‘It won’t work’: Labour can’t fix broken water system without tackling ownership, experts say

The government has unveiled its ‘once-in-a-generation’ plan to reform England’s water system, promising tougher oversight and an end to failing infrastructure.

But facing record sewage pollution, soaring bills and repeated supply failures, experts warn the proposals amount to little more than “tinkering around the edges”.

The Water White Paper sets out powers for a new regulator, including a chief engineer to bring “technical expertise”, new ‘MOT’ checks on water infrastructure, and a rollout of smart meters to save water.

There is no mention of nationalisation – in fact, the plan promises “stability [for] investors”.

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Nonetheless, environment secretary Emma Reynolds pledged “tough oversight” and “real accountability”.

“Water companies will have nowhere to hide from poor performance, customers will get the service they deserve, and investors will see a system built for the future,” she said.

“This builds on the tough action we’ve already delivered, from record investment to banning unfair bonuses.”

Ministers argue that tougher regulation combined with billions in “private investment” will finally arrest infrastructure decline and pollution.

Experts, however, are sceptical. The proposals outlined in the white paper will not generate real change, says Ewan McGaughey, a professor of law at King’s College London and a member of the People’s Commission on the Water Sector.

“It’s good that there will be a new chief engineer – but lack of expertise is not the real problem here. We already have a load of expertise from water company workers. But they are systematically excluded by the privatised leadership of these companies,” he told Big Issue.

“The ownership model is the problem.”

Since privatisation under Margaret Thatcher, privately run water companies have siphoned off billions of pounds in shareholder profits while flooding rivers and seas with sewage pollution. Big Issue has reported extensively on these crises here and here.

In practice, “stability for investors” means continuing to deliver profits for these private entities. While Ofwat can restrict dividends and performance-related bonuses when companies breach licence conditions, it has no power to limit payments to banks or to cap executives’ base salaries. Debt servicing continues regardless of performance, and the proposed replacement regulator will inherit the same constraints.

“The new regulator will still have a duty to secure a return on investment for shareholders and banks,” McGaughey said. “As long as you have this corrosive profit motive at the heart of the system, there will be no real change.”

Penalties are ultimately borne by customers rather than companies themselves, as fines are paid out of bills.

“Fundamentally, we have to move away from the nonsense of ‘penalising’ water companies or trying to sanction management,” he said.

“All these penalties, dawn raids, and punitive measures, they’re all predicated on the idea that sanctions change company behaviour – that they will want to improve performance in order to compete. But there is no competition. Water is a natural monopoly, customers can’t choose to go for a different provider. And all the money to pay those penalties ends up coming from customer bills.”

For economist Karel Williams, professor of accounting and political economy at the University of Manchester, the ongoing crisis at South East Water exposes exactly how limited the government’s reforms are under the current ownership model.

Last week, taps across parts of Kent and Sussex ran dry for the second lengthy period in as many months, cutting supplies to an estimated 30,000 homes.

South East Water is now subject to three separate investigations: one by the Drinking Water Inspectorate and two by Ofwat, including a probe into whether it has breached the conditions of its operating licence.

But Williams argues that, even in a case of such clear failure, regulators have very few options.

“Ask yourself what they can actually do about South East Water under the present ownership arrangements,” he said. “There are basically three options. One is a fine of up to 10% of turnover – which either means less investment, or customers end up paying for it. That’s true of all fines.”

A second option is a formal warning to investors. “So the Canadian pension fund, NatWest’s pension fund and the Australian infrastructure investor all get a solemn letter saying they’ve been warned,” Williams said. “That’s not exactly going to upset them.”

The third, most serious, option is withdrawing the company’s operating licence and placing it into special measures. But even that, Williams argues, does not challenge the underlying model.

“If the licence is withdrawn, the company goes into special measures and then what happens? Another group of investors takes over,” he said. “So within the present system, the only real punishments are either fining the company – which customers pay for – or taking it from one group of investors and giving it to another.”

“There is no procedure, like with rail franchises, for gradually taking it into public ownership. There is no mechanism for removing investors from the picture altogether. Surely there’s something wrong there.”

The government does recognise the “scale of the freshwater emergency,” said James Wallace, CEO of River Action, but “lacks the urgency and bold reform to tackle it”.

“Proposals for a new water regulator, including the appointment of a chief engineer, alongside infrastructure ‘MOTs’ and no-notice inspections of water companies, are welcome steps, provided the regulator is truly independent, equipped with real powers and funded by the Treasury to hold polluters to account.”

But the reforms will not make any “meaningful difference” unless the “failed privatised model is confronted head on”.

“Pollution for profit is the root cause of this crisis, yet the white paper is vague on when the government will step in to take control of failing water companies.”

Ash Smith, from Windrush Against Sewage Pollution, was blunter still.

“Inherent to privatisation is the incentive to cheat and exploit the customer,” he said. “If you don’t take that away, you’re just going to be playing the same game with just a different set of clothes on.”

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