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English water companies make record profits amid “droughts”

JM Thorn

29 May 2006 

There has been much media attention on the water supply “crisis” in the South of England, with a number of water companies being granted drought orders to ban the use of sprinklers and hosepipes.  Reports have conjured up images of people having to queue with buckets to collect their water from a standpipe in the street.  Comparisons are drawn with the last drought in England in 1976.  However, such comparisons are completely spurious.  While, in 1976 there was a genuine shortage of water associated with an extremely hot summer, today the water supply problems are very much man made.  They are a product not of seasonal weather patterns but of the conduct of private water companies. 

The so-called droughts are a direct result of the severe under investment in the water supply network over the years since the industry was privatised in 1989.  In order to maximise their profits, the water companies have cut investment to a minimum, while at the same time ratcheting up charges for their customers.  So at the same time as there is a water supply crisis, the water companies are able to announce yearly profits of nearly £2 billion.  This comes in a year when customers have seen their bills rise by an average of 8.5 per cent.   Over the current five-year pricing agreement between the companies and the regulator - from 2005 to 2010 - bills are set to rise by an average of nearly 20 per cent, from £249 per household to £295. 

All this follows a familiar pattern.  The water companies exaggerate the level of investment they are going to make in order to set a higher charge.  The actual investment is always lower, and the remainder is added to the profits.  Despite claims that the network is being upgraded, 1,317 billion litres of water were lost through leaks last year.  Reservoirs are not operated properly; some have been ‘rested’ or sold off. 

The campaign group WaterWatch estimates that only 5% of rainfall that hits hills and roads in Britain becomes available for the water supply. There is no functioning grid system that could transfer water from parts of the country with a surplus to areas that are running low.

Thames Water 

A good example of how these companies operate is Thames Water.  It is responsible for water and sewage in the greater London area.  When it took over in 1989, it promised major investment to modernise the network.   However, there has been no significant improvement.  A third of London’s water supply, or 915 million litres a day, is lost through leaks.  This is the equivalent of three-quarters of Lake Windermere every day, or six times the capacity of the desalination plant Thames Water proposes to build as a solution to the problem.  The company’s current maintenance plans only envisage 10 per cent of leaking pipes being fixed. This comes in year that saw its profits rise by 6.1 percent, topping the £250 million mark.  The company’s directors trebled their bonuses, with the chairman’s annual salary rising to £800,000. 

Another factor in the under investment by Thames Water is the fact that it is about to be put up for sale.  Its owners, the German company RWE, will not commit itself to the necessary expenditure to upgrade the network as this would reduce the profit margins and deter potential buyers. 

All this evidence of the disaster that water privatisation has been for the public in England.  Rather than the improvements promised, people are now paying more for a poorer service.  The water companies are milking their customers for all they are worth as the water system is run to generate profits rather serve public need. 

The idea that a regulator, tagged on to a privatisation free-for-all, can uphold the public interest has been exposed as a sham.  Ofwat has actively collaborated in under investment and overcharging, its main function being to ensure that profits are maintained.  All this is the inevitable consequence of the private ownership of water.  If we need a reason to oppose the privatisation of the water service in the North of Ireland we need only look at what has happened in England. 


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