Tackling climate change must mean renationalising water utilities

Drought has become a popular subject of debate recently, especially since a number of water companies imposed hose pipe bans.

Typically, almost since the day that the bans came into place it seems to have been constantly raining. This has caused some confusion, resulting in environmental experts rushing to assure us all that the underground aquifers remain low and much of the rain is not being absorbed but going straight into the rivers and out to sea.

There have though been some interesting investigations looking at the reasons for the shortage of water, including three relatively dry winters. The fact that is never discussed though is the role of privatisation in the water shortages of the UK.

The stats make for stark reading. In the UK, where the public utility of water supply was privatised in 1989, some 25 per cent (3.4 billion litres a day) of water is lost through leaks. In Germany, where the water utilities remain under the public control of the municipalities, less than 10 per cent is lost. In Germany, the market liberalising tenets handed down by the European Union were rejected by the municipalities.

A look at one large water company, Thames, offers a glimpse of how the industry works. It was taken over in 2001 by the Germany Company RWE at a cost of £4.3 billion. Five years later it was bought by Kemble Water Ltd for £4.8 billion. Kemble is a consortium led by an investment fund run by the Australian Macquarie bank. Last December, the Abu Dhabi Investment company bought 9.9 per cent of Kemble and in January China Investment Corporation bought 8.68 per cent.

Now, despite all the vacuous comments of politicians about such investments being good for Britain, the reality is that these big players no doubt bought not for the common good of the British waterways but for an excellent dividend return on their investments.

A look at the company’s record on leakage since privatisation is also revealing. In 2006, Thames Water was leaking 900 mega litres per day. It missed its leaks target under the regulatory framework for the third year in a row and was fined. At the same time, the company declared a 31 per cent rise in pre-tax profits to £346.5 million.

Then, instead of a fine, the company were required to spend £150 million on repairs. This resulted in a reduction in leaks by 120 mega litres a day. Leakage fell to 668.9 mega litres per day in 2009/10 and has stayed at that level since.

More widely, the Guardian newspaper recently reported that despite the drought 11 of the 21 water companies will not be required to reduce their leakages by a single drop up to 2015. Leaks have been reduced by just 5 per cent since privatisation in 1989.

The average customer bill for water has risen by £64 since 2001 and is now £376, while the companies have collectively made a £2 billion in pre-tax profits and paid £1.5 billion in dividends to shareholders in 2010-11.

What these figures show is that privatisation is a real block in the way of dealing with drought and the wider challenges of climate change in the long term. The first priority is always the shareholder dividend. As long as hundreds of millions of pounds are being taken out in profit from the water industry then this is money not being spent on leaks and improving the network. The superior record of countries like Germany, which has not been silly enough to privatise public utilities like water, proves the point.

Until the common good is put at the centre of public policy in areas like water supply then the majority will continue to suffer and pay for the benefit of the few. It is a scandal that privatisation has now so become part of the public service landscape in this country that when subjects like the water supply are looked at it does not seem to even come up for discussion as a significant factor in the situation. It is as though the nonsense about private good/ public bad has so passed into the public psyche that it has now taken on the mantle of an unquestionable truth. This is simply not the case. Looking to the future if the challenges that climate change are going to increasingly present are to be met then public ownership of the utilities will have to be restored.