Water Industry

Darren Jones Excerpts

Tuesday 22nd January 2019 Westminster Hall

[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.

[Darren Jones (Bristol North West) (Lab)]

Does my hon. Friend agree that this is an excellent opportunity to bring consumers into the conversation with businesses, in a way that mutualisation allows, so that we can learn from customers as well as talk about the ownership of utilities?

[Gareth Thomas]

My hon. Friend makes a good point. I will come on to how mutuals would allow customers to have a lot more say over—indeed, they would give them ownership of—the water services on which we all depend.

Turning to one specific company, Thames Water was owned for 11 years by a complicated string of holding companies and offshore businesses, all ultimately owned by Macquarie bank, receiving returns of between 15.5% and 19%. Research by the Financial Times suggests that between 2006 and 2016, Macquarie and its fellow investors paid themselves £1.6 billion in dividends, while Thames Water was loaded with £10.6 billion of debt and ran up a pension deficit of some £260 million.

Dividend, debt and pension deficit were not the only things to increase under Macquarie’s control of Thames Water; customer bills and complaints also soared. The only thing that went down during this period was customer satisfaction, which is now ranked 22nd out of 23 in the Consumer Council for Water league table.

--- Later in debate ---

[Darren Jones (Bristol North West) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for Harrow West (Gareth Thomas) on securing this important debate and on making the important distinction between co-operatives and mutualisation, and industries nationalised via the state. That distinction is often missed in these debates.

I will talk about the future of the water industry from the perspective of the fourth industrial revolution and the digitisation of our networks. On that basis, I declare my interests in relation to the various works I do in the technology sector, as set out in the Register of Members’ Financial Interests.

Last Friday, I met with the team at Bristol Water, which supplies drinking water to more than a million customers, including all of my constituents in Bristol North West. I had expected the meeting to be run of the mill, but I was somewhat surprised, because Bristol Water turned out to be far more advanced in its digitisation of the water network than many other water utility companies.

Many Members will know that British industry is lagging behind in the digitisation of our businesses, which is a priority if we are to unlock the productivity challenge in the British economy and help meet our climate change objectives. At Bristol Water, sensors have been installed across the entire network and big data analytics have been deployed. Those are new words for many sections of the water industry. In Bristol, we get our water from lakes and reservoirs around the Mendip hills and from the River Severn via the Gloucester and Sharpness canal. Water from the River Severn needs to be pumped into Bristol, which requires large amounts of energy. Water from the Mendips requires less energy due to gravity. Bringing together data on real-time energy prices with real-time water consumption requirements has allowed Bristol Water to build algorithms that decide when to pump water from where to where and at what time, helping to reduce over-pumping and generating significant savings on its electricity bill.

Those efficiency savings will allow Bristol Water, subject to Ofwat’s agreement, to pass on price reductions to Bristol Water customers, which I know many of my constituents will welcome. As we have heard from my hon. Friends, that is an unusual thing from a utility company in the past few years. I am sure Bristol Water itself would say that it is a new positive turn, as it was in something of a bother with Ofwat a few years ago for not being able to agree price rises. I welcome that positive U-turn from Bristol Water for my constituents.

In a very Bristol way, Bristol Water brought in sensors, big data analytics and algorithms through collaboration. It set up a start-up incubator in Bristol where, for example, a big data entrepreneur, Hackett Consulting, has been able to go from being a Bristol start-up of one to a scale-up business from the things it has learned at Bristol Water. It is now able to sell that as a service to other industries across the country.

Beyond the algorithms, sensors have been installed across the network, meaning that leakages can be dealt with more efficiently and accurately. Instead of waiting for someone to call up and say, “There has been a leak of water at the end of the street”, field engineers’ iPads bleep at them when there are leaks, and they know exactly where to go to try to fix them. That reduces the number of customers affected by the closing off of pipes and decreases the time it takes to fix the leak.

Reduced energy consumption and better management of leaks, alongside helping customers to reduce their water consumption, all make extremely valuable contributions to our climate change objectives. As a member of the Science and Technology Committee, I have been troubled to hear from Lord Deben, the chairman of the Climate Change Committee, about how far we are falling behind as a country in meeting our climate change objectives.

The Government must take the easy wins to ensure we get back on track to decarbonising our economy. Bristol Water’s approach seems to be an important and useful way to do that. I was therefore thrilled to hear about the work being undertaken in my constituency. I encourage the Government, Ofwat and other water companies to look at how we have digitised the network to improve efficiency and to contribute to decarbonising the economy in Bristol. I hope the Minister will tell the House how she is helping regulators and water companies to move in that important direction.