Thames Water: the failure of privatisation in London

Nigel Smith

Thames Water supplies water to about one third of the British population and is in trouble. It is laden with debt and struggling to make repayments on its loans. It is also guilty of neglecting the infrastructure it is supposed to maintain and modernise and of allowing raw sewage to escape into water courses at unprecedented levels. Recently Thames Water was fined £3.3 million for allowing raw sewage to escape into two rivers in Surrey and Sussex, killing more than 14000 fish. Judge Christine Laing KC said that there had been a “deliberate attempt” to mislead the Environment Agency over the incident, such as by omitting water readings and submitting a report to the regulator denying responsibility. This followed numerous other incidents. The company had earlier been fined £20 million for a series of pollution incidents on the River Thames.

Privatisation, Conservatives and Labour

When Thames Water and the rest of the previously nationalised water system was privatised by the Thatcher government in 1989 it had no debt. It was also sold off at a bargain-basement price to its new shareholders. These shareholders are now based all over the world and are using the water companies as cash-cows for huge profits across their other companies and for payouts to shareholders and executives, not for the improvement of infrastructure. Between 2008 and 2016, 95% of profits was paid out in bonuses and dividends, while the water and sewage system deteriorated. Since privatisation £72 billion has been made in profit and this includes 13 years of New Labour mis-government.

However, the critical situation at Thames water has got even the Conservative government to consider some kind of temporary state takeover. This would be to save the company for future re-privatisation – for the tax-payer to subsidise the private sector through difficult times and then allow the rip off profits to continue once the emergency is over.

The Labour Party has been found to be colluding with Thames Water and other water companies – reassuring them, behind closed doors, that re-nationalisation would not be on the cards under a Labour government. The boss of Severn Trent, Liv Garfield, in a leaked email marked “highly confidential”, invited other bosses from across the industry to a meeting in order to maintain the corporate monopoly of water. She said that,

“while it is clear that Labour will not include nationalisation in its next manifesto, they are not keen on championing the status quo. The leadership thinks there is room for improvement and politically there is significant pressure for them to ‘do something’ about utilities. Labour is aware that we are soft testing various ideas but have asked us to keep this confidential, so please don’t forward this email.”

From this quote it is easy to see that Labour puts corporate interest before the interests of consumers, to an even greater extent than the Conservatives.

Maximum efficiency?

At the same time strikes over pay and conditions in the industry are looming and strike dates are about to be announced. Steve Whittle a union organiser, criticised water companies for paying out large dividends to shareholders, while allowing infrastructure to deteriorate. Hugely profitable water companies are expected to increase bills to consumers in the next period. The chief executive of Ofwat (the ineffective government regulator) said that, “suppliers want bills to rise to fund infrastructure investment, despite the cost-of-living crisis”. He neglected to mention that the reason for the problems with the infrastructure emanates from low investment in the past in order to fund profits. Gary Carter, the GMB’s (Engineering Union) national officer, condemned the move to increase bills as, “an utter disgrace when companies have showered shareholders and bosses with billions, while our infrastructure has gone down the plughole. For them to expect customers and workers to stump up the money to stop leaks and clean up sewage – not to mention service water companies’ massive debts, is an utter disgrace. Ofwat has failed miserably to regulate the water companies and should stop trying to defend the indefensible.

The capitalist would have us believe that the privatisation of infrastructure is the most effective way to maximise its efficiency and service to the public. This was the mantra, trotted out by Thatcher and her acolytes and repeated by New Labour. The current Labour leadership holds the same view. We were told that free market competition would regulate the industry and benefit us all. There is no market in the UKs public services sector – especially water supply and sewage. Companies are run as unaccountable monopolies and there is no other company that is able to take over their monopoly. Each water company is given an area of the country to service and there is no other company to cut across that. No ‘competitor’ to Thames water is coming forward to take over the service and sort out the problem. The idea of competition across public services is entirely bogus. The claim that the regulators challenge companies to improve has also been seen to be an empty promise.

Thames Water claims that the current cost-of-living crisis has precipitated its problems, due mainly to the increase in interest rates. They claim this makes it harder for them to service the debts they have built up since privatisation, totalling about £16 billion. They don’t admit that they are responsible directly for lack of investment and a business model that allowed such debts to accumulate in the first place. Thames water investors have promised £750 million to alleviate the situation temporarily, but this will not be sufficient to solve the problem and the government waits in the wings hoping that it won’t be compelled to come to Thames Water’s rescue with tax-payers’ money. In the context of the current strikes and control on wage rises as well as underfunding of the public sector and the NHS, this would not prove popular. However, this government and the Labour government, which is likely to follow, would rather help out private capital than public services.

Water companies are owned and funded by a complex matrix of different organisations, which is incredibly hard to unravel. For example, Thames Water is made up of eight different companies and owners. It uses webs of finance manipulation to transfer wealth out of the pockets of ordinary people and into the off-shore banks of the billionaires. It then has the temerity to claim that it needs help to service its considerable debt.

Need for nationalisation under workers control

In the UK only a minority of people think that the water companies should be in private hands. The idea that the private sector does it better has been massively eroded and this erosion was accelerated by the mishandling of resources allocated to private companies instead of the NHS during the Covid crisis. The water crisis in the UK is a warning to the world. This is a set of Islands that, up until now, receives a plentiful supply of water from rainfall. However, global warming is meaning that droughts and floods are becoming much more common. The South East is threatened with water shortages in many years and increasingly so. The infrastructure to alleviate this issue is not being put in place. The UK requires a nationalised water system for that reason if for no other. It requires a nationalised water system under worker’s control, not like the post war system where the same tired bureaucrats were left in charge. We cannot allow the shareholders and CEOs of the current water companies to have any say in this future. We need to look for experts in the field – workers and academics – to suggest a structure that is sustainable for the whole nation; to alleviate flooding as well as drought across the whole nation. We need the system to be properly funded with no place for profit, but also with open accounting, so that the workers and general population can see where the resources are put. We need properly trained engineers, who can work efficiently and effectively to improve the quality of the service and a decent quality of water and sewage for all. When the companies are nationalised, not a penny in compensation should be paid to them and the nationalisation should be permanent. We must not repeat the form of nationalisation that rescued the banks – paying off their debts in order to allow them back into the private sector after a period. Workers should insist that each company’s books should be completely open before any form of compensation would be considered. Workers should demand compensation from the capitalists for the under-investment in infrastructure and the cost of bringing the water supply and sewage system up-to-scratch. The capitalists should be billed for the work they haven’t done and the excessive dividends they have paid to shareholders. A worker’s nationalisation would be an attack on capitalism and would result in a back-lash, so workers internationally need to look at global systems and work on a united approach to the issue of water supply.

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