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6 July 2023

Public ownership of water is the only realistic option

Profit-hungry companies will never share the costs of adapting to climate change fairly.

By James Meadway

The potential collapse of Thames Water demonstrates just how poor our privatised water system is at performing its most basic functions. And as climate change intensifies, these failures will only worsen. Only public ownership can ensure the fair and efficient management of increasingly constrained water resources.

Since 1989 the water companies have paid out £72bn in dividends while assuming £60bn of extra debt – and even though £15bn of debt was written off by the Conservative government at the time of privatisation. Investment has fallen by 15 per cent each decade since the 1990s.

There’s little that can be said in defence of the current system and a leaked email from the Severn Trent Water boss Liv Garfield trying to fend off nationalisation suggests that even the industry has given up trying. (You can’t polish a turd, although you can flood half the rivers in the country with raw sewage.)

Instead of defending the status quo, Garfield urges firms to “repurpose” themselves as “social purpose companies… that remain privately owned, who absolutely can (and should) make a profit, but ones that also have a special duty to take a long-term view”. An “off-the-record” roundtable with the Observer columnist Will Hutton, a long-standing supporter of “social purpose companies”, is to be held. With Labour’s leadership opposed to renationalisation but keen to (in Garfield’s words) “‘do something’ about the utilities” this appeared to be an opportune moment.

In his column, Hutton later made the case for a “capitalism with a different dynamic”, arguing for companies that could have a “common purpose” beyond a crude focus on maximising profit. Profit would still exist for owners, naturally, but would now be constrained by the need to put “citizen-customers first” and to meet “responsibilities to the environment”.

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In one respect, Hutton is right. Of course it’s possible to imagine a better form of capitalism than we currently have in Britain. We don’t need to emulate the early socialist Charles Fourier, who dreamed of seas of lemonade in the cornucopia of the future. Just being able to swim in boring old saltwater would be a start.

But the space for the socially responsible capitalism that Hutton has championed since the 1990s – most notably in his book The State We’re In – is being rapidly narrowed. Far from being an expensive distraction from green investment, as Hutton suggests, public ownership and control of water is becoming an essential component of it.

This is because the cost of droughts and floods is set to rise inexorably. One estimate from the LSE’s Grantham Institute suggests that flooding currently costs around £1.3bn a year but this could rise to £40bn by the end of this century. A three-month drought in 2050, as is increasingly likely, would cost around £35bn. Adaptation to these threats is expensive and, as a recent report by the Climate Change Committee found, Britain is far behind where it needs to be. 

The challenge here is that a regulatory structure intended to preserve some profit when costs are rising will mean pushing these costs and risks away from shareholders and towards the public sector. This is the standard model of “derisking”, as described by economist Daniela Gabor: socialise the losses, privatise the profits – a model familiar from the 2008 financial crisis.

Knowingly or not, Hutton’s proposals are a perfect cover for the water industry, which would very much like to transfer the expensive nuisance of actually dealing with water. Derisking its operations via new forms of “social partnership” could – as Garfield evidently spotted – work very much to shareholders’ advantage. The water industry knows what is ahead – it’s why there is now talk of a 40 per cent rise in bills to fund both the investment backlog and the rising cost of climate change.

But there is an alternative to privatised profits and socialised losses: examples of “remunicipalisation” of water in Europe show how this can be achieved without repeating the mistakes of the past.

Adaptation to the effects of climate change is becoming as important as mitigation. This requirement destroys conventional thinking about “fiscal responsibility”. The Office for Budget Responsibility itself estimates that without action on climate change, government debt will rise to 300 per cent of GDP by the end of the century. Investment now would reduce catastrophic future expenses.

Little covered in the British media, large protests have erupted in France over this year against the “megabassines” in the west of the country. This vast system of reservoirs, each one typically the size of around ten football pitches, is being constructed to ensure water-intensive farming can continue even as water becomes increasingly scarce. But prioritising agribusinesses means diverting water resources away from smaller farmers and local watercourses, with devastating effects on wildlife and biodiversity. This is “adaptation” to climate change, but an adaptation that is skewed hard towards the demand to maintain an existing model of agribusiness at the expense of wider society and nature.

Up to 30,000 people have protested at the sites, meeting violent repression from the French police, in scenes that the Swedish ecologist Andreas Malm has described as “an event of historic importance: the first social protests against adaptation to climate change”. It is a harbinger of the future. Meanwhile, our own “cost-of-living crisis” is increasingly driven by harvest failures and extreme weather shocks. It resembles a “cost-of-adaptation crisis”: a failure to adapt fairly to a changing world, which triggers new conflicts.

Far better to approach the crisis with some realism. “Social partnership” was a viable model in times of social calm and ecological stability. But those days are at an end.

[See also: “We need water companies that are fit for purpose”: the CEO of Ofwat on regulating England’s polluted rivers]

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