The water companies that serve Britain provide over 63 million people, households and businesses with drinking water and sewerage collection and treatment. In exchange for over £1 a day, UK residents and companies receive water on tap and thankfully remote sewage management that prevents us having to go old school with chamber pots, along with its treatment and subsequent return back into the water supply. This money goes into maintaining and upgrading pipelines and processing services, a costly operation worth over £5 billion every year of investment. There are around 30 water and wastewater companies that make up the ownership of the water and services across the nation, dedicated to offering these most basic necessities of modern life. But enough of the sales pitch, what’s it like from behind the scenes? From outrage at rising prices, unexpected water line bursts and top CEOs and shareholders raking in millions of pounds of personal profits each year, the inside of the water industry’s system may be as leaky as their pipes.
Based on the official documentation, the performance of water utility companies is exemplary. Last years report by Water UK, who work with and report on development in the industry, was a glowing commendation of the leading players. Steady growth and high scores in procedures, compliance and processes assure that our most precious commodity is being well handled by its custodians. Since privatisation nearly 30 years ago, £150 billion has been invested into the industry by the main water companies. This investment has allowed old infrastructure to be renewed, reducing leakage by a third since the mid-1990s, and dramatically improved the cleanliness of beaches across British coastlines. Emboldened by the news that a company is doing what it should do – improve services – there are reports that they may be becoming complacent.
Such high acclaim is not always held by those actually receiving the services of these water deities. Stories of these companies being bound by mountains of paperwork and brand new housing developments having sewerage tanked out because of logistical failings to connect them. Over 3 billion litres of water drip from privately owned companies pipelines every day, while hosepipe bans get implemented for millions of households. Since taking over in 1989, Thames Water has replaced little over 1600 miles of Victorian cast iron plumbing, a tawdry 12% of the 13’000 miles of piping that lies underneath London’s streets. And there have been countless events of sewage being tipped into freshwater streams, rivers and even the Thames over the past few decades by the most well-known organisations. Despite the multitude of failings by these companies, water prices continue to rise; estimated to grow by 2%, £9, between this year and next. Since privatisation, the cost of water has increased by 40% above inflation.
So where’s the money going? By nature of the resource, water should be a garden variety business. The companies are offered a captive market by geography, entirely beholden to the basic necessity you provide. There is an odd dynamic between you and those you serve, where even the nations governing bodies are dependent on your business being in good financial condition. All that is required in return for unwavering loyalty is regular service, the tapping of a freely available resource, and effective crisis management. Yet the bosses are paid so handsomely you’d be remiss to think they are delivering expertly skilled, visionary leadership in a turbulent sector, with shareholders too being generously rewarded. Last year, private water firms reaped £11.7 billion of revenue from UK households and businesses, taking total profits of just below £2 billion. For a low-pressure and significantly riskless utility business which in effect gained its assets debt-free from the taxpayer, such margins are effortlessly extravagant. Perhaps helped along by the little contribution these companies offer back to public finances by virtue of offshore arrangements – it was recently revealed that Thames Water has paid no corporation tax for over a decade.
A study by Greenwich University aggregated such luxurious profits. Between 2006 and 2016, the nine big corporations in the water utility business raked in £18.8 billion of post-tax profits, £18.1 billion of which was paid out in shareholder dividends. As a result, the vast majority of actual investment into the services over the past ten years has been financed by credit. By 2016, the total of all water companies debt piles stood at an impressive £42 billion. While such expensive deficits are proving fruitful for private equity investors, customers are struggling to reap the benefit as their skyrocketing monthly statements foot the bill. The utility companies vow that public money is being spent on investment, but if the leakages, bursting Victorian pipes and hosepipe bans as a result of dwindling sources have anything to go by, perhaps some of the top exec bonuses need to be contributed.
Despite a staggeringly large revenue stream, these water companies are rarely held financially accountable for their preventable crises in a way that is relative to their income. Last year, Thames Water was prosecuted and fined for dumping over 1.4 billion litres of sewage into the Thames. The company had diverted their eye to the treatment plants in Aylesbury, Didcot, Henley, Little Marlow, and Littlemore that spewed enough sewage into the river between 2013 and 2014 that the Environment Agency deemed it the most significant case of freshwater pollution they had ever undertaken. The exposure killed off many fish and birds local to the areas and had detrimental effects to farmers and fishers who relied on the delicate ecosystem for their livelihoods. The Environment Agency doled out their most substantial fine yet to a water company for pollution; £20.3 million in damages. For Thames Water, this is equivalent to just ten days profit. Under such extreme environmental and social effects, such a disastrous event would undoubtedly lead to investigations, firings, and extensive structural changes within the company to hold those responsible to account and ensure it never happens again. But Martin Baggs, the man at the helm of the faucet at the time, not only maintained his position at the top but received a 60% bump to his salary in 2015, bringing it up to an impressive £2 million a year before bonuses. When he stood down a year later, he was highly commended for his “huge contribution”. Baggs isn’t alone in profiting from his complacency; CEO of United Utilities Steve Mogford enjoys a paycheck of £2.8m; Liv Garfield of Severn Trent receives £2.4m; and Richard Flint of Yorkshire Water, despite overseeing a fine of £1.7 for polluting a lake near Wakefield and surrounding rivers, is paid £1.2m a year.
Luckily for us, there are regulators at hand to manage and prevent further crises. Yet evidently, they fail to exercise any real change. Ofwat, the water industry regulator, has been specifically established to prevent foul play by water companies and maintain fair prices for the public. But it is caught between ensuring the industry’s health, while also protecting users’ interests. The toothless regulator is powerless to issue requirements for better financial practices or transparency; at worst all Ofwat can dole out is a referral to another dull as dishwater public entity; the Competition and Markets Authority. Though in recent years, Ofwat has stirred up enough nerve to demand reform from the water companies on debt, CEO salaries, and customer satisfaction. But for a regulator designed to keep the industry afloat, there’s not much scope for drastic change; a more hands-on approach from Ofwat could lead to the debt-ridden agencies credit ratings plunging, with dramatic impacts to both the economy and society. With regulators caught between a rock and a hard place, it seems these water companies have carved a comfortable stronghold in our most essential resource.
But in a revelatory announcement by Michael Gove as environment secretary a few months ago, he is pitching himself as the man to hold the companies, and their regulator, to account. In a Corbyn-esque speech in May, Gove denounced the water companies for being “hidden behind complex financial structures” that “rewarded the already well-off”. Speaking at this year’s Water UK City Conference, the Conservative Cabinet minister named and shamed the largest water companies and their chief executives who would have been revered guests at the convention. Gove started by making clear the responsibility water companies have for the country, and that being part of the corporate monopoly of our basic resource means they must adhere to customer and environment protective standards. He praised their work in transforming the leaking nationalised service and campaigns to protect the environment, and then, he made his points clear. “Far too often, there is evidence that water companies – your water companies – have not been acting sufficiently in the public interest”. He went on to unpick the system for benefitting the wealthy at the expense of customers, for “having kept charges higher than they needed to be and allowed leaks, pollution and other failures to persist for far too long”. The lofty heights of sitting CEOs were struck as Gove continued; “And who made those decisions? Well, of course, it’s the people in this room – chief executives and board members of the privatised water companies. And you must realise that in the public eye you are very handsomely remunerated”. Revealing the grand salaries of some of those in the room, he went on to divulge the poor contribution to the Treasury funds, saying that last year, along with Thames Water, Anglian Water and Southern Water paid zero in corporation tax. Such uncensored revile for the current system our water flows from is peculiarly agnostic for a firm believer of private ownership. But the water industry is evident of the dangers that come from an oligarchy in a public good.
So what about those who work for these watery behemoths? From call centres to those on the ground repairing pipes, these people will undoubtedly be the ones taking the flack from disgruntled customers for the price hikes and inadequate infrastructure. Reviews from workers across the 30 water and sewerage providers across the UK dedicate a lot of time to the fun work environment, generous break times and stressful but steady call taking, but the overarching theme amongst them all referred to a lack of higher managerial support. Though much of the work allowed for friendly and helpful team members, it seems there’s a severe lack of actual leadership coming from the top of the corporate ladder. This seems an unsurprising factor as the head honchos are too busy appeasing shareholders and lining their pockets.
Water is an essential resource for everything on earth, yet the systems in place which provide it seem determined to squeeze it dry for all it’s worth. If someone was looking to block the flow of support for capitalism, they needn’t look further than the British private water industry. Swaggering, complacent bosses who cleave out profits to maintain excessive lifestyles for themselves and shareholders, negate to pay taxes owed, stockpile debts and charge customers for the luxury. Quick fixes by tapping chalk streams and underground sources, or allowing sewage to flow into waterways will only serve to damage the future of the resource, yet will bring them bonuses and acclaim in the moment.
As consumers, we pay extravagantly for such a basic need, which is continuously being put at risk in the companies pursuit of profit. Pollution and over-extraction harm the environment, and the current infrastructure is ill-equipped to manage it. The UK’s water supply is rife with chemicals from pesticides, pharmaceuticals, microscopic plastic pieces, and even cocaine emptied from Brits bladders, which have all been found in tap water samples. These contaminants that wastewater treatment services are not sufficient at removing are all reentered into the drinking water supply.
With global warming threatening the supply of water companies, and the planets, precious resource, there could be a bumpy road ahead for what we so freely tap. The Committee on Climate Change who advise the government on environmental issues has warned that water shortages are one of the biggest threats to the UK as global warming heats up, with even moderate temperature rises leading to severe water shortages across the British Isles. With this past heatwave ringing true to their claim, even our dwindling supplies may have to be redirected to manage unpredictable wildfires made all the more likely. The committee has urged that leakages must be prevented, and consumption must be curbed. And yet, with the exception of hosepipe bans, water companies continue to encourage their customers to use more of their product. In the UK on average each person uses an extravagant 141 litres each day, significantly higher than in Denmark where the average is just 114. In truth, the UK is not parched of water; it’s basically a national principle that rain plagues us. But perhaps it would be more economically and environmentally sensible to capture the water that falls freely rather than tap it back out after the lengthy and expensive process through the water industry’s systems. Instead of spraying drinking water on the roses, utilise water butts for the garden.
For all its controversial financial matters, the water industry has its merits; water quality in rivers is similar to levels last seen before the Industrial Revolution, and the otter population is thriving. But as reservoirs dwindle and other marine life struggles under the weight of pollution, there is much more to be done. The amount of water leaked from company-owned pipes each day has stayed the same for at least four years, yet across the south, companies have failed to set leakage reduction targets for 2020. The system has been criticised for their mentality that insists it is ‘cheaper to drain a river dry than fix a leak’. And yet, the financial burden continues to be placed on customers when a fifth of water is gushed out before it even reaches homes. The money that could be spent on relevant research and development instead seems to be focused on patching up holes in the system and padding out the luxurious lifestyles of top execs and shareholders. But as talk of renationalisation rises as evidenced by a poll last year that showed 83% of the British public are in favour, and water supply levels dwindle, as always it may be those at the top who have further to fall.