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New Labour would have already nationalised Thames Water

The example of Railtrack should remind us that even business-friendly governments aren’t always averse to public ownership.

By Matthew Topham

An essential public service teeters on the edge of collapse. Mired in debt, caught up in scandal, and definitely too big to fail – many believe it is only a matter of time before the government steps in. The year could be 2001 or it could be 2024. It could be Network Rail’s privatised predecessor, Railtrack, or the company that provides water to a quarter of the UK population, Thames Water.

Much of the commentary around Thames Water’s mounting difficulties has reached for the recent comparison of the collapsed energy supplier, Bulb. Bulb was not taken into public ownership, but allowed to go into administration in the wake of the energy crisis in 2022, with customers transferred on to new tariffs managed by alternate providers. But for those interested in protecting households, the environment and the public purse, New Labour’s handling of Railtrack would be a more instructive case study.

Britain’s rail infrastructure – including the tracks, stations and signals – was privatised in 1996. Over the next five years, a for-profit company, Railtrack, gained control of the infrastructure, while other companies would run the train services and manage the rolling stock. During that time, there were several high-profile accidents, including the fatal Hatfield crash in 2000, which played a key part in the unravelling of the privatised infrastructure network. Railtrack also built-up debts of around £8bn by 2003.

On 7 October 2001, the then transport secretary Stephen Byers petitioned the High Court to put Railtrack into special administration, with the purpose of transferring it to a new owner. New Labour played a canny move in its indicated preference for the new owner, stating from the outset it would create a “new private company” to bid for the transfer. However, it was a strange private company: one “without shareholders”. Network Rail was backed by government finance and took over operations just under a year after the crisis began.

Despite the private sector framing, New Labour knew what it was doing. A debate led by the Conservatives alleged they were using the process as a “means of re-acquiring the company at no cost to the government but at the expense of the shareholders”.

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In 2014, a new process for assessing “government control” led the Office for National Statistics to reclassify Network Rail as a public-sector company, confirming the open secret: New Labour had quietly renationalised an essential service. Not only that, it also set a precedent for prioritising public finances over private capital, paying around a quarter of the price shareholders suggested, a decision supported in the courts.

In contrast, today’s government has stacked the equivalent emergency water legislation in favour of, not the public, but existing shareholders. According to law firms, the previous purpose of special administration was, as with Railtrack, to transfer the operation and infrastructure to a new owner – in other words, to put a competent pair of hands back at the pump. However, new rules introduced at the start of this year mean that if the court order is on the grounds of insolvency, the primary purpose is to “rescue the company as a going concern”, leaving the existing owners in place. Lawyers suggest this allows them to “restructure their debts”, presumably with government support.

Hope is not lost. Unlike with Railtrack, a special administration can also happen if water companies fail to perform their duties. In that scenario, transfer to a competent owner remains the default option.

Last September, a poll of 6,000 adults showed 56 per cent will take sewage into account in how they vote in the general election. With constant news coverage of raw sewage spills, the frequency of which doubled in 2023, and with the Thames Water CEO lobbying for higher dividends and bills, the importance of water policies is only increasing.

So what should a responsible Labour government do with Thames Water? They could do worse than take their cue from New Labour, which said in its application to suspend shareholder control of Railtrack that they were “not prepared to fund the poor performance of individual companies”.

Gordon Brown drew a similar line in 2022, calling for temporary public ownership of energy suppliers who could not deliver fair bills for consumers. Thames Water has applied to raise bills by 40 per cent, effectively a bid to get consumers to pay again for the infrastructure the company has already been paid to build. A decision from the regulator is due in June.

As a first step, Labour must stand up for all bill-payers and prevent the buck being passed to the quarter of taxpayers who have no choice but to pay Thames Water. Unlike electricity or gas, no competition exists in the sector, with consumers unable to simply switch providers.

This is not just about justice. It’s about ending sewage pollution at the cheapest cost to the public. A Thames Water and former Water Services Regulation Authority (Ofwat) executive, Cathryn Ross, admitted to parliament that customers are the industry’s ultimate funder. Private borrowing markets are a form of profit extraction from us as bill-payers. Repositioning existing and future debts on public terms would lower the costs significantly, as would ending dividend payments. That is why if England had invested at the same rate as the publicly owned Scottish Water, we would have seen an extra £28bn to invest in water infrastructure.

Labour should also argue for Thames Water to be taken into special administration on performance grounds. The shadow minister for environmental quality Emma Hardy has already said in the House of Commons that if this action is not taken the public “could be left wondering what it would possibly take for a licence to be removed”.

The case of Thames Water must be used to draw a line in the sand. It is an opportunity to show that you cannot pay out £7bn in dividends, build a debt mountain of over £15bn, fail to build a single new reservoir, release sewage for millions of hours, and be allowed to stay in post.

If we are to judge by their treatment of the railed Railtrack operation early in their second term, even the business-friendly, Third Way reformers in New Labour would have already ended this scandal and have set about bringing Thames Water into public hands.

[Read more: Why UK water companies failed]

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