Water Industry

Daniel Zeichner Excerpts

Tuesday 22nd January 2019 Westminster Hall

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I beg to move,

That this House has considered the future of the water industry in England and Wales.

Customers and employees should be helped to take back control of the companies providing our water and taking away our sewage. The people of England should once again be front and centre of their water industry. Democratic, publicly owned businesses operating in the private sector, regulated with vigour by a more effective Ofwat is the Co-operative party’s vision of the future of the water industry. I am proud to chair that political party. I am grateful to the Backbench Business Committee for the opportunity to explore that agenda through this debate.

Nationwide, John Lewis, the Co-operative Group, the Royal London insurance company and NFU Mutual are just five successful examples of people-run businesses—mutuals—where profit is sought not to line the pockets of wealthy investors, but to reward customers and employees, and to invest in local communities. Such businesses are inspiration for reform of the water industry.

Margaret Thatcher’s decision 30 years ago to privatise our water industry has created an expensive, unaccountable and unfair system. No other country has a fully privatised system of water and sewage services with so little competition. The resulting monopoly businesses are overseen by a woefully weak water regulator. Unsurprisingly, the consumer voice in England carries little weight against the interests of distant investors, whose decisions have seen water bills rise by 40% above inflation since privatisation.

[Daniel Zeichner (Cambridge) (Lab)]

Does my hon. Friend agree that the rather poor practices of some water companies have led to widespread public disillusionment? When I worked for Unison a few years ago, an excellent report was published showing some remarkably creative accounting, which seemed to suggest that money was being diverted not to investment, but to shareholders.

[Gareth Thomas]

My hon. Friend and the trade union movement in general have pointed that out on a number of occasions. I will come on to one of the trade union movement’s particular campaign issues.

Water companies have become a desirable global financial commodity, bought and sold by big banks, international infrastructure investors, pensions and sovereign wealth funds. Since privatisation, as my hon. Friend just pointed out, dividend payments have been very high, at an average of £200 million a year per company, and £2 billion a year in total. Over the past 30 years, at least £48 billion has gone directly to shareholders.

Analysis by Greenwich University suggests that the more than 40% increase in household bills in that time was driven mainly by the need to finance growing interest payments on debt—a point that the trade union movement in particular has highlighted. That analysis shows that accelerating debt levels are the result of the high dividend payments paid by water companies to their shareholders, which exceeded the privatised companies’ cash balances in every year bar one since 1989. Indeed, it is striking that total payments to shareholders are very similar to the total outstanding debt burden of privatised water companies, with at least £48 billion in payments in the past 30 years and at least £51 billion in total debt.

The Leader of the Opposition and, in particular, the shadow Chancellor deserve considerable credit for highlighting the lower cost of water bills in Scotland, where Scottish Water is publicly owned. While bills in Scotland are 2% less in real terms than they were 18 years ago, English water bills increased by some 13% in real terms over the same period.

Privatisation has not meant more investment. Indeed, annual investment in water supply infrastructure was lower in 2018 than it was in 1990 and has fallen by about 10% in the past 10 years. All of the capital investment made since privatisation could have been covered using only the money generated by customer bills. Instead, much of the income generated by water bills appears to have been used to pay the interest on debt built up by the privately owned water companies, in turn to fund dividend payouts.

Despite similar levels of capital investment, we are now in a situation in which, according to research by the University of Greenwich, consumers in England are paying £2.3 billion a year more for their water and sewerage bills under the current privatised system than if the utility companies had remained in state ownership.

--- Later in debate ---

[Richard Benyon]

My hon. Friend is absolutely right to mention that project, which was initially developed around Dartmoor. It is an extraordinary scheme that is really working, and that I hope will become even more mainstream in the near future.

[Daniel Zeichner]

The right hon. Gentleman’s points are similar to those brought to my attention by Anglian Water, which services my region. I do not think that anyone disputes that good work is being done, but the unhappiness is with some of the extraordinarily labyrinthine financial arrangements that sit behind the companies. Does he agree that if that could be resolved, in many of the ways my hon. Friend the Member for Harrow West (Gareth Thomas) suggested, it would solve some of the dilemmas? No one is challenging the good work that is being done.

[Richard Benyon]

There has absolutely been bad practice. I have had my concerns about Thames Water in the past, but today the company has capped its dividend payments, is investing more in resilience and is doing a whole new range of different activities, and my concern is that we risk cutting off an enormous amount of infrastructure investment if we do not get this right. I think there is a way forward, and I will touch on it in a moment.

Compared with 30 years ago, customers are now five times less likely to suffer from supply interruptions, eight times less likely to suffer from sewer flooding and 100 times less likely to have low water pressure. The hon. Member for Harrow West talked about Welsh Water; he is right that people sometimes suggest that it is a mutualised organisation, when it is a private company. Welsh Water loses 121 litres per property in leakage, which is more than nearly every other water company. Its average combined water and sewage bill is £439, which is 8% higher than the average English and Welsh bill, at £405. It is higher than the bill in six English companies, and that is in a country where there is no shortage of water. I come from the Thames Water region and we are short of water there, but in Wales they are not so I cannot understand why the bills are so high. In Welsh Water, the average number of minutes lost due to supply interruptions is 43 minutes, which is about 400% higher than in most other companies, where fewer than 10 minutes are lost.

The picture is not universally wonderful, and there occasionally needs to be a bit of balance in the subject. Water companies have reduced leakage by a third since the 1990s. We are about to see an incredible increase in innovative methods of detecting leakage, and it is right that in the current price review round there is an enormous driver on those companies to crack down on it further.

On the environment, standards have dramatically risen, with the welcome return of wildlife to rivers that had been biologically dead since the industrial revolution. Otters rely on healthy rivers and were thought to be on the verge of being wiped out 30 years ago, yet they are now seen in every county in England.

The average domestic water bill is just over £1 a day—that is £1 a day to get all the water we need into the household, and all the sewage and waste water out. Although bills went up immediately after privatisation to help deal with decades of under-investment when the industry was owned and run by the Government, bills have stayed pretty much the same in real terms since 1994 after inflation, and are set to fall in real terms over the next few years. By 2025, bills will have fallen in real terms for a decade. The industry’s independent regulator Ofwat—which has just come in for some stick—has calculated that bills are £120 lower than they would have been if the combination of privatisation and tough independent regulation had not happened. Bills would have been £120 more per household if the industry had remained in public ownership.

On the subject of customer satisfaction, the hon. Member for Harrow West has said that people are terribly dissatisfied with their water companies. I went on the internet last night to look at what Ofwat, the Consumer Council for Water and individual water companies are saying, and customer satisfaction levels for water and sewerage services are around 90%. As politicians, would we not love to have a bit of that, particularly at the moment?