The Guardian view on the water industry: a return to public ownership should still be on the table

The Guardian

4 days ago

Labour could have chosen the public interest over the profit motive, as it set about its promised reorganisation of the water industry in England and Wales. Polling last year showed a higher level of support for publicly owned water companies than railways. Yet while train companies are being renationalised as contracts expire, ministers ruled out a reversal of 1989's water privatisation before they commissioned Sir Jon Cunliffe, a former central banker, to report on how they could improve this failing industry through tougher regulation.
This newspaper regrets that the question of ownership was taken off the table. Water is among the most precious of all natural resources and the pro‑market logic for the sell-off was bogus. In the absence of competition, regional monopolies were created and, in the decades since, businesses have enriched themselves while failing to fulfil their responsibilities. No other European government has followed suit in offloading vital infrastructure including pipes and reservoirs, and enabling investors to extract wealth by loading up balance sheets with debt.
Asking Sir Jon's commission to reconsider public ownership, alongside regulatory reform, would have offered more options. Growing pressure on the water supply, and increasing instability of hydrological cycles due to global heating, mean proper stewardship centred on human needs is more essential now than ever. It remains likely that Thames Water will end up in special administration due to its vast debt – despite this scenario having been left out of the commission's scope. The Common Wealth thinktank has proposed this as a stepping stone to long-term public control.
Within the terms offered, Sir Jon has done a thorough piece of work. If they are accepted by ministers and work in the way he intends – and these are big ifs – his 88 recommendations ought to bring a shocking period of mismanagement to an end. But they probably won't prevent another from beginning. Not all of England and Wales's 11 regional water companies have the disgraceful records of Thames and Southern. The approach to pollution of these two businesses, combined with their aggressive financing structures, have undermined public confidence more deeply than all the rest. But tougher regulation is clearly overdue.
The supervisory approach proposed, modelled on financial regulation, would be a significant improvement provided that the right people, including engineers, are put in charge. Rather than conduct statistical tick-box exercises, this new regulator should aim for an overview. Bringing under one new roof the various regulatory functions – including those carried out in the Department for Environment, Food and Rural Affairs, and by the little-known Drinking Water Inspectorate, as well as Ofwat – makes obvious sense.
The rollout of smart meters is also a good proposal, provided that a social tariff is created for low-income households. An ombudsman ought to make it easier to seek redress when local services fail. It is right to highlight the need for a longer-term approach to water policy too. It remains to be seen which of these ideas will be taken forward. Businesses in multiple sectors are experts at running rings around regulators. Making water companies value the public interest more highly, relative to private profit, will be an ongoing struggle. Without structural reform, the cycle of regulatory failure and corporate evasion remains all too likely.