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13 June 2012updated 08 Sep 2021 1:42pm

Private companies are still acting in the public’s interest

Private ownership of the water industry has helped to deliver better outcomes for customers.

By Michael Roberts

Two things are not in doubt in the current debate about the future of water. Water companies need constantly to improve, to meet the challenges posed by climate change and a growing population; and they must meet the highest standards of behaviour rightly expected of such companies.

More questionable as a response to these challenges, however, is the proposal recently published by the Labour Party leadership to put English companies into public ownership. There are three reasons why this needs to be handled with extreme care. First, contrary to Labour’s assertions, England’s private companies are actually doing many things well. On the back of £150bn of investment in improvements since 1989, around 90 per cent of customers are satisfied with the service they get and 86 per cent of the public say they trust their water company.

Further improvements are being proposed up to 2025, including the most ambitious leakage reduction programme in 20 years, £50bn of further investment and bills falling on average by more than 4 per cent in real terms – made possible through further efficiency gains and lower returns, in some cases, to investors and shareholders.

Second, the proposals leave unanswered some big questions. Where will the long-term investment needed to support the economy and improve the environment, which successive governments failed to make sufficiently available before 1989, be found? Given the funding pressures in healthcare and education, there has to be a concern that under public ownership, water would not be a high enough priority for government investment.

Nor is it clear how removing senior management experience and replacing independent regulation with government intervention is going to work in the best interests of customers, the environment and the nation as a whole.

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Third, supporters of renationalisation in England fail to credit how far the private sector model has not only changed, but continues to adapt.

For example, companies have sought the views of over five million customers in preparing the latest round of business plans – believed to be one of the biggest such exercise ever undertaken by an industry. And individual companies are bringing forward innovative ideas about how they give customers an even bigger say in how they are run.

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The sector has also seen increased competition with the opening up of the non-household market for water, and new companies are able to compete to supply housing developments. Competition will soon grow further with changes to the markets for sewage sludge and water resources.

Where the scope for competition is limited, there has been a move towards smarter oversight of companies. Ofwat has developed a more incentives-based approach to regulation, to encourage companies to strive harder in delivering for customers and communities.

The recent business plan responses to direction from Ofwat on issues such as dividend payments and executive pay, and proposals to introduce a public interest condition into company licences, are further examples of how the model is evolving in light of recent challenges.

And yet more is still possible, as private companies strive to do more in the public interest, whether by working with farmers through catchment management schemes or through public policy (such as better building regulations) to deliver better water and environmental outcomes.

In short, the English private sector model has achieved much, but it has plenty more to offer. Let’s focus on realising that potential.

Michael Roberts is chief executive at Water UK.

You can download the full Water UK report – “Charting the future of Britain’s water supply” – by following the link here.