Why Water Privatisation FAILED

Water Privatisation in the UK has led to higher bills. Yet whilst dividends to shareholders increase, underinvestment has led to a rise in waste sewage disposal. A look at the problems of privatisation and whether anything can be done.

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About

[FAS]

During the 50 years before I retired, I worked in all sectors of the economy and I saw no evidence that the private sector is more efficient than any other. Water privatisation was intended to transfer public money to private bank accounts as quickly as possible with no concern for the effect on consumers, so rather than being a failure, it was a great success in its real, but unstated objective. Having taken as much as they could by paying inflated salaries to bosses, and taking excessive profits, and dividends, instead of investing in infrastructure, the owners are now asset stripping before before the companies can be renationalised. It all went just as intended, and with the full knowledge of successive corrupt governments.

[PEdulis]

Berlin, Germany sold off its water plants as well but bought them back after public pressure that resulted in a referendum with a clear majority to buy them back. That's the best way to deal with such a huge mistake. If Toxies would allow that is a different question though.

[greenvector]

Excellent video. Simple, no frills, objective, clear and willing to make a reasoned judgement! Keep up the great work!

[sevecc]

Thanks for explaining this. I have been looking for a good explanation on this subject. I'm sick of getting ill after swimming in the sea, something I love doing in the summer. I pay approx £360 every 6 months for the pleasure of getting sick after sea swimming too.

[DeanRTaylor]

More people should watch this, but they won't unfortunately.

[MatthewRivers-Davis]

Great video, Tejvan. As pure/natural monopoly providers in a region with no competition, water companies have no incentive to upgrade their pipeline network, prevent leakages or invest in new reservoirs. They know their technical monopoly ownership of the infrastructure to provide water services creates a barrier to entry with no other firm achieving the same economies of scale and it's inefficient to have more than one provider. The marginal cost of providing water services to one more customer is small but services deteriorate - the Victorian infrastructure of sewerage tunnels and pipes is too Herculean a task for firms to upgrade as capital infrastructure is so costly to maintain. This creates no incentive to invest to serve a captive market better and they probably create regulatory capture by having ex-water firm executives on the OfWat advisory quango. The Government has no incentive to remove the management of poor providers in the same way as bad train service providers lose their franchise. Supernormal profits are created by lowering costs though maintaining poor quality systems and any long run dynamic efficiency to invest in R&D is negligible as profits are given away as dividends to shareholders. Any losses will be protected by Government subsidies in the long run leading to moral hazard. Over 70% of UK water companies are foreign-owned - probably by European utilities that take profits from UK water firms to invest in their own networks. Despite property rights created to protect third party spill over negative externalities, it's difficult to investigate and determine all causes of pollution and powerful water firms can tie up prosecutions in the courts for years. Doubt the Government could afford to re-nationalise with the cost of borrowing rising and the value of reinvestment pushing up the cost to £60-£100 bn - and any signs of renationalisation of key industries may cause capital flight from the UK.

[roberthuntley]

Good video. Another problem this issue highlights is the woeful state of the auditing industry.

Thames Water's last audited accounts (July 22) includes the statement.

"Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue."

That part of the report was written by PricewaterhouseCoopers LLP. Yet another example of auditors failing to tease out underlying issues.

[nonlethalbizzle]

Privatisation only works if their is enough competition like the mobile phone market, if you don’t like the service from one you can easily switch to another, not so with utilities like gas/water/trains as most areas are only served by one provider who charges whatever they see fit even when they provide a bad service

[MatthewRivers-Davis]

Tejvan - would appreciate a video on global energy prices - I don't understand why the population of some developing countries on next to poverty wages can afford to run air-con domestically in hot climates all day yet my electricity bill for running a blow fire for an hour adds ££££ to my bill.

[thegamingeconomist]

Another massive transfer of wealth from the poorest in society to the wealthiest. At least Scotland managed to hold onto its water.

[alkaholic]

The private sector ONLY WORKS when there is COMPETITION.

Especially point 1. at 1:02 - greater efficiency.

The only reason private firms are ever good at things is because they have to be, or they go out of business and lose out to their competitors. It's that pressure of having to provide a good service or lose business that drives the performance and efficiency.

So with things like a water company that is obviously never going to work because it's never going to be feasible for a competitor to come along.

For services that everybody needs and competition isn't feasible, government/public ownership is the only option.

[johnpayne]

OFWAT is inept and this caused this, generally, debacle. But, very few contribute to their water bill in the Thames water area! Too many non contributors across the UK regarding the other water suppliers.

[andrewsage]

Here in France it’s state owned and operated by local government and communes. I’ve personally had my water main replaced at a cost of 46, 000 to the water company who last year also built a new drinking water reservoir I can see across the valley at a cost of just under a million euros. Perhaps the UK could start renewing its entire infrastructure every fifty years like the French?

[Mickparrysstepdad]

Thatcher was the start of our downfall.

[AmauryJacquot]

because privatizing something as important to life as water is just pure nonsense. next question ?

[harveysmith]

We now have a situation in W Sussex where the water companies are telling the house builders to stop building houses because they can't supply the water.
Hundreds of thousands of houses are needed but we can't build because we don't have water.
Nationalise as fast as possible. There isn't a single utility that has improved or become cheaper which was the promise at privatisation.
The railways are the same.

[DrawnInk]

The first thing they could do is if a company owns a utility company then it has to register and pay tax in the UK i.e. not off shore.

[stephenwalker]

I would prefer to see a move towards customer owner models such as Welsh water rather than a nationalisation and then being subject to political whims. Better to have more local control over assets

[harshmehta]

Government is terrible at running anything, look at council housing. Issue is not with privitisation but government bodies not having the skill and tact to set the correct guidelines and get the private companies to do things they should be doing

[whocares]

it has been a sucess for water companies and share holders..