England’s ludicrous experiment in privatised
water is coming to a messy end
Adam
Almeida
If Thames Water collapses in the weeks ahead, there is
only one smart, long-term response: public ownership
Adam Almeida is a senior data analyst at the
thinktank Common Wealth
Thu 28 Mar 2024 18.31 GMT
https://www.theguardian.com/commentisfree/2024/mar/28/thames-water-privatised-public-ownership
The
question mark over the future of Britain’s largest water supplier, Thames
Water, has put its 16 million customers across London and south-east England –
myself included – in an uncertain position. While water will still keep coming
out of our taps, the price of these financial woes will probably be borne by
customers and taxpayers. Meanwhile, Thames Water’s shareholders have spent the
last three decades benefiting from the company’s massive financial gains. If
ever we needed an example of the risks of selling essential infrastructure to
investment firms, this is it.
Auditors
warned in late 2023 that the debt-laden company could run out of money by April
if shareholders did not inject it with much-needed cash. Now investors are
saying they won’t provide Thames Water with £500m of emergency funding, leading
to speculation that the company will be temporarily renationalised.
Since
privatisation in 1989, water bills across Britain have increased 360%, more
than twice the rate of inflation (in Scotland, water is government-owned, and
bills are lower). At these rates, you would think that our water system would
be state of the art. Instead, news broke this week that Thames Water was
responsible for almost 17,000 occasions of dumping raw sewage in 2023 because
of poor overflow systems that have had insufficient infrastructural investment.
In Margaret
Thatcher’s imagination, selling off this public asset was meant to bring about
shareholder democracy, but it has instead resulted in a major wealth transfer
to Thames Water’s nine shareholders – institutional investors that are mostly
based overseas in places such as Abu Dhabi, Beijing and Brisbane. The result is
a company buckling under the weight of unserviceable debt, which over the years
had not had sufficient investment, and had value extracted in the form of
dividends. For their part, the shareholders released a statement criticising
the water regulator, Ofwat, for the current crisis, saying it had “not been
prepared to provide the necessary regulatory support for a business plan which
ultimately addresses the issues that Thames Water faces”.
The largest
shareholder – owning 31% – is the Ontario Municipal Employees Retirement System
(Omers), a Canada-based public pension fund. Funnily enough, Omers happens to
be the pension plan covering my grandmother, who collects a widow’s pension
left behind by my grandfather, José. As a construction worker employed by the
city of Toronto, José contributed to his pension using wages earned by paving
the city’s roads in the summer and clearing the snow in the winter.
This is a
bizarre arrangement, in which I (and millions of others) pay escalating prices
for drinking water so that my grandmother in Canada and thousands of other
pensioners can live out their golden years. Yet this model of ownership is
becoming increasingly common as Britain’s essential infrastructure is bought by
institutional investors with portfolios worth hundreds of billions of dollars.
These firms typically manage money on behalf of their clients, which include
pension funds, university endowments and insurance companies.
As a result
of this system, public infrastructure changes hands in quick succession as
investors turn a profit and leave companies in worsening financial states with
each exchange. This has had grim consequences for people who rely on these
essential services in their daily lives. During the pandemic, for instance,
care homes loaded with high levels of debt (a staple business practice of
institutional investors) saw death rates twice as high, according to one study
that linked the rates to cost-cutting practices such as reduced staffing and
limited supplies of personal protective equipment. The morbid effects of
institutional investor ownership are also experienced by workers, as seen
recently with the Body Shop’s employees facing probable layoffs while under the
management of a private equity firm. Water systems, care homes and chain stores
are all transformed into assets to be squeezed of their value.
Even the
supposed beneficiaries of this system, such as my grandmother, enjoy quite
muted gains from this ownership arrangement. The average Omers pensioner
receives 28,040 Canadian dollars (£16,348) a year, not nearly enough to afford
the cost of a bed in a long-term care home – another asset increasingly
acquired by investment funds. Care for my grandmother’s complex health needs,
resulting from a lifelong physical disability, would require her to pay $96,000
(£55,970) a year in a private facility. This means that my mother has become
her full-time carer while she waits up to two and a half years for a bed to
become available in a public nursing home.
By far the
largest winners in this whole arrangement are the executives at the helm of
investment firms that reap massive profits from these business practices. In
2022, the Omers CEO, Blake Hutcheson, made the equivalent of £3m. Hutcheson’s
earnings pale in comparison to those of the CEO of Macquarie, an Australian
asset manager that sold its share in Thames Water to Omers. The chief executive
took home a whopping 30m Australian dollars (£15.5m) last year alone. These
extraordinary figures are a severe indictment of a truly ludicrous system.
The
solution, rather than tinkering with the ownership structure or again trying to
regulate a privatised industry, is to ultimately end the exploitation of our
public goods. England must follow the lead of the rest of the world – and bring
water back into public ownership. Water systems act as a natural monopoly,
meaning there is little to be gained in terms of “competitive innovation”
through privatisation. Returning Thames Water to public ownership would mean
that profits would no longer seep out through shareholder payouts, but would
instead be reinvested back into the system by lowering water bills, upgrading
crumbling infrastructure or funding future research and development. Public
ownership of water companies could plug the leaks in the system, physical and
financial.
Adam
Almeida is a senior data analyst at the thinktank Common Wealth
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