The case for state ownership or control of water and electricity

As many friends know, I now live in a seaside town in Greece.

I have been reflecting on the cost of living here and, in particular, the cost of water and electricity, compared to the UK.

I have just paid my first water bill. For six months I have paid 37€. It’s not that I don’t use water, I do. I have a washing machine and a dishwasher, I clean the car, I water the garden and of course I shower and shave daily. Compare that with the £25 a month I was paying in Mytholmroyd, which I left just over a year ago. I suspect it’s gone up now.

My most recent electricity bill was 134€ for a month and the Greek government subsidies me by 159€ a month. My house is all electric with AC units which double up as heaters in the winter and there are pumps on both the cold-water supply and the solar water heating panel. My cooker is electric. I believe that were I still in the UK I would be paying around £450 a month for my previous flat. This means that electricity in 74% more expensive in the UK even if I had no subsidy in Greece. With the subsidy my electricity bill is 280% less than in the UK.

Now, Greece is not a particularly wealthy country. It recently went through a major financial crisis and much that the state had done before has been lost. Water, however, is run by local councils. In the UK water is owned by private companies and the costs are exorbitant and the directors grossly overpaid.

My electricity company in Greece DEH is the former state-owned electricity company. Yet, it is not charging grossly inflated prices and people are being helped with their electricity bills. Sure, it’s slow to act and there are power cuts sometimes (mainly due to weather like thunderstorms), but it is providing a service at affordable prices. It is clearly regulated and behaves reasonably.

The conclusion I draw from this is twofold.

Firstly, that the water industry in the UK should be immediately brought back into public ownership, or indeed municipal ownership. I fail to understand why our party does not adopt what would be a popular policy.

Secondly, that pending renationalisation, the electricity generators, and distributors, be stringently regulated and stopped from paying huge salaries and bonuses to their directors and shareholders and instructed to bring down prices. In the medium term I can see no alternative to state ownership with what is an essential household good. Again, I cannot understand why our party has not adopted this as policy.

Of course, none of this will do any good, unless the government subsequently provides the necessary investment to make the water and sewerage industry more efficient and green the provision of electricity. It is now abundantly clear that the private sector, despite all the Tory hype when water and electricity were privatised, is not carrying out the necessary investment and is simply milking what is now a private monopoly.

I could make similar comments, about gas and railways, but I’m just making the point about water and electricity at the moment. When will the party grasp the nettle?

 

* Dr Michael Taylor has been a party member since 1964. He is currently living in Greece.

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34 Comments

  • Tristan Ward 4th May '23 - 2:07pm

    “I have just paid my first water bill. For six months I have paid 37€”

    How much does it actually cost to deliver the amount of water you paid 37 Euro for? (You could ask the same question about UK water companies of course, and similarly for electricity.) To put it another way, is the costs more than the 37 Euro, and if they are, who pays it?

    I would not rule out nationally owned utilities myself, but my biases are against them, for the reasons given by Mohammed Amin, and also because political biases distort investment and spending decisions more generally than just around employment. For a contemporary illustration, consider the Conservative abolition of the Feed in Tarrif (that subsidised small scale renewable energy) after the end of the coalition “because it increased electricity prices”.

    I am also old enough (just about) to remember the nationalised companies. I am not at all sure what they delivered was better than now but of course the world has changed so much that that kind of direct comparison is probably impossible/meaningless.

  • Jason Connor 4th May '23 - 2:21pm

    I disagree with the first comment above and fully endorse the author of the article. Of course this party did and should still believe in a ‘mixed economy’. The mixed part does mean some nationalisation and public ownership. That is what social liberalism is all about. If we are to follow the logic of privatising services just because they cost less get rid of staff, then following through their argument would dispense with the NHS. The NHS is accountable whereas many private hospitals are not. There is a cost issue with water as well as the stewardship or lack of it from these companies when it comes to their environmental responsibilities. A nationalised water industry would be held accountable and would not get away with the dumping of raw sewage in rivers and waters, there would be an outcry and it would reflect so badly on the government. The private companies do as their prime purpose is to make a profit to the benefit of their CEOS and shareholders. The regulators have very little clout when it comes to what private sector companies do or don’t do in any case. It’s a bit like with FOI. You can get information from your council on what it does, government and transport bodies etc and hold them to account but the private sector is exempt. The party can be made to grasp the nettle is more of us speak up about it as I will be doing at a future local party event.

  • Peter Martin 4th May '23 - 2:40pm

    @ Mohammad Amin.

    “Basically the state should never own any businesses.”

    Does this include hospitals? They’re a business in the sense that they supply a service to the public and have to charge for these, even if it is via the taxation system.

    There are lots of other examples. The rail tracks are owned by the Government and help provide a service. So is the road system. We can add libraries, schools, museums, art galleries, local parks, even public beaches to the list. They need to be maintained and kept clean at public expense.

    Is there nothing we can hang on to?

  • One ‘minor’ detail is simply cost. This report from February 2018 had the key finding that it would cost £90 billion to nationalise the water industry.

    Now that might be a cost we are willing to make…….. but I really question whether spending £90 billion of taxpayers money on changing ownership of an industry is a higher and more urgent priority than increased investment in public transport, housing and policing – and especially health, social care and education.

    It was a mistake to have privatised the water industry in the late 1980s – after all water is truly a natural monopoly – but personally I think many of the failures of the current running of the industry could be resolved without the taxpayer having to find £90 billion.

    Politics is about priorities – and I can think of far more important pressing priorities in public expenditure.

    “Our best estimate of the costs of obtaining control of the regulated businesses gives
    a ‘takeover value’ of £90bn.”
    https://www.smf.co.uk/wp-content/uploads/2018/02/The-cost-of-nationalising-the-water-industry-in-England.pdf

  • Nonconformistradical 4th May '23 - 3:01pm

    @Mohammed Amin
    “However the case against state ownership of businesses (including those providing electricity and water) is clear. Politicians inevitably meddle, and prevent the businesses concerned being run on a commercial basis.”

    There’s a big difference between ‘businesses’ which we all need and where we don’t have a choice of provider (or in some cases such as health care an affordable choice of provider) and businesses where there is genuine competition so consumers can ditch one provider and go to another.

    As it is the ‘businesses’ running water supplies and sewage disposal have been fleecing their customers – we the people – right left and centre – when we don’t have a choice as to who provides these services.

    And in part our health care problems are that what might work for the well off (private health care) doesn’t work at all for those who can’t afford it and have to put up with state provision which isn’t adequately funded.

    And none of these essential services is being regulated properly.

  • Steve Trevethan 4th May '23 - 3:09pm

    How do those who oppose nationalised necessities explain the success of France’s E. D .F?

  • Mark should have declared that the report he cites was published by the ‘Social Market Foundation’ an organisation close to David Owen, but which was described by the Financial Times as, “Following the demise of the ‘continuing’ SDP in 1990, the Foundation gravitated to the post-Thatcher Conservative Party, and in press circles it was often cited as “John Major’s favourite thinktank”.

    The SMF website admits that their ‘research’ is funded by those that sponsor them. Can he give an assurance that the Water Companies didn’t ‘sponsor’ the report the quotes ?

  • I think the option of conversion to Community Interest Companies could be usefully pursued for the Water Companies. The CIC model is designed to provide an effective legal form for enterprises which aim to provide benefit to the community or to trade with a “social purpose,” rather than to make a profit.
    A CIC may be limited by shares or by guarantee. CICs limited by shares are subject to a dividend cap. This is a means of making sure that, while investment can be generated through issuing shares, the CIC model cannot be exploited for personal gain.
    All CICs must submit a Community Interest Statement and an annual Community Interest Report, and are subject to an “asset lock” – a provision written into the CIC’s articles of association which acts as a means of making sure that any assets are retained by the CIC and not transferred away from it.
    Welsh Water is already a non-profit (and Scottish Water is publicly owned). Water charges are higher in Wales than in many English regions and sewage spills just as common. The CIC route does not change the economic fundamentals of providing water services any more than nationalisation does; but it may provide a basis for ensuring the industry is run for public benefit and not subject to extraction of monopoly profits or bedevilled by the inefficiencies of a centralised Whitewall bureaucracy.

  • Mick Taylor 4th May '23 - 5:34pm

    What exactly is meant by “running a business on a normal commercial basis?” In the case of the water industry in particular, this has meant cutting maintenance to the bone, dumping sewerage into rivers and lakes and squeezing every last penny out of the companies to pay to the managers and shareholders. And Mr Amin, you are wrong. Water has not become cheaper. All that privatisation has achieved is to cut jobs, put up prices and make managers and shareholders richer, using profits to pay bonuses and dividends, rather than ploughing it back into much needed investment.
    Water and power are essential to life and need to be treated differently. If regulation is such a runaway success, then please explain why prices are sky high, bonuses and dividends excessive and investment is lower now than in the days of state ownership.
    Far too many Lib Dems have been brainwashed by the myth of the inefficiency of nationalised industries. British Rail was forced to innovate by lack of cash and became one of the most efficient railways in the world. Its reward? To be broken up, its expertise largely lost and its workers so badly paid that we now face endless strikes.
    Those of us old enough to remember nationalised industries know that they were not as Tory propaganda and the Tory press describe them.
    I have no objection to the CIC model, but as Joe himself points out that alone won’t solve the problems.

  • Mick Taylor 4th May '23 - 5:49pm

    Mark, there need be no cost to nationalisation, or at least no upfront cost. Owners can be issued with government bonds up to the value of their shareholding. Of course, dividends will have to be paid and ultimately the bonds can be sold or redeemed, but it spreads the cost over many years.
    I would point out that Network Rail and at least 3 franchises, Northern, LNER and South East are no longer in private hands and their shareholders got nothing.

  • Peter Chambers 4th May '23 - 6:58pm

    @MIck Taylor

    Quite right about the trains. The way franchises work a Train Operating Company is designed to be worth about £1. That is the value at risk, should you lose the franchise. Rolling stock is hired. The track is owned by someone else. So, how much is a private water company worth?

  • Christopher Haigh 4th May '23 - 7:54pm

    I long for the days of nationalised industry to return. Water charges, rail fares, electricity tariffs, local bus services are now just a complete mess thanks to Thatcher and her acolytes. I go with Joe Bourke that these essential services should be run as non for profit charitable companies.

  • James Fowler 4th May '23 - 8:56pm

    This is a very interesting article, thank you for posting it. My thoughts run like this: Nothing is actually free and very few things are cheap. If you do obtain them very cheaply it is usually because there is another part of the cost being picked up by someone else. The price of water in the UK is, I think, inflated somewhat by the ownership structures we have chosen to adopt. However, the price quoted for Greek water seems so low that I have to wonder who is really paying the bill, and if that is really a fair apportionment of costs across Greek society.

  • @mohammad –
    ” That is why privatisation almost invariably results in the same services being provided at a lower cost”

    That is a statement of blind belief. For a service to transfer from public to private ownership, there is an increase of circa 30% in cost, because of taxation differences and the need to make, even a small (post tax) profit, to deliver dividends to “investors”. Yes there were inefficiencies in the public operations and deftness arising from a (traditional conservative) mindset that didn’t believe in investing in public services, resulting in the mess we are finding ourselves in now.

    Additionally, we can now see that privatisation has failed to deliver for the utilities, with massive amounts of monies being diverted from investment in the utility (ie. Improved service delivery) and put into the pockets of third parties with little interest in the actual business other than whether it can extract more profits from its customers.

    The CIC enterprise model fits the utility sector well, as whilst it is still a business, and will need to be internally run “for profit”, its legal primary purpose changes from generating revenues for “investors” (either share holders or increasingly common these days, providers of “loans”) to the delivery of “social purpose and benefit” namely the delivery of clean water and processing of waste water in the case of the water utilities, which dramatically changes the focus of the executives…

  • Mick Taylor 5th May '23 - 6:47am

    @JamesFowler. No-one was more surprised than me about the low cost of water here in Greece. The local Council owns and runs the water supply and I know they invest in it, because a new main was installed last year and it greatly improved the supply. The rainfall pattern here plus the large number of summer tourists sometimes means there is a water shortage in the summer, so most people have large water tanks (1000l in my case). Also properties have septic tanks, which are emptied privately. I am guessing here, but I think UK water companies have to spend more on dealing with sewerage than supplying water, which would go some way to explaining why water is so much cheaper.

  • Rif Winfield 5th May '23 - 7:49am

    Mick!
    Just to endorse your remarks, which reflect what we are Liberals have been demanding since the 1960s (as you and I well remember!). Essential public services should be brought under government control, and regulated for the good of the community, just like health and education (although those who wish to pay extra for services beyond the normal level – i.e. desirable but not particularly essential – should be free to turn to commercial bodies).

  • Mark Frankel 5th May '23 - 9:02am

    The model of a community interest company is an interesting one but a study ten years ago showed the model confined to small enterprises. Could the model work for much large ones? Another model is Transport for London, which is a local authority with private sub-contractors and access to market finance as well as government borrowing. A further model is Network Rail, an arms-length company of Department of Transport.

    The water & sewage private companies have lost public confidence, lack agility, are unduly focussed on ‘shareholder value’ and are not keeping up with the massive investment that the service needs – a need that will only get greater with the growing environmental crisis. The mind-bogglingly dreadful Post Office scandal is an example of how badly privatisation can go wrong. Alternative models need to be considered — but on a pragmatic not an ideological basis (in the true Liberal tradition).

  • Chris Moore 5th May '23 - 10:17am

    Mick, I’m surprised to see you praising DEH, the dominant privatised near monopoly electricity company in Greece!!

    BTW There are some new independent electricity companies in Greece: they compete on both price and service with DEH. You might want to think about swapping.

    As regards water: nationalisation of water in the UK will not bring Greek prices!!! There are all sorts of reasons why the water price is much lower in Greece: wage levels and property prices for starters!

    Much of the comment on here flies in the face of an apparently inadmissible fact: in the UK (and elsewhere in Europe), water infrastructure is creaking. massive spending is needed: that can be paid for in two ways: raising charges or through government borrowing and taxation. There’s no way round it.

    Regarding trains: the government didn’t renew franchises. Rail assets were not expropriated.

  • David Raw says that I should have declared that a report I referred to (and included a link to) was from the Social Market Foundation.

    If you actually click on the link I provided it is actually very clear and open who produced the report – and indeed who commissioned it. I don’t think there is any secrecy in this matter.

    https://www.smf.co.uk/water-nationalisation-cost-90-billion/

    https://www.smf.co.uk/wp-content/uploads/2018/02/The-cost-of-nationalising-the-water-industry-in-England.pdf

    I am not saying this report is the only view that matters – but equally I don’t think it should be casually dismissed.

    Mick Taylor makes the claim that:

    “Mark, there need be no cost to nationalisation, or at least no upfront cost.”

    Yes of course nationalisation can be funded by borrowing and spread over the years – but it still ultimately has to be paid for. Personally I would prefer public borrowing to fund long term improvements in public transport infrastructure and social housing, which would provide far greater social benefits than buying out the water industry. There have to be priorities over what changes can be made with Government intervention – and I think there are far higher priorities,

  • Mark Frankel 5th May ’23 – 9:02am:
    The mind-bogglingly dreadful Post Office scandal is an example of how badly privatisation can go wrong.

    If this is a reference to the Horizon scandal then that’s an example of the arrogance and Kafkaesque incompetence characteristic of a state owned business. Post Office Limited is still nationalised…

    ‘Who we are’:
    https://corporate.postoffice.co.uk/en/about/our-story/who-we-are/

    We value our long history of service in the UK, and want to remain one of the most admired institutions in the public sector. Following our separation from Royal Mail in 2012, we are on a journey to evolve into a sustainable, successful and sought-after franchise business…

  • @ Mark Frankel – ”The model of a community interest company is an interesting one but a study ten years ago showed the model confined to small enterprises.”

    Given the CIC was only introduced in 2005, it would be natural for it to be initially used by start ups and smaller social enterprises seeking to incorporate, so that they could run “for profit” businesses without falling foul of the rules around charities.

    I think an updated study is needed and a good look at the few large CICs such as Dŵr Cymru Welsh Water (which is directly relevant to the discussion here). Additionally, it is worth asking why some charities and social enterprises are still using the standard corporate structures, to see if there are non-obvious limitations to the CIC legal structure. I suspect for many it will something along the lines the pre-CIC setup is working fine and changing it will cost time and money, so why fix something that isn’t broken.

  • 1. Can Mark put an actuarial figure on the true cost of the pollution being incurred by the current failure of the water supply and sewerage system in England ?

    2. Does Mark not accept that the Social Market Foundation produces reports financed by financial sponsors who have a vested interest in the conclusions of said reports ?

  • I have just paid my first water bill. For six months I have paid 37€. […] Compare that with the £25 a month I was paying in Mytholmroyd,…

    Adjusted for the cost of living, the difference in average prices is rather less…

    ‘Water ranking in Europe 2020’:
    https://smartwatermagazine.com/news/locken/water-ranking-europe-2020

    Water prices

    The average price of water for household use in Europe is highly variable.

    It is highest in Denmark with 9.32 €/m3, followed by Norway with 7.8 €/m3.

    The UK is in the middle of the ranking, with an average price of 3.5 €/m3.

    Among the countries with the cheapest water are Greece with 1.23 €/m3 and Bulgaria with 1.07 €/m3.
    […]

    Price modified according to the cost of living

    But these prices are influenced by a variable that can distort the ranking a bit: the cost of living in each country. Prices in countries with a higher income and a higher standard of living will tend to be much higher than in other countries. […]

    The UK, which was in the middle of the ranking but closer to the top, drops down a few places to the lower third of the ranking.

  • Chris Moore 5th May '23 - 4:19pm

    Look, everything is cheaper in Greece.

    It’s really simple. In Spain, where regional authorities either run the water companies themselves OR franchise out to a private company, the resultant bodies are pretty comparable on a range of indicators. That is the reality.

    We have to get beyond the simplistic belief that nationalisation is a magic wand to solve all water’s problems.

    If you REALLY want an improvement in sewage stats, massive infrastructure expenditure is required.

    The best way to do this is for the state to take on private companies’ debt in exchange for equity.

    The end result is private companies with a large minority state holding and a larger balance sheet, so they can re-borrow from the private sector.

    This may sound complicated, but it actually, unlike hopeless nationalisation, allows a massive spending increase.

  • @Chris Moore
    ” The best way to do this (massive infrastructure expenditure is required) is for the state to take on private companies’ debt in exchange for equity.”

    Disagree, given the use of debt for tax efficiencies, I suspect this will simple result in monies flowing out of the sector. I think it would be better for the government to provide monies/loans on the same basis as the third-sector is funded, namely matched funding against defined projects, with reporting.

    Interestingly, there is one benefit of Brexit(!), namely the government doesn’t have to stay with EU debt constraints and thus there is no longer a need to have massive amounts of off books debt serviced at commercial rates (plus profits) when it can be serviced at government bond rates…

  • In response to David Raw

    1. Can Mark put an actuarial figure on the true cost of the pollution being incurred by the current failure of the water supply and sewerage system in England

    Answer: I can’t. Why should I as a private individual have this information at hand? However, it should be available to the public and the data would help inform the debate about the future of the water industry – is this one thing we can surely agree on.

    2. Does Mark not accept that the Social Market Foundation produces reports financed by financial sponsors who have a vested interest in the conclusions of said reports ?

    Answer : the report is quite open on its interests. Instead of just rubbishing and dismissing its findings perhaps they should be given at least some consideration – as well as other studies on this issue.

  • Mick Taylor 6th May '23 - 9:11am

    Not everything is cheaper in Greece. Petrol isn’t for a start and you pay tolls on every motorway. As I discovered yesterday, bedding is very expensive as well and furniture is roughly comparable to the UK.
    I was not praising DEH and may look for a cheaper alternative in the future. I was just pointing out that the cost of electricity – even without the large government subsidy – is much cheaper in Greece than in the UK. And, yes, DEH is privatised, but it is clearly heavily regulated in a way that similar companies in the UK are not.
    I would ask that those who think nationalisation is inherently bad to actually do some real research about how the companies actually operated before Thatcher privatised them, rather than accept the Tory propaganda that has permeated our national press for so long. They might also like to look at Swiss Railways, a state owned company, which is possibly one of the most efficient railways in Europe, or indeed as mentioned earlier EDF.

  • Peter Hirst 8th May '23 - 2:27pm

    Our society is becoming more unequal and private ownership of utilities contributes to this. The other factor is that we are also becoming a poorer country and cannot afford the exorbitant fees that you refer to. Either state ownership or a much more tightly regulated ownership is required.

  • Mick Taylor 11th May '23 - 8:49am

    I note that now there are 4 train franchises being run by the state because Trans Pennine (with whom I had a pretty negative experience yesterday with late and/or cancelled trains) will be nationalised on 24th May.

  • Mick,

    I wonder if it is “Nationalisation by stealth?” 😉

  • Peter Chambers 12th May '23 - 1:32pm

    > Regarding trains: the government didn’t renew franchises. Rail assets were not expropriated.

    Is this a worry about water assets, by contrast?

    I think it was Norman Tebbit who asked the question “when is an assets not an asset?” and answered it with “when it is a liability”. He was referring to the GPO, and how BT had to be extracted in a condition ready for sale. There are water assets, and these are offset by liabilities such as the necessary costs of remediation, fines, perhaps fair wage levels. If the liabilities are fairly accounted for, then the assets may be worth much less. It may seem less sensible to pay large dividends, and more easy to contemplate public ownership or mutualisation. The “rivers of shit” factor prompts a hard look at the books.

  • Mick Taylor 12th May '23 - 2:58pm

    Peter Chambers raises an important point. Who does own the railway assets if not the franchisees? Network Rail own the track, most of the stations and signal boxes. As I understand it trains are leased for the length of a franchise. I assume they will still be owned by the lease company.
    It would therefore be possible to take back the franchises as they run out, at no cost, because there are no assets. Rolling stock will still have to be purchased or leased as it was when British Rail ran the railways.
    And, yes, it is nationalisation by stealth. Let’s own it and argue for it. Public ownership of railways is popular with voters, who are fed up with the way private companies run the railways. Of course, a lot of re-education of our own supporters and members will be necessary. Far too many of them have no memory of British Rail and believe, contrary to the facts, that BR was inefficient and a drain on taxpayers, whereas in fact it was highly efficient because it was forced to be by lack of cash.
    Where I lived in West Yorkshire the trains were kept running by BR when the M62 was blocked by snow and the buses stopped running too. No excuses like snow on the tracks, wrong kind of snow or leaves on the line!

  • Mick,

    UK railways are effectively nationalised operations. The franchisee system for passenger rail ended at the start of the Pandemic, when the Department for Transport switched every passenger line to an “Emergency Measures Agreement”, whereby the franchisees would still operate the line, but the government would take all cost-risk and all revenue. The Franchise operators work for a management fee Rail franchising scrapped after 24 years

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