- Lib Dem Leader visits Eastbourne beach with local dog walkers amid concerns of sewage harming coastlines
- Liberal Democrats call on the Government to ban sewage discharges onto Blue Flag beaches to protect swimmers and wildlife
New analysis of the latest Environment Agency data by the Liberal Democrats has revealed that water companies in England have dumped sewage onto England’s Blue Flag beaches 1,504 times last year, lasting an astonishing 8,497 hours last year.
Blue Flag status is an international mark of recognition that a beach is deemed safe and environmentally friendly. However these new findings raise fears of water pollution for swimmers and wildlife.
The worst incident on a mainland English Blue Flag beach was on Blackpool Sands beach in Devon, where sewage was discharged for a staggering 1,014 hours last year, totalling 63 separate sewage dumps onto the beach.
Liberal Democrat Leader Ed Davey will today visit a beach in Eastbourne, meeting local dog walkers to discuss concerns about water pollution. Across the Sussex seaside town, there were 77 sewage discharges lasting 454 hours last year.
In Sussex, Brighton Beach, which has Blue Flag status, Southern Water discharged sewage into the beach a staggering 45 times last year – lasting over 107 hours.
A Liberal Democrat parliamentary question revealed Southern Water, the regional water company, breached their sewage permits 195 times last year, up from 77 the year before.
The Liberal Democrats are demanding an end to sewage discharges on Blue Flag beaches. The party is also calling for water company exec bonuses to be banned for any firm found to breach permits. Liberal Democrat analysis of Company House records finds water bosses paid themselves a staggering £24.8million, including £14.7 million in bonuses, benefits and incentives in 2021/2022.
Liberal Democrat Leader Ed Davey said:
Britain’s beaches are being ruined by profiteering water companies getting away with dumping sewage as the Government has failed to act for years. Whilst these firms have been raking in multi-billion pound profits, people have been left to swim in raw sewage. The whole thing stinks.
Therese Coffey has had six months in the job and failed to take any meaningful action on these companies. It is clear she simply doesn’t care about our country’s rivers and seas and should therefore resign or be sacked. What is the point of an Environment Secretary who doesn’t care about the environment?
Conservative MPs have shown time and again that they couldn’t care less about our rivers and coastlines. This Government is as guilty as the water companies in allowing this national nature scandal.
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“Ed Davey will today visit a beach in Eastbourne, meeting local dog walkers to discuss concerns about water pollution.”
Dog walkers? Is this serious? (or is it that dog poo is part of the problem?)
Dogwalkers aside, the points Ed makes about profiteering and failure of water companies to do their job are just, but it would also be an opportunity to spell out Liberal Democrat policy (if there is one). Why should water companies be allowed to continue with their monopoly franchise, if as Ed says they are extorting money for failing to meet their responsibilities?
The waste water problem is huge, has been growing for a long time, and is to a large extent the result of underinvestment over many decades. Population growth and climate change hasn’t helped, but much of the blame lies with successive governments, the water regulator (OFWAT), and of course the water companies. OFWAT has the power to impose challenging targets, and has failed to do so. It regulate the income of water companies, and has allowed them to pay out too much in dividends instead of fixing the infrastructure.
That doesn’t mean re-nationalising water companies is the answer. It means OFWAT needs to get a lot better at regulation, and it also means that whoever owns the companies we are going to have to pay more for our water.
Might it help if sewage dumping were made a criminal offence with senior executives being held responsible/irresponsible?
Might it be the case that fines merely increase water bills?
I’m genuinely confused by this story. My understanding is the Blue Flag status is reviewed annually and one of the criteria that a beach must satisfy is that it is not subjected to sewage discharges. So if Blue Flag beaches are being impacted by sewage discharges as often as reported, how have they managed to retain their Blue Flags?
I listened carefully to Sir Ed Davey on the BBC World at One today when he was interviewed on the subject of the water companies and the problem of discharges.
With regret, I heard him rule out taking the Water Companies back into public ownership and his comments were limited to a vague mention of more regulation and also involving the local authorities (as if they don’t already have enough to do within existing limited budgets and responsibilities).
Sir Ed has an opportunity to have a hard hitting popular policy on this matter. People are anxious and angry about what is going on. Sadly, with the best will in the world, I’m afraid I found his comments disappointing and vague.
Unfortunately this issue goes back a long way to when the water industry was privatised under Thatcher back in 1989. It is a Nigel Lawson legacy.
Nearly thirteen years ago (with Lib Dems newly in Government), on 6 Aug 2010, The Guardian reported. “one-quarter of UK’s Blue Flag bleaches fail to monitor daily sewage contamination”.
More recently, The Times reported on 13 Mar 2022, “Raw sewage spills into the sea more than 100 times during the bathing season at some blue flag beaches, according to water industry data. “
I think bringing water companies back into public ownership re-nationalisation even is the answer then there would be some transparency and accountability for mistakes which does not happen at the moment.
Jason Connor is not alone. The Guardian reported on 2 December that, “Parliament could renationalise the water industry in England without being obliged to compensate shareholders, according to previous UK court judgments cited by campaigners.
There is mounting pressure on the government and opposition parties to look again at the privatised water system after criticism that the industry is not acting in the public interest. The Guardian revealed this week that more than 70% of the privatised water industry is owned by foreign investment firms, private equity, pension funds and, in some cases, businesses based in tax havens. The latest polling on nationalising energy and other key utilities, including water, shows the vast majority of the public are in favour and more than 200,000 people have signed a petition calling for water to be nationalised”.
Two open goals waiting for Sir Ed to score : Europe and Water. Time to speak up loud and clear – otherwise, what is he and the Lib Dems for ?
This is a total disgrace. Ed Davey should have called for re-nationalisation. https://www.theguardian.com/environment/2022/nov/30/more-than-70-per-cent-english-water-industry-foreign-ownership
David, Raw, Blake, are right.
I am non ideological on economic ownership. If it is widespread and transparent, private or public, to me is not the priority.
Where there is no monopoly there ought to be a market. But it ought to be a social market if in the providing of a service. This gives more choice. The more in the market the better, but not only offering competition, but, in certain cases, cooperation.
If there is a monopoly it ought to be public owned. Or a not for profit organisation.
If there is a crisis or an emergency it ought to be taken into public hands.
I favour public ownership of water and rail and Electricity. The first two are natural monopolies. The latter in a crisis and emergency.
Ed is at lease fair. But a little too wedded to the old days of his tenure in office.
I add on the matter of ownership, a majority share by the state ought to be enough. As it is wholly private, it need not become wholly public. What is local, as well could remain so. We could have a national company with regional branches, controlling the business model, with a partner from the private sector, with a minority share in it. But, as with healthcare, we need to be aware of the ethos and efficiency of companies, or the public realm.
We have corruption and greed in the private companies. And corruption and indifference in the public sector often.
We need neither.
Ed Davey is right to reject re-nationalisation of the water industry, especially the ‘banana republic’ kind advocated by some, in which the investors are simply robbed, with no compensation.
Foreign investors don’t ‘own’ the water assets in any meaningful way. They can’t uplift reservoirs or pipes and relocate them to their own country, but they do own the right to profits. However, they have to observe UK legislation when they generate them, and OFWAT has a range of powers to direct investment, and fine companies which fail to comply. [Incidentally, fines are paid by the shareholders, and cannot be passed on to customers.] If the profits are excessive that is due to poor regulation, and the same goes for underinvestment. The answer to both is improved regulation.
Before utilities were privatised, capital investment was controlled by the exchequer, which meant ministers had to squabble over who got the available cash. Long-term infrastructure projects which delivered benefits beyond the five-year life of a government lost out. Privatisation ring-fenced each industry, and in the case of water it means OFWAT can require the high level of investment now being demanded.
If we want to end the sewage crisis we will have to pay for it. Renationalisation, would simply switch the cost from water bills to higher taxes. But it would also take us back to square one; money raised through higher taxes would be lost in the mix, subject to raids by other ministers, and targeted by the mindless ‘low-tax’ ideologues in any future Conservative government.
This is not a recent problem and certainly didn’t begin after privatisation.
The Venezuelan coup that David suggests: robbing the owners of the water companies would see Britain become an international pariah: unable to borrow internationally and with UK assets abroad judicially frozen, then appropriated as compensation.
Likewise, Steven’s suggestion of criminalising executives for any spill would simply lead to no-one wanting to be involved in managing water companies, whether private or state.
The problem arises, as Andy has explained, from massive under-investment in water infrastructure going back decades. To fund this, water bills must go up. Or taxes must be raised.
As for executive pay, this is grossly excessive across most publicly listed companies: there are various ways of mitigating the excess, but these go beyond the scope of this discussion.
Andy Daer is spot on. Privatisation was a huge mistake but renationalising the industry would cost a fortune. Severn Trent Water has a market value of £7.15 bn, so what is the whole industry worth ?
@Martin ‘Dog walkers? Is this serious? ‘
I suspect they are the most numerous, regular and observant users of the beaches. Stormy or very cold weather may put off even the hardiest swimmers, often for good safety reasons, but Fido will expect his daily walk come h**l or high water. I also expect these walkers will come equipped with plastic bags.
The water companies have a monopoly and should never have been privatised. Even those who put arguments against re-nationalisation tacitly admit this: Andy Dyer points out problems with both a nationalised and the privatised service; Chris Moore advocates higher water charges to fund infrastructure investment, yet privatisation already produced higher charges but without the promised investment, so that proposition is fairly hopeless.
Andy Dyer, thinking more realistically, advocates tougher oversight from Ofwat, but Ofwat is a government department and so subject to the political cycle that he describes as having led to underinvestment. Other countries with more continuity in their political cycles are better placed to take a longer term perspective.
In the meantime, we could at least require that Ofwat base their regulatory actions on a longer term (say 25 years) assessment of the performance of water companies.
When private companies fail they fold and may be partly cannibalised by other companies, for monopoly services this cannot be the case. Ofwat is charged with the responsibility: “to protect the interests of consumers, wherever appropriate by promoting effective competition” (Its own website); I am not sure what “wherever appropriate” means here, but for a service monopoly the statement must be very largely meaningless.
Predictably, an interesting range of views, but with, I think, majority agreement that the water industry as a public utility is clearly failing, is in the wrong hands, is over paying its leadership and should be re-nationalised.
I mentioned two open goals (Europe and Water) are being missed. In my view if Liberal Democrats are not radical they amount to nothing. I can also dimly recall from the days of my youth, I Corinthians 14:8 ,…… “For if the trumpet give an uncertain sound, who shall prepare himself to the battle ?”. I hope the Leadership is listening.
Regardless of whether the government is giving the orders as owner or through OfWat as regulator, there is a finite list of infrastructure deficiencies which are responsible. That list needs to be published along with a schedule for fixing them.
Might the visible and smellable failings of water supply privatisation show a fundamental flaw in (current) capitalism?
Might water privatisation show that when the sole purpose of and connection with the creation and/or supply of goods and or services is personal gain, the environment/World, customers and society suffer?
Why should non-U K resident water company shareholders care a (. ) about harm to someone else’s environment and health?
Who regulates the regulators?
How do we know that there has not been regulator influence to capture?
Might it be the case that the nationalisation of private water companies, perhaps at the price of original share purchase prices, maybe modified for inflation and share dividends etc, incentivise the remaining private companies to do a decent job?
Might H M G create Q E money to fix the problems without the need to raise water bills or taxes, as was done for the bank?
What are the fundamental differences between sewage dumping/tipping and fly tipping?
@David Raw, it’s true there’s a lot of popular support for a change of ownership; fed up people think something different might be better, but without a logical rationale its just a gamble.
Many of these things have been aired before in the LDV, but to repeat one other factor in the discussion about privatisation, people are motivated by money. Even when directors and senior staff have huge bonuses, they only cost each customer a few pence a year, but the thought of losing them concentrates minds. Chairmen of the utilities when they were state-owned were paid far less. They also did far less.
Suggestions that monopoly utilities ought to be state owned misses an important point. The regulator sets the price customers are allowed to be charged, and does so by agreeing what capital projects and what operating costs are needed to run the business. Normally both are allowable only at the unit cost rate of the most efficient company. The effect is similar to what you get in a normal competitive market, because it means less efficient companies make less profit, and are incentivised to improve.
@ Andy Daer,
“Privatisation was a huge mistake…….
True.
……but renationalising the industry would cost a fortune.
Anyone thinking that this is true might want to explain how the post war Labour Govt managed to nationalise some 20% of the economy at a time when there wasn’t anywhere near a fortune available to be spent!
Does the apparent assertion that people are motivated by money mean that people are motivated solely by money or by money among other matters?
In which ways did the chairmen of the state owned utilities do less than their current equivalents?
Might extremes of income affect power and status?
Water privatisation has been a disaster. All it has done is enable the water companies to extract billions in profits, paid for by us, & now they say if we dont want rivers polluted by sewage we have to pay even more! Regulation alone is not the answer as it does not seem to work well in the private sector let alone enforcement, nepotism perhaps. The solution is a social liberal policy of nationalisation & running it for our benefit.
I’m sorry, Mr Daer, it’s about much more than mere popularity. Not all of us follow the Thatcherite Lawson privatisation playbook. Some things are more basic and essential than that, otherwise, the Army, the Air Force, the Navy , the Police, the Judiciary (even MI5 and MI6 ?) would be open to tender to the highest bidder. Would you let Benson and Hedges sponsor the Coronation ?
Take a look at Harold Macmillan’s selling off the family silver speech (it’s on you tube) if you want to understand where I’m coming from. Some of us think there is such a thing as society.
Some people might argue that the directors and shareholders of the major utilities have made enough money off the public and the government and that enough is enough. Nationalisation doesn’t have to mean paying cash. Shareholders could receive government stock instead or indeed nothing at all.
Some utilities, like water, gas and electricity and indeed public transport are too important to be left in the hands of greedy directors and shareholders and should be run for the public good with profits reinvested in the industries themselves rather than paid out to shareholders.
Privatisation was meant to save taxpayers money. The truth is, certainly for the railways, that subsidies are far far greater now than the money given to British Rail when it was a nationalised corporation and franchises still collapse. 3 major franchises plus network rail are already run by DLT OLR holding (LNER, SE and Northern) and are effectively nationalised now with several others likely to go the same way.
The fundamental problem is under-investment in water infrastructure that has lasted decades.
Martin, once again, you fail to understand what I’m saying: investment has to be paid for by higher water bills OR higher taxes. Or a mix of both. Are you seriously maintaining that there hasn’t been under-spending on infrastructure?
Most of the comment on here is pure fantasy: it assumes a change of ownership will of itself solve the problem. Very very strongly doubt that. Money invested or not is the issue.
In Spain, regional governments either have direct control of water; or choose to tender water to private companies. There has been gradually increasing use of private companies over the years; this has coincided with much improved beaches.
It’s not clear whether there’s a causal relation. But it’s certainly not the case that use of private companies has produced a deterioration.
There are numerous other examples from other countries with better beaches than the UK.
In Spain beach quality is a political priority: the south of Spain is highly economically dependent on tourism and so beach quality is vital for Spain’s image.
Not so important in the UK.
Chris,
I think you are missing an important point when you say “investment has to be paid for by higher water bills OR higher taxes. Or a mix of both.” Actually there is a third option and it is the most important one and it is one that was set out very clearly as a benefit when the Water Authorities were moved out of public ownership – Improved efficiency driven by an effective regulator, Ofwat.
Sadly this rapidly proved to be a fiction where Ofwat became a clearing house for whatever crazy idea the Water companies came up with to justify perpetually increasing prices with perpetually increasing unit costs. Whether it was outsourcing major elements of its work (leading to massively increased costs by monopolistic sub-contractors), ill thought out takeovers of non-regulated companies in an attempt to diversify out of the regulated market, to just good old fashioned massively increased pay for senior managers – these all were used to justify less modernisation at increased cost, and Ofwat accepted it – Year after year, decade after decade.
That is what should have been enforced and built on year on year. Instead it was diluted, time and again. But when have we ever expected a Conservative Government to come down hard on privatised businesses?
I wouldn’t disagree with most of that, David.
There’s clearly a failure of the current government to make water a prime political concern and to reform ofwat.
Yet the fact remains that there has been massive under-investment stretching back decades in water infrastructure.
However impeccably efficient Ofwat and the water companies became, the underlying cause will still be there. It needs to be adressed. Only raised charges or taxes can do it.
The example of other European countries shows that privately owned companies are perfectly able to provide safe beaches. Btw, water bills have risen markedly in Spain and other countries.
Excessive executive pay is a serious issue for all public companies. But the absolute sums are tiny in comparison to water company turnover. So that’s not the issue, highly irritating as it is. A discussion for another day perhaps.
Chris Moore: I am not sure about you, but this is what I understand:
Water bills have risen by 40%, that is taking into account inflation. The water companies have accumulated debts of about £50 billion (they inherited zero debt) which corresponds to £50 billion of dividends.
To be fair the water companies can point to improvements of water quality and even some cleaner beaches, however this was largely as a result of compliance with EU directives (rather than Ofwat). I know you do not like us to mention Brexit, but it does seem that the water companies have eyed up a ‘Brexit benefit’.
Apparently, according to Moody’s, renationalisation might cost something like £14.5 billion, but this could be mitigated by subsequent savings of savings of £2 billion per year, however as Andy Daer points out, political interference could nullify this calculation.
The figure for dividends paid looks too low, Martin. I reckon it’ll be at least 33% higher than that. Think of when privatisation occurred: a long time ago now. Divide dividends by years paid.
Compliance with any regulations, EU or post-Brexit UK or ofwat diktata, costs money. No way round it.
Yes, beaches have improved overall since privatisation. More capital has gone in. Capital costs money: dividends or interest or taxes.
But far more more capital needs to go in: whether privately or publicly.
Might Q E, as used to rescue inept and/or questionable banks, as in 2008, be an option?
Btw, Martin, the figure of 14.5bn for cost of re-nationalisation is wrong, on your own figures.
You’re saying the water companies have combined debts of 50bn. Anybody buying out those companies becomes responsible for their debts. So the minimum amount to be paid is 50bn. Then you have to pay for the assets and operations. So the actual sum will be well north of 50bn.
You are an upstanding and punctilious person, Martin, so I’m assuming you’re not being tempted by David (Raw’s) Venezuelan robbery strategy…..
One way of doing it, Steve, would be a debt for equity swap.
The state offers to take on all water company debt in exchange for shares; this would give the state a considerable percentage ownership. But not control.
The deal would be that the companies then gear up with debt again, all to be spent on infrastructure improvements. It does need to be massive investment of that scale.
Pure nationalisation seems a really poor deal to me: the state water company was very poor. And I’ll bet the mooted savings wouldn’t materialise.
QE is a general policy and wouldn’t have any specific impact on water.
Good arguments made and I agree in particular with Chris Moore. One thing I would add is why is it a bad thing if water charges have risen by 40%? After all (clean) water is a scarce resource surely it should be priced appropriately? If it is too cheap it will be overused like anything else e.g. roads.
Chris Moore:
I struggle to imagine by what authority you can claim to discredit Moody’s. In any case doesn’t a large debt reduce the value of a company? The point on the debt is that it a government can service the debt more cheaply than a commercial concern, hence a major part of the projected savings.
On your jibe directed at David Raw: her referred to an article from The Guardian rather than to Venezuela. At the very most you could claim that he implied that water utilities could (not should) be renationalised without compensation, but he did not actually write that this should be Lib Dem policy.
Marco: On the 40% rise in water charges, the point is that these were justified on the basis of investment in infrastructure; prices have already risen significantly to pay for infrastructure. Before any further increases, the companies have to account for how previous increases were used and why the increases were insufficient (as well as why they had misjudged).
There’s still a lot of misunderstanding about the economics of a privatisations and nationalisations. However, it’s not difficult.
Privatisations don’t raise any spending money for the Government. Conversely, Nationalisations don’t cost anything. Except in both cases there are admin costs involved.
As Chris Moore correctly puts it “One way of doing it, Steve, would be a debt for equity swap.”
So, if we consider the nationalisation transaction as a double entry on the Govt’s balance sheet we have the expenditure of ££ on the one side and the acquisition of the asset on the other. Providing the price paid is fair the two balance out and so the Govt is neither better nor worse off afterwards.
The arguments about water on Lib DEM VOICE have become too complex by far. I am a social liberal not a market capitalist and completely unimpressed by the Thatcher’s obsession with privatisation.
Nationalisation of the water companies would do the public and the party’s opinion poll ratings the world of good. Is there a local party out there that will be bold enough to bring it before Autumn Conference.
Meantime Ed Davey should listen or expect challenges to his ‘leadership’ ……not impressed – never have been ! The parliamentary party should insist that water nationalisation is brought up for debate amongst themselves …….
Water privatisation as regional monopolies was justified by telling us that private companies would invest where the Treasury had not during the nationalised era.
But the water companies have behaved like classic privatised monopolies with no effective regulation or competition, with control over essential resources. They have continued to use the old clapped out Victorian infrastructure, building no new reservoirs, selling off reservoirs, failing to deal with leaks on any scale and the discharges are beyond all reason and even existing laws.
As the number of households and the population increases, the Water companies take more and more charges, increase their rates above that of inflation and have taken £72 bn out of the system, while increasing the quantity and frequency of raw sewage released into rivers and seas. There is no pretence about it being just storm overflows in exceptional circumstances, as their license allow. They pump sewage, toilet paper, used tampons and plastic wet wipes out into the environment long outside of rain.
With all the water wasted and too little stored, hosepipe bans are now the norm during summer, yet the water is out there across the UK geographically or in the cooler end of the year. It just needs investment to pipe water long distances and without leaks and to store it. The sewage could go into holding areas in the short term to end the discharges.
2.
We need big fines on the Water companies, 10% of turnover is allowed which could wipe out profits. Hurt them in the pocket. It’s all they understand. Then change the structure of the industry to remove extreme profit and debt from being the raison d’être. Nationalise or some other re-structure at lower cost.
On running up £50bn in Water Co. debt, not to invest but to increase dividends and bonuses, this ought to be tackled under company law. It is blatant ripping off of the public and ought to be taken into account in costs of any Nationalisation. Although no doubt in the UK, there is very little regulation on corporates and even less enforcement. Hence nobody is paying for the sub Post Office prosecutions debacle.
@Peter Martin, if I understand you correctly – that nationalisation costs nothing – and the others who say they don’t think the profit motive is particularly useful, why aren’t we talking about nationalising Shell, BP, Tesco, Sainsburys and any other company which could be bought for nothing, and whose profits could go into the public purse, thereby reducing the tax burden?
As may be evident, I’m not an economist. Perhaps I’m missing something.
Martin – The water industry claims to have increased investment by £160bn and reduced leakage by 1/3. I think there are flaws with both privatisation and nationalisation which is why I think Chris Moores example of regional tendering is interesting and that could work with railways as well but the lack of regional government is a problem in this country.
@ Martin,
You’re right that the Government can always Nationalise whatever it likes. The end result on the balance sheet equates to a net zero cost, or at least close to it if we include the admin costs of any change. It’s all a political choice. This is not to say we should Nationalise Tesco and Sainsbury. They aren’t natural monopolies so I would say there is no need to do that. Just that we could if we chose to.
You might want to look at how the railways were nationalised in in 1948. The Government issued a stock which paid out 3% p.a. which it swapped for the shares of the railway companies. So the previous owners were compensated and may even have been happier to have a guaranteed 3% than take a chance on the continued profitability of the railways which would have been difficult to sustain given that the railways were just about clapped out after the wartime years. They got a pretty good deal. IMO.
If we take into account the appreciation of land values then the Govt has probably done OK in the longer term but it’s never right to look at the government’s finances in this way. The government can always look at the economy as whole, whereas the private sector is only ever concerned with its own particular level of profitability.
In any case, the Government always needs to be in deficit so that the rest of us can be in surplus – with this relationship holding to the penny.
Sorry, that last comment should have been addressed to Andy!
The water company that provides my water, originally called the Colne Valley Water Company and founded in 1873, was never publicly-owned. In other parts of the country in Victorian times it was local councils, like Birmingham, that supplied water to their residents. While people here talk glibly about nationalisation, I would not want to see an English Water because I strongly suspect that it would be more unresponsive to its customers than even the present water companies are and, as a nationalised industry, it would be hamstrung by Treasury borrowing rules. Rather, I would prefer to see control of natural monopolies exercised at local Government level through Boards of elected Councillors. Where I live, we already have this for waste disposal, another natural monopoly, with West London Waste. There is no reason not to do the same with water supply and sewage once the appropriate area covered is decided.
@Laurence Cox
“In other parts of the country in Victorian times it was local councils, like Birmingham, that supplied water to their residents.”
In Birmingham’s case – rather than a local supply – from Lake Vyrnwy. Welshwater!
@nonconformistradical
Birmingham, being on top of the Birmingham plateau was not in a geographical position easily to source its water locally, unlike London which not only had a major river flowing through it, but also had artesian water from rain that had fallen on the chalk hills to the north and south.
When one corporation takes over another it will generally issue financial instruments (shares and/or loan stock) to the shareholders of the target business to finance the acquisition. The government does the same in a nationalisation – swapping government debt for private shareholdings.
The rationale for takeovers is that the acquiring company can manage the business more efficiently (often as a result of synergies) and get more value from the existing tangible and intangible assets.
The rationale for nationalisation is that central planning could help create a more organised and co-ordinated service and a lower cost (often as a result of economies of scale).
While this is the rationale most stated, more often than not the expected benefits do not materialise. Nationalised industries were often managed inefficiently. Managers of the utilities were generally not required to meet any efficiency objectives set by the state. Nationalised industries were also prone to suffer from moral hazard, which occurs whenever individuals or organisations are insured against the negative consequences of their own inefficient behaviour.
In addition, the nationalised industries had limited scope to raise capital for long term investment and modernisation because they would have to compete with other government spending departments.
There is a good case that can be made for regional authority control of water companies, but much the same outcome can be achieved with effective regulation. Nationalisation per se, does not solve the core problems.
“In addition, the nationalised industries had limited scope to raise capital for long term investment and modernisation because they would have to compete with other government spending departments.”
That was true but it is not inevitable. There is no reason why a government owned business cannot make its own borrowing decisions. The foreign government owned businesses that now run most of our water industry do that.
It is also not inevitable that politicians look only to the short term. Many private sector executives have bonus structures linked to very short term objectives.
@ Laurence,
“I would not want to see an English Water ….as a nationalised industry, it would be hamstrung by Treasury borrowing rules”
Joe makes the same point in his later comment.
Maybe it is the Treasury borrowing rules which are the problem rather than Nationalisation per se?
@ Joe,
“Nationalised industries were also prone to suffer from moral hazard, which occurs whenever individuals or organisations are insured against the negative consequences of their own inefficient behaviour.”
This happens anyway in some large scale private organisations. If the banks fail the Govt bails them out or assumes responsibility for their business. If rail operators, gas or electricity suppliers fail ……..
This doesn’t happen in all large scale businesses. The government probably wouldn’t bail out any of the major supermarket chains, so there is much less of a case for nationalising them. However, if, for example Thames water were to fail…
I previously made the point that Nationalisation doesn’t cost anything because it’s just an asset swap of government issued stock, or money, for the ownership of the real asset of a railway network or whatever.
It has been theoretically same for many of us when we’ve bought a house to live in. We acquired a debt on one side of the balance sheet but had the asset of bricks, mortar and land on the other. So providing the price was fair we weren’t any worse off afterwards.
The difficulty for us was in finding the money to pay a deposit in the first place and the money to service the debt later. The more we were able to do that at the time the wealthier we subsequently became. Those of us who couldn’t do that at all ended up with nothing at all.
The Government has an unlimited capacity to swap paper debt for real assets and isn’t constrained in the way we were as individuals. This has tremendous potential to be used a force for the public good. Those who argue against nationalisation and are in favour of privatisation might like to ask themselves if it was really a good financial decision to sell off all our social housing stock in the way that happened under Thatcher. Much of that has now fallen into the hands of modern day slum landlords who charge exorbitant rents. So, what was the point?
Peter Martin. The sale of the housing stock was for political reasons as social housing was perceived as benefitting the Labour Party while private ownership was thought to make people more likely to vote Conservative. The railways were nationalised in 1948 because some thought they would bring in profits for the Government and others thought they were out of date and it was just a temporary step while they were closed down, like the coal mines were later etc. None of these changes were of much benefit to those who needed their services. Many might think it would have been better to have left them well alone to be run by people who at least had some idea how to run them because of their experience and some liking for the work with perhaps a bit of support and understanding from Government though I guess that would be asking too much from that quarter.
This scandalous situation cannot be allowed to continue. Either the water companies are much more strictly regulated or are nationalised. A basic condition of government is that our public health is protected. Any company that allows more than a minimal amount of sewage to enter our rivers needs immediate sanctioning until it is remedied whatever the cost.
I agree Richardwhite- Denton. There might be a local party interested in a social liberal water nationalisation policy but it’s more likely to be in a labour facing area. I think if the poll ratings don’t improve, and nationally they are pretty stuck at the moment, then we will need to see another LibDems4Change group forming to challenge the leadership.
” Ed Davey is right to reject re-nationalisation of the water industry”
That’s a matter of opinion. However, it’s hard to imagine a Liberal / Lib Dem saying anything else. At one time Liberals would have said they supported a mixed economy but in practice we can expect present day Lib Dems to not just reject re-nationalisation but also support, or at least not oppose, Govt privatisations which makes our economy progressively far less mixed than previously.
Just how unmixed would Lib Dems like our economy to be?
in 1945, the Labour manifesto – which was actually socialist – promised the common ownership of the commanding heights of the economy and included Coal, public utilities including water, gas, electricity, phones, transport – rail and bus and Thomas Cook – airlines, steel and more, plus of course the wholesale state run NHS. My recollection of my history is that the Liberals didn’t oppose this and certainly never campaigned for privatisation. We opposed privatisation when it began.
Steel, of course, was subject to years of back and forth in/out the public sector, but for 40 years no-one, not even the Tories sought to change this until Thatcher and Lawson. In fact Heath nationalised British Leyland to save it from failure.
The right wing media have created a number of myths about nationalised industries especially in respect of overmanning and inefficiency, that far too many of our younger members, with no actual experience of nationalised industry, have swallowed hook, line and sinker. In fact British Rail -starved of cash as it was – became, as of necessity, one of the most efficient railways in Europe.
I want the renationalisation of public utilities – water, gas , electricity and railways – and I want our party to support that.
Mick Taylor is right, and Peter Martin needs reminding that in the early 1920’s the then Liberal Party was in favour of the nationalisation of the coal mines.
@ David Raw,
I wasn’t around in the early 20s so I can’t see how I can be reminded. I would expect that the mines had been de-facto nationalised during the years of WW1 but that wouldn’t have been for socialist reasons.
Do you have a reference for the support you mention? I can’t find anything other than that Lloyd George ruled out the Nationalisation of the mines in 1919.
@ Peter Martin, “I wasn’t around in the early 20s so I can’t see how I can be reminded”.
You don’t have to have been around to be reminded, Mr Martin, (unless of course you take Henry Ford’s view of history)…… and if it was the case there would be no such thing as history or historians.
It wasn’t unanimous, I’ll grant you that, but you could always take a look at the MacCallum Scott papers at Glasgow University, the Muirhead papers at the National Library of Scotland or the Pringle papers in the Parliamentary archive in London. As for LLG….. trapped in the bind of a Coalition with the Tories….. something Lib Dems should have learned and always been wary of, so no surprise there then.
@ Mick Taylor,
“I want the renationalisation of public utilities – water, gas , electricity and railways – and I want our party to support that.”
Me too. That was what Keir Starmer (pre April 4th 2020) told us we were voting for in the Labour leadership elections. There was a somewhat different Keir Starmer to be seen afterwards who told us we were mistaken to think that!
Politicians eh! Who ever thought they couldn’t be trusted!
David Raw:
Remind me, wasn’t it the Liberal politician Joseph Chamberlain who was the moving force for water services nationalisation in the first place, saying “We have not the slightest intention of making profit…We shall get our profit indirectly in the comfort of the town and in the health of the inhabitants”?
Although in retrospect we may justifiably have mixed estimations of Joseph Chamberlain, domestically, he has a social reformer and in this statement articulates fundamental values of modern Liberalism. Peter Martin’s failures of his own imagination and understanding of Liberalism is his own affair.
I am sure that when privatisation of water services was pushed through in 1989, it was opposed by the Liberal Party (perhaps it was called Social and Liberal Democrats at that point) – I think I remember several speaking out against it, including Lords Jo Grimond and Roy Jenkins.
Indeed so, Martin, in Birmingham – and a great many other local authorities under Liberal control such as Manchester followed in due course.
As I assume you know, Joe Chamberlain left the Liberal Party and founded the Liberal Unionist Party in 1886 in order to oppose Gladstone’s policy on Home Rule for Ireland.
I do so wish Peter Martin (and the current Lib Dem leadership for that matter) could take a bit of time off in order to read Hobhouse, Green, Masterman etc., and to absorb what is involved in the ‘New Liberalism’.
@ Martin,
I would say the correct term for Joseph Chamberlain’s action would be ‘municipalisation’ rather than nationalisation. The water supply was taken into the control of Birmingham council to prevent the outbreaks of cholera at the time with similar measure being subsequently implemented elsewhere. The motivation to provide a proper sewage system for London came in large part from the smell that permeated the House of Commons. Naturally the ruling class will use public money when it’s to their benefit.
In any case, this was all done in the 19th century. It may be of historical interest but the more important issue for present generations is what the political parties are proposing now. If the Libs/Lib Dems were against privatisation in 1989 why are they in favour of it in 2023 and previously in 2013 when the Royal Mail was privatised when the Lib dems were in government? Didn’t Vince Cable take a key role in that?
Martin, regarding debt and company valuation:
Imagine the combined water companies had a market valuation of 14.5bn. To buy them you would need to shell out 14.5bn. However, if these companies have 50bn in debt – your figure, remember – you have paid a real price of 14.5bn + 50bn, as you are now responsible for the water companies’ debt. 64.5bn is the so-called “enterprise” value.
Imagine if the companies had 20bn debt, you would then pay an effective 34.5bn.
You say on what authority I question Moodys. I do not question Moodys. I suggest you have either got your figures wrong or you have misunderstood what Moodys are saying.
What they might have said, it will cost 14.5bn to buy water company EQUITY. But the buyer takes on existing company debt as well, not just equity. So the enterprise vale is 64.5bn on your figures.
Btw Moodys played a niche, but important contribution to the Credit Crunch debacle. I don’t regard them as economic authorities.
I’ve now found the FT article about water nationalisation and Moody’s, Martin.
All it says is that the Labour party (in 2019) favours compensation based on the book value of the water companies. The FT then asked Moody’s to calculate the total book value of the water companies. This came to 14.5bn.
Obviously, if a Corbyn vintage Labour government chose NOT to honour those companies debts, they would have a lot of very angry creditors on their hands; and this would have the highly unfortunate repercussions I mentioned earlier in the Venezuelan scenario.
Btw the same article puts the market value of the companies at 40m plus. That is the value the government would have to pay to buy out shareholders at the current price. That would be fair.
You then need to add the 50bn debt to get enterprise value.
Mick Taylor recalls the post-war nationalisation of heavy industry. These were all loss making businesses that would have seen heavy layoffs without the exigencies of war keeping them afloat. This was also the case with many hospitals built during wartime that would have closed if they had to rely on the funding available via private medical insurance. One of the few heavy industries that remained profitable after the war was steel. The steel industry was first nationalised in 1949, and privatised a year later by the new Conservative government. It was re-nationalised in 1967 when over 90% of steel capacity was put under the control of the British Steel Corporation (BSC). Steel was returned to the private sector once more in 1988. The issue of nationalisation of the steel industry is again back on the agenda, as it requires heavy government subsidy to modernise.
The main issue for steel making is the 30% higher cost of energy in the UK versus that in the European continent . Tata Steel is set to close its blast furnances at Port Talbot and may set about modernising its facilities there, if it can negotiate government subsidies to do so , potentially with electric arc furnaces that could make steel with only a fraction of the carbon emissions it produces today https://news.sky.com/story/why-the-british-steel-industry-is-on-the-brink-of-extinction-or-a-green-resurrection-12850386.
Peter Martin,
the government just as with any major corporation does not have an unlimited capacity to swap paper debt for real assets. It has a greater capacity then individual firms. but is subject to the same kind of rationale. Corporations need to deliver enhanced shareholder value to attract capital and expand. Governments need to deliver value for money and facilitate enhanced productivity to deliver improvements in living standards.
English Water companies are more than 90% owned by shareholders abroad, for example:
• Wessex Water is 100% owned by a Malaysian company, YTL
• Northumbrian Water is owned by Hong Kong businessman Li Ka Shing
• Thames Water is partly owned by investors from the United Arab Emirates, Kuwait, China and Australia
Welsh and Scottish Water is in public ownership. Similar regional ownership could work for England, but it would be initially costly. In France, a number of cities have brought water back into public ownership. They didn’t sell off the assets like England did which means they can just wait until contracts come to an end. In Paris water came back into public ownership in 2011.
The alternative to public ownership is effective regulation and Land Value Taxes on usage of natural resources.
@ Joe,
The Government could nationalise everything if it wanted to. There is neither a political nor a financial constraint. But, as Prof Randall Wray often puts it, “could” doesn’t mean “should”. In a democratic society, it is natural that we all have different opinions about where the line should be drawn. My own opinion, FWIW, is that we should nationalise the utilities of water, gas and electricity because there is no effective competition possible. Every property has only one pipe or supply cable. We’ve never had real competition. It all been a pretence. If Mr Li Ka Shing, and others, want to use the proceeds of the sale of their shares to set up an enterprise in the genuinely competitive economy this could be welcomed.
Those who always raise the cost of renationalisation, with the implication that ‘we can’t afford it’ and that we are burdening future generations with debts etc etc always overlook the reality of the genuinely mixed post war economy, due to the nationalisation program of the 1945 Labour Govt, and which did not overburden the ‘baby boomers’ with unrepayable debts. Even though the country was in economically poor shape it was still ‘affordable’ to nationalise some 20% of the economy. It would have still been affordable to go even further. The decision not to was a political one and not one constrained by a ‘lack of money’.
“My own opinion, FWIW, is that we should nationalise the utilities of water, gas and electricity because there is no effective competition possible.”
This lack of effective competition issue is crucial. We the people can’t switch to any other provider of the service should we want to .
Water – does that include sewage, rainfall drainage? If not then is should in my view.
Peter Martin,
there is a cost/benefit analysis in every policy action. The post-war nationalisation was a rescue of mostly essential businesses that would not have survived intact after the war. They were subsidised by taxpayers for the ensuing decades until privatisation.
Governments can nationalise businesses,but in most cases where it has been done it has not produced economic benefits for the reasons stated earlier.
Economics is principally about how people and societies make decisions about how to get the most out of their limited resources. Pricing is a means of rationing scarce resources.
Water is a natural resource, but is has to be collected, treated and distributed if we are not all to have to go to the river with buckets. Charging water companies for the amount of water they take from waterways is one method of ensuring there is a cost to leakage and providing incentives to invest in fixing the Victorian pipe system. Effective regulation such as temporarily taking over the management of regional water companies as a special measure is another method of curbing avoidable pollution. A combination of land value taxes and effective regulation with a pricing model based on conserving resources is likely a more optimal solution than nationalisation and yet more centralisation of state power.
@ Joe
“Governments can nationalise businesses,but in most cases where it has been done it has not produced economic benefits for the reasons stated earlier.”
You might like to take a look at the economic benefits that have been produced for Singaporeans by the hands-on involvement of their government. The profits made, and which then flow to Govt, enable taxes to be kept very low which should appeal to the political right more than it does. This is not to suggest that we need to copy all their policies, just the ones we like!
You are vanishingly unlikely to see the same benefits to nationalisation in an small authoritarian and very efficient city state, as in a shambolic democracy with a very mediocre history of state involvement in the water industry.
Citing Singapore is escapism, Peter.
Hello, Joe, would you explain how you think LTV would improve the performance of the water industry?
To my mind, the argument over privately-run v publicly-run is a tertiary issue. And pretty sterile, as it’s unlikely to produce in itself any improvement in water performance and beach quality, which is the aim of the exercise, is it not?
Can’t help feeling my LD fellows are being rather binary in their thinking.
What is lacking is capital. Privatisation DID bring extra capital into the industry, but not enough.
The best way to get extra capital now for infrastructure spending is NOT to nationalise, but for the state to take on water company debt in exchange for equity. This would lead to the state having large minority stakes in private companies. It would massively improve the debt to equity ratio of the companies and allow them to gear up again at favourable rates. And go for massive new investment in updating water infrastructure.
Really, we are liberals, we can be pragmatic on this issue. We do not need to limit ourselves to binary thinking.
Or to put it another way, it’s so much more fun being fluid and non-binary.
@ Chris,
We may be a shambolic democracy but there’s nothing ‘vanishingly unlikely’ about the benefits, both economic and otherwise, which our Nationalised NHS has brought. Of course there are many who would like to get a share of the economic action, ie make some profits, and would like to see it privatised. Fortunately we have always had sufficient popular support to prevent full privatisation even though many would say we already have too much.
We also tend to forget that our road system is almost fully nationalised. It hasn’t always been the case. There used to be tollgates and turnpikes. The technology to fully privatise the road system now exists. Every car would be linked to our credit cards and we’d be billed every time we made a journey. The fire service could be privatised. We’d all have to pay some form of insurance and a fire engine would only be sent out to our property if we were fully paid up. This, again, is what used to happen.
Who are you arguing with?
Have I or anyone else on here called for privatisation of NHS, roads or the fire service?
Please be less ideological and more pragmatic.
Profits are necessary to attract capital for investment as Ofwat explains Why do the companies need to make profits?
Singapore’s water tariff includes a conservation tax set at 30% that increases to 45% for domestic consumption above 40 m3 per month. A general service tax of 7% is added to the bill. While tariffs historically included a cross-subsidy from industries that paid a higher price to residential users that paid a lower price for social reasons, this policy was ended and residential users were charged a tariff that covers the full costs of supply. The level of water losses – more precisely defined as non-revenue water – is one of the lowest in the world at only 5%. Singapore’s Public utilities board (PUB) regularly issues bonds to finance part of its investment program just as UK water companies do.
When Thatcher transferred ownership of the 10 public water utilities to the private sector, she wrote off their existing debts and threw in some seed money as well. Land assets were transferred to these companies. While investment has gone into maintaining infrastructure, no new water reservoirs have been built in England during the privatised era. It is reported that some land held by the companies has instead been used for house building. Only one new reservoir is under construction when an estimated 30+ are needed. Underinvestment in infrastructure comes at a cost. In 2020 it was reported that a fifth of the water volume used, was lost to leakage every day, and the figure has not improved over the previous 20 years. A land Value Tax imposed on these assets will incentivise the development of the reservoirs. Designation of the water companies as Community interest companies (CICs) would put an asset lock on land assets and a dividend cap to ensure that their profits are used for the benefit of the community while still being able to attract private capital.
Sorry, Joe, could you unpack a little more the idea that LTV would incentivise reservoir development?
Thanks.
Chris,
Nine water companies own 345,977 acres of England – rising to 423,952 acres of England & Wales when Welsh Water is added in. Eight of the water utilities make it into the top 50 land-owning companies in England & Wales LAND OWNED BY THE WATER UTILITIES
It is suggested that the UK needs 30+ new reservoirs to protect the water supply from recurring droughts UK needs 30 new reservoirs According to the National Infrastructure Commission, the new infrastructure would cost an estimated £8bn and have sufficient storage space to provide 1.3 billion extra litres of water a day.
The first hurdle in developing a new reservoir is securing planning permission for the site. Once planning consent is granted the Land is zoned for commercial use and Land Value Taxes in the form of a Commercial Landowners Levy can be assessed based on its revenue producing potential. Recurring tax obligations on land with planning consent for commercial operations incentivises bringing that land into use (rather than sitting on land assets that produce no income stream) and captures surplus or excess profits (arising from the economic/monopoly rents generated) for the public benefit. A community interest company can access the debt markets for loans and bonds and issue shares; directors who can be paid but this is regulated; an asset lock and legal protection against demutualisation and windfall profits being paid to directors and members. Dividends are capped at 35% of distributable profits. This ensures that 65% of the CICs profits are reinvested back into the company or used for the community it was set up to serve.
Yes, so I can see that once planning consent is granted, if there is an LTV, this would encourage the company to crack on with the development.
Might it not prior to that stage, actually be a dis-incentive to development? Adding extra costs (and therefore risk) to any potential scheme.
Do we know what percentage of the acreage owned by the water companies is occupied by productive assets?
If water companies are not developing the reservoirs needed to ensure an adequate water then the government has the option of compulsory purchase of land held by the companies to be utilised for these purposes.
The environment agency and OFWAT need dedicated sources of funding to monitor the performance and actions of water companies. Decades of budget cuts have seriously weakened and undermined these agencies. A precept based on LVT of Water company land assets (with or without planning consent) can provide such funding. Environmental agencies need legal powers and authority to hold water companies to account for their failures, like dumping sewage. The regulator, OFWAT must also ensure water companies invest in infrastructure with reasonable caps on dividend distributions to facilitate retention and reinvestment of profits. There needs to be a 100% target for waterways to reach “clean water”status by 2037.