite rising bills, this leaves less for investment and the company has faced penalties for sewage dumping.

Public ownership through nationalisation is the better alternative. There would be no shareholders and the £88.4bn extracted as dividends would have gone into infrastructure investment. As a state-owned enterprise, water industry cost of borrowing would be much lower than the equivalent for commercial and not-for-profit entities, creating a potential for higher investment. However, public ownership has been opposed by successive governments.

The industry claims that nationalisation would cost £144bn even though major investors consider their shareholding to be worthless. A large part of the fantasy figure is based upon what Ofwat calls Regulatory Capital Value (RCV). How is the RCV calculated? It is akin to buying a car in 1989, and a year later multiplying the price by the rate of inflation, adding new investment and deducting depreciation during the year. This calculation is then repeated every year. The arithmetical answer cannot give market value of anything. The RCV is also inflated through financial engineering as companies have capitalised portions of interest payments and repair and maintenance costs.

The road to public ownership requires that the operating licences of water companies be revoked as they have engaged in illegal and abusive practices. Following the Water (Special Measures) Act 2025, companies need to be placed into special administration. In most cases, shareholders would recover little, if any, value. In the event of bankruptcy, lenders would recover little. So, the government would be able to buy companies at a knock-down price, possibly by borrowing, and give the industry a debt-free restart.

However, neoliberals object to government borrowing. The neoliberal model of national debt emphasises borrowing but totally ignores the assets acquired with that debt. If both were considered, the impact of nationalisation on government debt would be little or none. In public ownership, investment would be boosted as no dividends would be paid and financing costs would be much lower. Surpluses from customer bills would go into infrastructure investment, which can be topped-up from the public purse.

The article has sought to empower people by offering counter accounts and show that water companies are benefiting from the crisis that they themselves have manufactured. Public ownership is the only effective way out of the crisis.