Thames Water in crisis and the water industry more generally

[PsychoMouse]

So if the UN decided to declare that the right to food was a fundamental human right, would you then object to private companies manufacturing and supplying food? (Since in a previous post you objected to private companies delivering water on the sole grounds that water is a 'fundamental human right').

(As an aside, I think this is getting legalistic. It's perfectly obvious that food is just as essential to human life as water. So if the UN has declared one a fundamental right, but not the other, that's just inconsistent and suggests to me that their ideas of fundamental rights don't quite accord with reality).

In an ideal world (for me) the UK would be fully sustainable and food would be sold at break even point. What’s not to like about that even though it’s obviously completely infeasible. Of course I’m being incredibly idealistic.

Water on the other hand could easily be taken over by the state and run at break even point.

There are zero plus points for having a private company run regional water monopolies for profit.

Every way you look at it it’s worse for the consumer; there is no competition to incentivise price suppression or drive product/supply quality.

The sheer amount of wastage which is going unpunished is not good either but that’s a different discussion.

 

[nlogax]

No qualms with private companies running utilities and I buy the overall innovation + competition arguments - though it's hard to see how water companies can 'compete' with anyone. What is really objectionable is the increasing outflow of cash to shareholders. For essential household utility companies it's akin to asset stripping and should be stopped.

 

[edwin_m]

Relevant article from the BBC, noting that the regulator appears to have been ignoring the way money has been drained from Thames into the former parent company. One drain they did manage to get working well...

Water should be a simple business - why isn't it?

What has gone so badly wrong in the water industry?

www.bbc.co.uk

The temptation for the government to act aggressively with shareholders may exist. Some tightening of the rules on dividends, with a link to environmental performance, occurred in the recent Environment Act.
But this government, or even a possible Labour government, are not just relying on the pension funds and international sovereign wealth investors to fund water infrastructure, but also energy, net zero, and housing.
It is exactly the same investors who raised eyebrows in the aftermath of the mini-budget, and three prime ministers and four chancellors in one year. This may explain some of the tiptoeing. The Labour leadership too is resisting pressure from unions on water industry nationalisation.

 

[duncanp]

Relevant article from the BBC, noting that the regulator appears to have been ignoring the way money has been drained from Thames into the former parent company. One drain they did manage to get working well...

Water should be a simple business - why isn't it?

What has gone so badly wrong in the water industry?

www.bbc.co.uk

This is one issue that those who would nationalise water, the railways.. etc. tend to sweep under the carpet.

If a company is publicly owned, then the money to invest in infrastructure improvements has to come from taxpayers rather than shareholders, and that money has to compete with other demands on the public purse, such as more money for the NHS, state pension triple lock..etc.

At a time when public finances are stretched, it would be easy for a government of any political persuasion to forgo investment in new sewers and repairing leaks in favour of something more immediate, such as a tax cut (esepcially when an election is looming)

 

[E27007]

As a domestic user of Thames Water, my water bills (not metered) are low compared to those paid by my work colleagues who are , customers of other water companies, perhaps Thames Water are undercharging

 

[nlogax]

As a domestic user of Thames Water, my water bills (not metered) are low compared to those paid by my work colleagues who are , customers of other water companies, perhaps Thames Water are undercharging

Are you comparing like to like, ie unmetered across different companies? Your bills might be low but I paid hundreds a year with Thames Water for unmetered used and saved a fortune when moving to a metered setup.

 

[jackot]

My issue with the privatisation of something as vital and sensitive as water and sewage is that by making the business a for-profit enterprise with the goal of appeasing shareholders financially, it is inevitable that some companies will cut corners to save cost at the expense of the environment and try to get around regulation.

It should be obvious that something is wrong with the overall system when it is cheaper for a company to discharge raw sewage into waterways and avoid upgrading infrastructure - and even get fined for it (seen with Thames Water and Southern Water) - than to do the job properly in my view, as frankly there is minimal incentive to 'do the right thing' when it is more expensive for a private business, and thus they will likely avoid it as much as they can to the detriment of others.

How on earth Thames Water have managed to yield billion-pound revenue figures year-on-year, reinvest minimal profits back into improving the infrastructure they operate, and yet somehow still manage to rack up £14bn in debt is nothing short of deplorable - billions have been taken out of the business to pay vast dividends and 'reward' shareholders, yet at the end of it all we are left with a hugely indebted company and infrastructure not capable of handling of treating all our sewage at the detriment of the environment. What I find especially concerning is how predictable their cashflow and earnings should be - people are always going to need water, and thus there will always be a relatively predictable demand for it and thus fairly predictable revenue, or at least a lot more so than 95% of businesses.

I get nationalisation certainly isn't perfect and definitely isn't always the solution, but it is clear Thames Water have have managed to accumulate these huge debts by putting shareholders above the environment, the public and even their health of the business.

 

[Pete_uk]

Let TW go bankrupt, buy it's assets minus debts and shareholders for £1 and go from there.

 

[brad465]

To those opposed to nationalisation of water companies, what is your proposed alternative? I really cannot see how the current situation can be justified, unless you are one of executives/shareholders who has raked it in from a Thames Water-style management scenario. I certainly think there's a strong case for making what's happened illegal and jailing any executives who don't don't comply in future, just like how we should have jailed bankers who caused the GFC.

 

[DynamicSpirit]

In an ideal world (for me) the UK would be fully sustainable and food would be sold at break even point.

Would this ideal world also include having all the employees volunteer their time and just be paid any expenses, nothing more, so that they too merely 'break even'? After all, if the idea is that no one should be able to make a profit by providing food...

What’s not to like about that even though it’s obviously completely infeasible. Of course I’m being incredibly idealistic.

I think what's not to like is that if no-one can make a profit, then there's almost no incentive for anyone to innovate or improve technology etc. And that basically means you've just suppressed the ongoing innovation that that has lead to food being so plentiful and cheap today (yes, even after the inflation of the last 2 years, by historical standards and measured against living standards, food remains incredibly cheap). You might find that a month after you've removed profits, food is cheaper than before, but I'll practically guarantee you that 20 years later, food would be way more expensive (and probably, poorer quality) than if you'd just allowed manufacturers and distributors to carry on making profits.

 

[najaB]

Big difference there is that food production is not mandated by government. Food in the UK is not sold to us by regional monopolies.

Also, it's a lot easier to grow your own food than it is to grow your own water.

 

[Busaholic]

If you're looking for a scapegoat it's very hard to avoid the asset stripping of previous owner Macquarries Bank of Australia between 2006 and 2017. I first remember hearing their name when they bought out the London operations of Stagecoach Buses in 2006, an expedition that didn't go well. They'll get away scot free of course, because that is the way of the world now. Fergal Sharkey has most of the solutions, but will be ignored as usual: if Starmer had either gumph or principles he'd adopt his policies rightaway, they'd be vote winners, mostly because it wouldn't be the poor public paying through the nose.

 

[brad465]

I think what's not to like is that if no-one can make a profit, then there's almost no incentive for anyone to innovate or improve technology etc. And that basically means you've just suppressed the ongoing innovation that that has lead to food being so plentiful and cheap today (yes, even after the inflation of the last 2 years, by historical standards and measured against living standards, food remains incredibly cheap). You might find that a month after you've removed profits, food is cheaper than before, but I'll practically guarantee you that 20 years later, food would be way more expensive (and probably, poorer quality) than if you'd just allowed manufacturers and distributors to carry on making profits.

Just because one system encourages something, in this case innovation, doesn't mean it will happen, and likewise just because one system maybe best for something, doesn't mean that something doesn't happen under other systems. To take examples, British Rail innovated the HST that far exceeded expectations, as evidenced by its lifespan and the struggles its successors seem to be having with quality (granted BR had many failures as well, but then who doesn't). Also the whole free market innovation logic is not driven by profits as much as it is by competition, and when you look at the cartels/monopolies setup that allow profits with little to no competition, there are little to no incentives for innovation. In the case of the water industry, if they were encouraged/forced to innovate, the scandals around sewage dumping and billions of litres lost to leaks would be nowhere near as prevalent as they currently are.

 

[Flying Snail]

No qualms with private companies running utilities and I buy the overall innovation + competition arguments - though it's hard to see how water companies can 'compete' with anyone. What is really objectionable is the increasing outflow of cash to shareholders. For essential household utility companies it's akin to asset stripping and should be stopped.

Those two statements just ignore the reality of what private companies are. Their only purpose is to provide the highest possible financial return to their investors.

It is akin to saying you have no qualms hiring a fox to run security for your henhouse but you object to the foxes slaughtering the hens.

 

[tomuk]

Just because one system encourages something, in this case innovation, doesn't mean it will happen, and likewise just because one system maybe best for something, doesn't mean that something doesn't happen under other systems. To take examples, British Rail innovated the HST that far exceeded expectations, as evidenced by its lifespan and the struggles its successors seem to be having with quality (granted BR had many failures as well, but then who doesn't). Also the whole free market innovation logic is not driven by profits as much as it is by competition, and when you look at the cartels/monopolies setup that allow profits with little to no competition, there are little to no incentives for innovation. In the case of the water industry, if they were encouraged/forced to innovate, the scandals around sewage dumping and billions of litres lost to leaks would be nowhere near as prevalent as they currently are.

You do realise that they are a regulated industry by OFWAT who control how much they can charge an how much they can invest in fixing the pipes and sewers.

== Doublepost prevention - post automatically merged: 29 Jun 2023 ==

Those two statements just ignore the reality of what private companies are. Their only purpose is to provide the highest possible financial return to their investors.

It is akin to saying you have no qualms hiring a fox to run security for your henhouse but you object to the foxes slaughtering the hens.

If the fox eats the hens they wouldn't get paid would they

 

[DynamicSpirit]

To those opposed to nationalisation of water companies, what is your proposed alternative? I really cannot see how the current situation can be justified, unless you are one of executives/shareholders who has raked it in from a Thames Water-style management scenario. I certainly think there's a strong case for making what's happened illegal and jailing any executives who don't don't comply in future, just like how we should have jailed bankers who caused the GFC.

Saying that the current system cannot be justified isn't quite the same thing as saying that a particular alternative (nationalization) is definitely the best thing.

Clearly there's something wrong at the moment - the troubles Thames Water are in amply demonstrate that. But I'm afraid I'm suspicious about the arguments for nationalization because it seems to me very habitual that many people blindly throw about wild accusations of private companies unethically profiteering and failing to invest and unreasonably putting up prices without really presenting substantial evidence - and these accusations have likely originated with people/groups who have an ideological belief in nationalization rather than any serious understanding of the water industry. Maybe the water companies have behaved unethically, maybe they haven't. But if you want to claim they have, then I want to see solid evidence, not just wild accusations. And even if you can show unethical/unreasonable behaviour by Thames Water/other companies, then you need to provide some solid reasoning for why a nationalized company is the best answer, as opposed to - say - better regulation, or a different private structure. Bear in mind that one of the reasons why they were privatised in the first place was a perception at the time that the then nationalized system was performing badly and was unable to provide the investment required to bring water supplies up to a good standard.

 

[Magdalia]

In the privatised water era the UK has had a growing population.

Yet in the whole of the privatisation era not one new reservoir has been built.

Go figure!

 

[Mcr Warrior]

In the privatised water era the UK has had a growing population.

Yet in the whole of the privatisation era not one new reservoir has been built.

Go figure!

Wasn't the Carsington storage reservoir in Derbyshire only finally opened a few years after Severn Trent plc had been incorporated / privatised, the latter in July 1989?

 

[JamesT]

In the privatised water era the UK has had a growing population.

Yet in the whole of the privatisation era not one new reservoir has been built.

Go figure!

Thames Water have been trying to build a new reservoir near Abingdon for over 15 years. (E.g. http://news.bbc.co.uk/1/hi/england/5343646.stm ) But the NIMBYs always get it stopped.

 

[yorksrob]

Water company privatisation is the most half baked sell off of them all.

How this lunatic fringe policy was ever allowed through is the mystery.

== Doublepost prevention - post automatically merged: 30 Jun 2023 ==

No qualms with private companies running utilities and I buy the overall innovation + competition arguments - though it's hard to see how water companies can 'compete' with anyone. What is really objectionable is the increasing outflow of cash to shareholders. For essential household utility companies it's akin to asset stripping and should be stopped.

The outflow of cash to shareholders is the whole point of utilities being run by private companies.

 

[nlogax]

The outflow of cash to shareholders is the whole point of utilities being run by private companies.

The point is carefully judge to what extent those shareholders should profit. Privatisation has come in many guises in a spectrum of good to downright awful in terms of benefit to the companies and industry involved. Airlines and telcos sit towards the good, judging by opinions here rail tends to sit somewhere in the middle verging towards negative and water is an absolute basket case. Thames Water's experience suggests there don't seem to be any guardrails to prevent Bad Privatisation sucking the investment well dry.

 

[DynamicSpirit]

Water company privatisation is the most half baked sell off of them all.

How this lunatic fringe policy was ever allowed through is the mystery.

Wow, you've totally blown me away with your carefully reasoned logic there. Such a convincing explanation of why keeping the water companies nationalised would have given better results. Consider me totally converted.

 

[PsychoMouse]

Wow, you've totally blown me away with your carefully reasoned logic there. Such a convincing explanation of why keeping the water companies nationalised would have given better results. Consider me totally converted.

Tbf I don't see you putting up any arguments yourself about why privatisation is the best thing for the UK's water industry, only picking holes in everything else everybody says.

 

[nw1]

Water company privatisation is the most half baked sell off of them all.

How this lunatic fringe policy was ever allowed through is the mystery.

Not surprising considering the person responsible was the dogmatist that was Thatcher.

Also introduced in 1989 by the same government: the even more unpopular poll tax. "Everyone should pay the same local tax irrespective of income". And the Tories wonder why many of us developed a lifelong dislike of them in precisely this era?

Given the country as a whole was, according to opinion polls and my own personal memories, moving leftwards in this era, it's quite notable how the government was so into its own dogma that it was apparently refusing to recognise this.

 

[nlogax]

Also introduced in 1989 by the same government: the even more unpopular poll tax. "Everyone should pay the same local tax irrespective of income". And the Tories wonder why many of us developed a lifelong dislike of them in precisely this era?

At least that insanity spurred a positive effect the following year.

 

[yorksrob]

Wow, you've totally blown me away with your carefully reasoned logic there. Such a convincing explanation of why keeping the water companies nationalised would have given better results. Consider me totally converted.

Well, it's not as though there was any logic provided to justify the privatisation process, other than that the private sector would somehow magically put in more money than it took out !

== Doublepost prevention - post automatically merged: 30 Jun 2023 ==

Not surprising considering the person responsible was the dogmatist that was Thatcher.

Also introduced in 1989 by the same government: the even more unpopular poll tax. "Everyone should pay the same local tax irrespective of income". And the Tories wonder why many of us developed a lifelong dislike of them in precisely this era?

Given the country as a whole was, according to opinion polls and my own personal memories, moving leftwards in this era, it's quite notable how the government was so into its own dogma that it was apparently refusing to recognise this.

Yes, a few years later it was noticeable how controversial rail privatisation was at the time, although that was less of a bad idea than water.

 

[al78]

That doesn't seem unreasonable to me! Of course the irony is that most people are probably better off on meters than they are on the old rates system. You'd need to be running the shower, washing machine and flushing the toilet dozens of times a day in many cases to end up worse off. Certainly I've never heard of anyone being worse off after getting a meter fitted (though I'm sure there are edge cases where someone was!).

Just a quick anecdote relating to this. When I moved house it was not on a meter and I arranged to have my supply metered. When it had been done, my water bills skyrocketed to the point where it was just not feasible I was using that much water (I knew my base line consumption from my previous metered property). I got in touch with the water company and they couldn't find any leaks and eventually they sent someone round to test the meter by checking it was spinning when I ran a tap. They discovered it was spinning when I was not running water and the meter bore no relation to whether or not I turned a tap on. Further investigation revealed they had accidentally hooked up my meter to the neighbour's supply, so I was paying for water consumption for the family of four next door rather than just me (they were not supposed to be on a meter).

 

[DynamicSpirit]

Tbf I don't see you putting up any arguments yourself about why privatisation is the best thing for the UK's water industry, only picking holes in everything else everybody says.

I haven't offered any arguments for any particular structure the water industry should have because I don't know that the best structure for the industry would be. You might be surprised to learn that I'm actually open to the possibility that it might be private or might be public - if someone could convince me by using an evidence-based reasoned argument. However, not knowing what the best solution is doesn't mean I can't spot (and call out) fallacious arguments being put forward for nationalisation. Unfortunately it seems to me that most of the arguments that people have put for public ownership on this thread have been based on a prejudice against private companies, or an incorrect assumption that private companies are necessarily malicious, or just a wild assumption without evidence that something nationalized would necessarily be better. (@ainsworth74 is the most notable exception who does seem to be making more reasoned points against privatisation)

 

[al78]

So if the UN decided to declare that the right to food was a fundamental human right, would you then object to private companies manufacturing and supplying food? (Since in a previous post you objected to private companies delivering water on the sole grounds that water is a 'fundamental human right').

(As an aside, I think this is getting legalistic. It's perfectly obvious that food is just as essential to human life as water. So if the UN has declared one a fundamental right, but not the other, that's just inconsistent and suggests to me that their ideas of fundamental rights don't quite accord with reality).

Universal declaration of human rights

"Article 25: We all have the right to enough food, clothing, housing and healthcare for ourselves and our families. We should have access to support if we are out of work, ill, elderly, disabled, widowed, or can’t earn a living for reasons outside of our control. An expectant mother and her baby should both receive extra care and support. All children should have the same rights when they are born."

 

[DynamicSpirit]

Well, it's not as though there was any logic provided to justify the privatisation process, other than that the private sector would somehow magically put in more money than it took out !

I believe the logic behind the privatisation process was that private companies, motivated as they are by the desire to maximise profits and therefore become efficient, are more likely than nationalised companies to deliver things more effectively. That logic certainly seemed at the time to be backed up by long experience of how nationalized and private companies in the UK and around the World tended to perform, and there are sound reasons from economic theory to believe it too. There was also an issue that water provision needed a lot of investment and it was felt that the state didn't have the spare cash to pay for it, but the private sector would be able to. You may or may not agree with that logic but it's not correct to say there was no logic behind the process.

It's easy to forget today, with all the current complaints about privatised companies, just how how badly their nationalized equivalents were perceived as doing 30-40 years ago. It wasn't a land of milk and honey where the Government was privatising perfectly good stuff just for the sake of it.

Universal declaration of human rights

"Article 25: We all have the right to enough food, clothing, housing and healthcare for ourselves and our families. We should have access to support if we are out of work, ill, elderly, disabled, widowed, or can’t earn a living for reasons outside of our control. An expectant mother and her baby should both receive extra care and support. All children should have the same rights when they are born."

Ah, thanks for the info. My mistake there. I just assumed from the previous discussion that the UN hadn't declared food a fundamental right. Should've checked first