By Mike Kennard
Everybody knows that the private sector is much more efficient than the creaky old bureaucratic nationalised industries don’t they? The Thatcherite promise was that selling off publicly owned utilities and industries would lead to an injection of capital and bringing them up-to-date, with lower prices; millions of people would own shares and everybody would benefit. That, of course, was a lie.
The companies were supposed to be overseen, in the public interest, by statutory regulators, but in fact, in all cases, the regulators have favoured the financial interests of the providers, and there has often been a revolving door between them and senior management.
The truth is that privatisation was a scam designed to transfer public wealth into private hands, that shares were quickly bought up by financial institutions which plundered the assets and loaded the industries with debt, and that British consumers pay some of the highest prices in the developed world for energy, rail travel and water.
The water industry is probably the worst example of this. It is true that huge investment was needed to replace outdated, often Victorian, water and sewage infrastructure. To allow the companies to do this, the Tory government wrote off all outstanding debt, selling off the companies, debt-free, in 1989 in order to attract investment.
Most of the shares were bought by City institutions, and the small number of private shares quickly fell into their hands. This led to an orgy of speculative trading, with predators like Australia’s Macquarie Bank diving in, borrowing hugely against the assets, then running off with massive profits. The promised investment never materialised.
Millions of gallons of clean water are lost through leakage from old pipework. Not a single new reservoir has been built despite increasing climate instability, and England’s once clean waterways are now all polluted with sewage, farm run-off and industrial waste. And between 1989 and 2022, the water companies paid out £66billion in dividends to shareholders!
Financial wreck
The star of this s***show is Thames Water, the biggest of the water companies, serving millions of homes in London and Southern England. Through a staggering combination of incompetence, asset stripping and alleged outright corruption, it has made a monopoly supplier of a commodity essential for life into a financial wreck, laden with increasing debts and unable to continue without further support. This has resulted in an ever-deepening crisis for the company.
Occasionally a situation arises where the regulator, in this case Ofwat, has to act. Grants and permitted price increases for investment in environmental improvement were diverted to pay executive bonuses and dividends, while more than 100 schemes due to be completed between 2020 and 2025 have not materialised. Last month Ofwat fined Thames Water £127.7 million for its failure to control sewage outflows into waterways.
This just adds to the misery of the shareholders. Kimble Water Holdings, Thames Water’s holding company, has £18 billion of debt, with interest payments of £190 million in April, and it is desperate to sell. In repeated financial bail-out appeals, it has been looking for £750 million from shareholders, but having creamed off what they can, the institutional shareholders are not willing to pay.
A rescue bid from US private equity firm KKR was withdrawn, citing regulatory concerns. This left a consortium of bondholders owning £13 million of Thames debt as the only possible saviours. In an astonishing act of chutzpah, they have placed an incredible condition on the deal – that Thames should be given immunity from regulatory fines for environmental breaches, infrastructure failures and misallocation of funds.
That they have the nerve to suggest this stems in part from the Labour government’s complete refusal to consider nationalisation, even though opinion polls show that a majority of people favour this – even the Financial Times and Nigel Farage are onside!
Why pay compensation at all?
The reason given is the cost – a study suggested that it would cost £90 billion to take back the water companies. However, this study has been challenged as a worst case scenario, and another study suggested that owing to the debt mountains and misapplied grants the compensation figure could be as low as £4.8 billion. The question arises, why pay compensation at all? The fat cats have had 39 years of creaming off profits while allowing the infrastructure to decay, causing immense damage to our environment.
The government commissioned a report into the industry and its regulation from the Independent Water Commission, headed by former banker Sir Jon Cunliffe, but they specifically excluded renationalisation from its terms of reference. The right wing of the Labour Party is pathologically opposed to anything smacking of socialism and celebrates Tony Blair’s removal of the old Clause 4 from the party constitution, which committed the party to social ownership.
This is in spite of England being one of the very few developed countries with a private water supply. The Cunliffe Report forced the government to act, by imposing a ban on the excessive and unwarranted bonuses paid to the top executives. In December, Ofwat had blocked 3 companies from paying bonuses to their chief executives – Thames’s boss defended the £770 million payout to senior staff, saying that it would be necessary to retain the best talent!
The state of the water industry in general, and Thames Water in particular, has shone a light on the nature of the capitalist system. No longer a dynamic force developing society, it has become bloated and parasitic. The Labour Party must bring in, as a minimum, a programme of renationalising the state assets sold off by Thatcher.
This should not be under the old managerial system of previous nationalisation. Anyone who watched the recent documentary on Thames Water will have seen the dedication of the workforce, who, like the consumers, have been betrayed by the handing over of a vital resource to finance capital, which has no loyalty to anything but profit.
Democratic nationalisation would have workers’ involvement at every level, including top management, and the community and consumers must have their representation too. Problems could be identified sooner and practical solutions found, making the industry more efficient. And the benefits will flow to the community, not to accounts in offshore tax haven.
