Hosepipe bans have concentrated the mind on the privatised monopolies’ decades-long failure to fix a leakage crisis. An industry sold off toward the end of Margaret Thatcher’s 1980s administration was meant to have delivered the change in water utilities demanded by decades of underinvestment; instead, in 2022, England’s regional monopolies routinely lose between a quarter and a fifth of the water in their mains through untended and unrepaired leaks. Meanwhile, the flow of human excrement into our rivers and coastlines remain routine occurrences.
After 30 years in which the privatised water industry has lost public confidence after often appearing more interested in its own returns than outcomes for customers, some hard truths are starting to hit home for well-paid company executives. The next few weeks could see a stand-off between water companies and their watchdog.
Some of the executives at the top of the water industry are paid £3 million a year for running what is a public utility. Those executives work for owners, many of which are overseas investors, that have benefited from a regulatory system that has allowed them to load up operating companies with debt, enabling them to use the income from customer bills as a cash box from which to take a stream of dividends.
These are operating companies that make little return to the public purse, using capital allowances to lower or eliminate their exposures to tax. They report into labyrinthine holding company structures, replete with subsidiaries sheltering in tax havens, whose opacity is such that even the performance data that is supposed to be open to the public is difficult to access.
Complicit, in many people’s eyes, has been a complacent regulator, Ofwat.
But that may be about to change.
David Black, the new chief executive of Ofwat, has started a consultation that raises serious questions over the financial resilience of the water companies and inter alia their stewardship by executives and owners. In what would be the most powerful intervention since privatisation, Black wants to modify companies’ licences “to require that dividend policies and dividends declared or paid should take account of service delivery for customers and the environment over time, current and future investment needs and financial resilience over the long term”.
The consultation says: “In recent reporting to us, many companies did not meet our expectations in explaining their dividend payments and/or policies.” To make it plainer, this was about “raising the bar”, Black said. “Our proposals . . . give us new powers to block dividends if a company is putting their financial stability at risk in making them.”
This Ofwat offensive has not come in a vacuum. Thames Water, England’s largest supplier is also its biggest miscreant, losing 24 per cent of its available water through leaks and found last year to have spent 68,000 hours discharging raw sewage into rivers. It attracts the most complaints per customer. In June, Ofwat forced its owners — Canadian and British pensions schemes and the investment arms of China and Abu Dhabi — to inject £500 million into the company, with the prospect of £1 billion more. Thames Water is banned from paying its owners dividends.
Last year Southern Water was bailed out by Macquarie, the Australian asset manager, in a move billed as a £1 billion investment to meet future supply constraints and environmental targets. In reality, after years of mismanagement, loaded up with debt and plundered by investors led by the asset management arms of JP Morgan and UBS, the investment banks, Southern was within days of being put into special administration by Ofwat and of being stripped of its licence.
Weeks earlier Southern had been found guilty of discharging human effluent into oyster beds off Whitstable, beaches along the English Channel and sailing havens of The Solent — and on an industrial scale. Southern, described by Ofwat as “financially vulnerable”, is also banned from paying dividends.
Water UK, the trade body for the operators, is all set for confrontation. “We do not recognise the concerns expressed in the discussion paper, which have led Ofwat to make a series of proposals for potential interventions,” it said. “For Ofwat to consider implementing measures along the lines consulted on would be an unprecedented step, not only in the water sector but across all regulated sectors.” It is calling on Ofwat to come up with “an overriding and compelling case underpinned by the strongest possible evidence” and has indicated that the issue could be heading to the courts.
The Consumer Council for Water says the priority in such great economic uncertainty should be customers and the one-in-ten of households that cannot afford their water bill.
A former senior industry executive, who preferred not to be identified, explained the frayed nexus between the companies and Ofwat thus: “Governance and leadership is for the companies, but bonuses and long-term incentive payments are a real issue. It is difficult to defend executive packages of £2 million. The companies have not sought to account for the integrity of such payments at a time of a loss of public confidence.
“On leakage, Ofwat demanded companies cut wastage drastically. There was a lot of huffing and puffing, but it was achieved quickly. You can say ‘well done Ofwat’, or you can say ‘Ofwat should have gone much harder and been more ambitious’. On pollution, the issue has fallen between Ofwat and the Environment Agency. Either the permits for discharges are too lax or the agency is not prosecuting hard enough. We have had a failure to monitor and a failure to rectify. It is as disgusting as it is shocking.” Ofwat has launched enforcement cases against Anglian, Northumbrian, South West, Thames, Wessex and Yorkshire Water.
Ultimately, the regulatory system has a fundamental flaw. Companies are on rolling 25 year-licences. Stripping an owner of a licence entails putting it into special administration, a battle in the courts, ministerial sanction and the ability to find an operator of last resort. As Ofwat itself says, this ultimate sanction “would be a major intervention”.
In an industry where ordinary executives get extraordinary pay, two big questions are being asked. Has privatisation failed? And is Ofwat doing its job?
We leak less water and the environment is cleaner than at privatisation. Access to capital markets has enabled that. In platitudes that seek to deflect its failings, the industry argues it is embarking on record levels of investment — but then what else should it be doing with all the money from our bills?
When Jeremy Corbyn put renationalisation of the industry at the top of Labour’s agenda, there were two fundamental questions. In an industry that had grown too big to fail, how could the taxpayer take on the high tens of billions of debt that the industry carries? And would a state-run business guarantee an improvement?
As for Ofwat, an executive in an adjacent industry said: “When a crime is committed, is it the fault of the criminal who perpetrated it, or is it the fault of the police? So it is in regulated industries. There will always be regulated companies who do not live up to the expected standards of public and corporate social responsibility. So it has to be the role of a well-resourced regulator to make sure they do.”
After only 30 years of inaction. Who said they were totally useless except as a sop to the public?
How many people have a choice when it comes to water supply? Cos I don’t it’s just a local monopoly.
Only because now we are seeing how serious the situation will become in the future. It was fine while they could still act as if the climate predictions were not reality, this summer has killed that facade and the regulator now wants to get its act in gear.
Ofwat have sat on their arses for 30 years and watched raw sewage regularly pumped into rivers and the ocean, and millions of litres of water lost each day to leaks.
This is the worst sort of bullshit grandstanding from another useless regulator. If they gave a shit, they would have been forcing water companies to upgrade drainage and supply, and we wouldn’t be in anywhere near such a bad spot today.
But much easier to turn a blind eye when you’re getting cushy dinners and taken out to swanky industry events. Throw out a quick ‘consultation’ with some nicely loaded questions, then sit back down on your hands and moan about how nothing can be done without destroying the water ‘industry’.
Ofwat are as complicit in the current mess as the water companies.
Oh no they might write a stongly worded letter oh heavens how will the water companies cope with such brutal tactics.
They’ve let them pump raw shit into rivers without so much as giving a fuck. They let them get away with losing as much water to leaks as they pump half the time. All the while allowing them to extract ludicrous profits that could have been better used to fix these fucking problems in the first place.
Fucking they will do shite all.
Honest question, has this been a single essential service Thatcher sold off for pennies that’s improved in private hands? If the answer is no, then why is she still worshipped by Tories when she caused irreparable damage to the country?
Who | How much | What they do | When
:–|–:|:–|:–
Ontario Municipal Employees Retirement System|31.777%|One of **Canada**’s largest pension plans, with C$105 billion of net assets and global experience managing essential infrastructure|2017-2018
Universities Superannuation Scheme|19.711%|A **UK** pension scheme for the academic staff of UK universities|2017, 2021
Infinity Investments SA|9.900%|A subsidiary of the **Abu Dhabi** Investment Authority and one of the world’s largest sovereign wealth funds|2011
British Columbia Investment Management Corporation|8.706%|An investment management services provider for **British Columbia**’s public sector|2006
Hermes GPE|8.699%|One of Europe’s leading independent specialists in global private markets and manager of the **BT** Pension Scheme (BTPS), one of the largest UK pension schemes for the private sector|2012
**China** Investment Corporation|8.688%|One of the world’s largest sovereign wealth funds|2012
Queensland Investment Corporation|5.352%|A global diversified alternative investment firm and one of the largest institutional investment managers in **Australia**|2006
Aquila GP Inc.|4.995%|A leading infrastructure management firm and a wholly owned subsidiary of Fiera Infrastructure Inc., a leading investor across all subsectors of the infrastructure asset class|2013
Stichting Pensioenfonds Zorg en Welzijn (**Netherlands**)|2.172%|A pension fund service provider managing several different pension funds as well as affiliated employers and their employees|2006
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Article contents:
*August 6 2022, The Times*
Hosepipe bans have concentrated the mind on the privatised monopolies’ decades-long failure to fix a leakage crisis. An industry sold off toward the end of Margaret Thatcher’s 1980s administration was meant to have delivered the change in water utilities demanded by decades of underinvestment; instead, in 2022, England’s regional monopolies routinely lose between a quarter and a fifth of the water in their mains through untended and unrepaired leaks. Meanwhile, the flow of human excrement into our rivers and coastlines remain routine occurrences.
After 30 years in which the privatised water industry has lost public confidence after often appearing more interested in its own returns than outcomes for customers, some hard truths are starting to hit home for well-paid company executives. The next few weeks could see a stand-off between water companies and their watchdog.
Some of the executives at the top of the water industry are paid £3 million a year for running what is a public utility. Those executives work for owners, many of which are overseas investors, that have benefited from a regulatory system that has allowed them to load up operating companies with debt, enabling them to use the income from customer bills as a cash box from which to take a stream of dividends.
These are operating companies that make little return to the public purse, using capital allowances to lower or eliminate their exposures to tax. They report into labyrinthine holding company structures, replete with subsidiaries sheltering in tax havens, whose opacity is such that even the performance data that is supposed to be open to the public is difficult to access.
Complicit, in many people’s eyes, has been a complacent regulator, Ofwat.
But that may be about to change.
David Black, the new chief executive of Ofwat, has started a consultation that raises serious questions over the financial resilience of the water companies and inter alia their stewardship by executives and owners. In what would be the most powerful intervention since privatisation, Black wants to modify companies’ licences “to require that dividend policies and dividends declared or paid should take account of service delivery for customers and the environment over time, current and future investment needs and financial resilience over the long term”.
The consultation says: “In recent reporting to us, many companies did not meet our expectations in explaining their dividend payments and/or policies.” To make it plainer, this was about “raising the bar”, Black said. “Our proposals . . . give us new powers to block dividends if a company is putting their financial stability at risk in making them.”
This Ofwat offensive has not come in a vacuum. Thames Water, England’s largest supplier is also its biggest miscreant, losing 24 per cent of its available water through leaks and found last year to have spent 68,000 hours discharging raw sewage into rivers. It attracts the most complaints per customer. In June, Ofwat forced its owners — Canadian and British pensions schemes and the investment arms of China and Abu Dhabi — to inject £500 million into the company, with the prospect of £1 billion more. Thames Water is banned from paying its owners dividends.
Last year Southern Water was bailed out by Macquarie, the Australian asset manager, in a move billed as a £1 billion investment to meet future supply constraints and environmental targets. In reality, after years of mismanagement, loaded up with debt and plundered by investors led by the asset management arms of JP Morgan and UBS, the investment banks, Southern was within days of being put into special administration by Ofwat and of being stripped of its licence.
Weeks earlier Southern had been found guilty of discharging human effluent into oyster beds off Whitstable, beaches along the English Channel and sailing havens of The Solent — and on an industrial scale. Southern, described by Ofwat as “financially vulnerable”, is also banned from paying dividends.
Water UK, the trade body for the operators, is all set for confrontation. “We do not recognise the concerns expressed in the discussion paper, which have led Ofwat to make a series of proposals for potential interventions,” it said. “For Ofwat to consider implementing measures along the lines consulted on would be an unprecedented step, not only in the water sector but across all regulated sectors.” It is calling on Ofwat to come up with “an overriding and compelling case underpinned by the strongest possible evidence” and has indicated that the issue could be heading to the courts.
The Consumer Council for Water says the priority in such great economic uncertainty should be customers and the one-in-ten of households that cannot afford their water bill.
A former senior industry executive, who preferred not to be identified, explained the frayed nexus between the companies and Ofwat thus: “Governance and leadership is for the companies, but bonuses and long-term incentive payments are a real issue. It is difficult to defend executive packages of £2 million. The companies have not sought to account for the integrity of such payments at a time of a loss of public confidence.
“On leakage, Ofwat demanded companies cut wastage drastically. There was a lot of huffing and puffing, but it was achieved quickly. You can say ‘well done Ofwat’, or you can say ‘Ofwat should have gone much harder and been more ambitious’. On pollution, the issue has fallen between Ofwat and the Environment Agency. Either the permits for discharges are too lax or the agency is not prosecuting hard enough. We have had a failure to monitor and a failure to rectify. It is as disgusting as it is shocking.” Ofwat has launched enforcement cases against Anglian, Northumbrian, South West, Thames, Wessex and Yorkshire Water.
Ultimately, the regulatory system has a fundamental flaw. Companies are on rolling 25 year-licences. Stripping an owner of a licence entails putting it into special administration, a battle in the courts, ministerial sanction and the ability to find an operator of last resort. As Ofwat itself says, this ultimate sanction “would be a major intervention”.
In an industry where ordinary executives get extraordinary pay, two big questions are being asked. Has privatisation failed? And is Ofwat doing its job?
We leak less water and the environment is cleaner than at privatisation. Access to capital markets has enabled that. In platitudes that seek to deflect its failings, the industry argues it is embarking on record levels of investment — but then what else should it be doing with all the money from our bills?
When Jeremy Corbyn put renationalisation of the industry at the top of Labour’s agenda, there were two fundamental questions. In an industry that had grown too big to fail, how could the taxpayer take on the high tens of billions of debt that the industry carries? And would a state-run business guarantee an improvement?
As for Ofwat, an executive in an adjacent industry said: “When a crime is committed, is it the fault of the criminal who perpetrated it, or is it the fault of the police? So it is in regulated industries. There will always be regulated companies who do not live up to the expected standards of public and corporate social responsibility. So it has to be the role of a well-resourced regulator to make sure they do.”
After only 30 years of inaction. Who said they were totally useless except as a sop to the public?
How many people have a choice when it comes to water supply? Cos I don’t it’s just a local monopoly.
Only because now we are seeing how serious the situation will become in the future. It was fine while they could still act as if the climate predictions were not reality, this summer has killed that facade and the regulator now wants to get its act in gear.
Ofwat have sat on their arses for 30 years and watched raw sewage regularly pumped into rivers and the ocean, and millions of litres of water lost each day to leaks.
This is the worst sort of bullshit grandstanding from another useless regulator. If they gave a shit, they would have been forcing water companies to upgrade drainage and supply, and we wouldn’t be in anywhere near such a bad spot today.
But much easier to turn a blind eye when you’re getting cushy dinners and taken out to swanky industry events. Throw out a quick ‘consultation’ with some nicely loaded questions, then sit back down on your hands and moan about how nothing can be done without destroying the water ‘industry’.
Ofwat are as complicit in the current mess as the water companies.
Oh no they might write a stongly worded letter oh heavens how will the water companies cope with such brutal tactics.
They’ve let them pump raw shit into rivers without so much as giving a fuck. They let them get away with losing as much water to leaks as they pump half the time. All the while allowing them to extract ludicrous profits that could have been better used to fix these fucking problems in the first place.
Fucking they will do shite all.
Honest question, has this been a single essential service Thatcher sold off for pennies that’s improved in private hands? If the answer is no, then why is she still worshipped by Tories when she caused irreparable damage to the country?
[Thames Water shareholders](https://www.thameswater.co.uk/about-us/governance/our-structure)
Who | How much | What they do | When
:–|–:|:–|:–
Ontario Municipal Employees Retirement System|31.777%|One of **Canada**’s largest pension plans, with C$105 billion of net assets and global experience managing essential infrastructure|2017-2018
Universities Superannuation Scheme|19.711%|A **UK** pension scheme for the academic staff of UK universities|2017, 2021
Infinity Investments SA|9.900%|A subsidiary of the **Abu Dhabi** Investment Authority and one of the world’s largest sovereign wealth funds|2011
British Columbia Investment Management Corporation|8.706%|An investment management services provider for **British Columbia**’s public sector|2006
Hermes GPE|8.699%|One of Europe’s leading independent specialists in global private markets and manager of the **BT** Pension Scheme (BTPS), one of the largest UK pension schemes for the private sector|2012
**China** Investment Corporation|8.688%|One of the world’s largest sovereign wealth funds|2012
Queensland Investment Corporation|5.352%|A global diversified alternative investment firm and one of the largest institutional investment managers in **Australia**|2006
Aquila GP Inc.|4.995%|A leading infrastructure management firm and a wholly owned subsidiary of Fiera Infrastructure Inc., a leading investor across all subsectors of the infrastructure asset class|2013
Stichting Pensioenfonds Zorg en Welzijn (**Netherlands**)|2.172%|A pension fund service provider managing several different pension funds as well as affiliated employers and their employees|2006