Water shortages are not just the fault of the weather or climate

Areas of southern England and parts of continental Europe are now in officially in drought. Taps ran dry in Northend in Oxfordshire. The source of the mighty River Thames shrank back to more than five miles from its source near for the first time in memory. Hosepipe bans are in force and people are advised to reduce water use.

Although there is now some rain in some areas, the water deficit in the soil is now so great a couple of days rain will do little more than revive those flagging garden plants and maybe perk up the lawns we seem to love so much.

This is not 1976 and we are unlikely to see standpipes in the streets at any point. But the current shortages do show how our water system is being pushed to the limits.

This article asks the question, why is England and its water companies so unprepared?

Climate change has made drought more likely but it is not the only factor behind the water shortages. A lot of the issues lie with the effectiveness of the water regulator Ofwat, the lack of a clear government strategy for new water resources and the lack of investment by water companies.

When water supply and sewerage disposal were privatised in 1989, the talk was of the power of private capital to invest. This followed decades of underinvestment, not helped by Margaret Thatcher’s government clamp down on borrowing by public bodies. But overseen by Ofwat, the privatised water companies are making a mint from their monopolies, giving their shareholders around £2bn a year. Their chief executives were paid a total of £48m in 2020 and 2021, including £27.6m in bonuses, benefits and incentives.

It is a sad reflection of our age that such bonuses take more account of contribution to shareholder value than actions that most benefit the consumer. It is scandalous that around 20 per cent of water leaks once it enters the supply system. That’s around three billion litres a day. Water companies have pledged to halve leakage by 2050. That’s something they could have achieved by 2030 if regulation by Ofwat had not been so weak and the water companies had been forced to repair leaky pipes faster.

New water infrastructure, almost any new infrastructure, tends to be controversial. Writing in today’s FT, Lord Adonis claims vital  national infrastructure  is being held up by short term political thinking, nimbyism and the hostility of the Treasury and its utility regulators to major infrastructure projects, particularly those requiring significant public investment. Writing in the Times, Sir John Armitt chair of the National Infrastructure Commission said: “We need to provide an additional four billion litres of water per day by 2050 in England alone to avoid extreme drought” (also the Guardian). Armitt is a backer of the controversial Abingdon reservoir. Layla Moran opposes it:

I agree with Moran. The idea of a huge, elevated reservoir on valuable, ecologically rich farmland makes no sense when there are alternatives. More sensibly, and more achievably, environment secretary, George Eustice has proposed a national grid for water that would see supply from the wetter parts of western and northern England to the south and east to ease future droughts. This makes sense, especially water transfers from the Severn to top up the Thames, which would obviate the need for the Abingdon Reservoir. The Daily Mail wants a Boris Canal, part of an ancient idea for a water grid, including connecting Kielder Reservoir to the south. Nation Cymru has a different spin on the story reminding us of the controversy of taking water from Wales.

But almost any new infrastructure seems pointless while leakage remains a major issue. The historic, creaking water supply system leaks like crazy. The water companies are committed to halve leakage by 2030. Progress by some water companies has been excruciatingly slow, Northumbrian, Affinity, Bristol and South West in particular.

The writing has been on the wall for growing water shortages for decades, but until recently there has been a failure of water companies to cooperate on tackling growing water scarcity across wider areas. The increasing water scarcity is being driven by our growing population, climate change and the needs of business and especially agriculture. Aquifers are quicker to drain than to refill.

People use to much water. The rollout of water meters, which cut household usage by an average of 21%, is slow even in areas where they are compulsory. We are a very long way from everyone having smart water meters that show usage in real time and can identify if water is leaking on a property, though they are available in the water-stressed Thames and Anglian districts.

Water is often seen as a free resource. It rains a lot in this country, though in some areas more than others, and the stuff comes out the tap. But in between rainfall and homes and businesses, the water is processed and very often pumped, requiring energy which is expensive and generates carbon emissions. It has not been well managed. The water industry has not been well managed.

We need Levelling Up of supplies to balance the rich water resources of the north and west, with the water scarcity of the south and east. We need to Build Back Wetter as well as Build Back Better.

If we can’t get enough action from the water companies, we should bring them back into public ownership.

* Andy Boddington is a Lib Dem councillor in Shropshire. He blogs at andybodders.co.uk. He is Thursday editor of Lib Dem Voice.

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15 Comments

  • Helen Dudden 16th Aug '22 - 12:44pm

    Privatisation means profit.

  • Tristan Ward 16th Aug '22 - 12:58pm

    ” almost any new infrastructure seems pointless while leakage remains a major issue”.

    An pertinent question is – what is most cost effective and quickest?

    “Water is often seen as a free resource”

    Clearly, its not. It would be incredibly helpful to know the true cost of each gallon of water consumed. And true cost should include the environmental costs – or as close a cash approximation as economics can provide.

  • Chris Bowser 16th Aug '22 - 3:29pm

    My own take her is that the government should introduce a dividend witholding tax of say 90% on utility companies dividends with the money being earmark to install solar panels, insulation etc or at least say pay 50% of the cost. Second any money given by the goverment as subsidies should be in return for equity in the utility that takes it.
    This will have two effects:

    1) It will crash the share price of utility companies and make foreign investors like Macquarie, ADIA etc less likely to invest. This will also make it cheaper to buy out shareholders if the government wanted to nationalise them in the future.

    2) It will move these utilities into a kind of public/private partnership, overtime we could imagine the state owning a more than 50% stake in the utilities

  • Chris Moore 16th Aug '22 - 8:37pm

    It will crash the share price and make ALL investors highly unlikely to invest in utilities not just “foreign” investors.

    There will be a consequent dearth of funds, precisely when we need vast investment into new utility infrastructure.

    Given that pension funds invest heavily in utility companies, this will have very unfortunate knock on effects on levels of pension provision.

    A “subsidy” that is in fact an enforced capital grab is not a “subsidy”.

    What is your problem with foreigners? Are you a Little Englander? Or an autarkist?

  • Leakage rates in water are absurd. It is time that the water companies are forced to cut dividends and bonuses and spend the money on replacing water supply pipes and put in reservoirs and water distribution pipes. In the gas distribution industry HSE and Ofgem maintain relentless pressure to replace all gas pipes within 30 metres of a building with heavy duty polyethylene pipe. They have been at it now for 21 years with about 10 years to go to replace most of the 200000 miles of gas main in the UK. Time Ofwat did the same in the water industry or just renationalise the lot. Why should they make profits out of an essential basic resource?

  • Nonconformistradical 16th Aug '22 - 10:15pm

    @Chris Moore
    “What is your problem with foreigners? Are you a Little Englander? Or an autarkist?”

    I had to look ‘autarkist’ up – not a word I’ve ever come across.

    Knowing now you’re talking about people who favour self-sufficiency and not relying on imports… isn’t there a risk when putting essential services into the hands of overseas companies who – when the chips are down – might not have our interests at heart?

  • David Rogers 17th Aug '22 - 7:51am

    The article’s reference to water meters is the first I’ve seen on that point during all the current hoo-ha. My understanding is that these are compulsory for new buildings – but of course (despite all we hear about housebuilding) that represents a small proportion of the total housing stock. If meters cut ‘household usage by 21%’ why is more emphasis not being given to increasing metering? And even if not currently compulsory everywhere, it certainly should be for those who have swimming pools or use garden hosepipes! We’ve also heard nothing about business use of water, whether that is various industrial processes, agriculture, or golf courses…

  • >This is not 1976 and we are unlikely to see standpipes in the streets at any point.
    Not yet, but only because of the infrastructure investments made as a result of the lessons learnt from 1976. However, without sufficient rain we will reach its limits before the winter, so we could be using standpipes in December…

    >Climate change …is not the only factor behind the water shortages.
    A big contribution is house building and the general concreting over of land, resulting in increased run-off.

    >New water infrastructure, almost any new infrastructure, tends to be controversial.
    Nothing wrong with that, infrastructure is very long-term investment, so needs good public discussion and debate.

    > “We need to provide an additional four billion litres of water per day by 2050…”
    With no supporting evidence, this figure can safely be assumed to be a figment of Armitt’s imagination. I suggest given the current state of the infrastructure and the timescales, whatever he see’s as requiring this water will have to either be put on hold or discarded. Also it is easy to say “we need” but if the total rainfall etc. doesn’t support the numbers…

    This isn’t to say the existing infrastructure doesn’t need investment, just that we need some more grounded thinking and deliverable solutions.

  • Peter Hirst 17th Aug '22 - 1:42pm

    There must be a middle road. When managing public assets, private companies shoujld commit to investment in infrastructure as a condition of ownership. Like the rail companies franchises could be open and renewable. Then part of the penalty for not investing sufficiently would be a shorter franchise or a two part one with the second part conditional on for instance reducing leaks.

  • Hi Nonconformist Radical,

    Are you thinking about the extreme case of a Russian owner – 100% owner it would have to be – infiltrating cyanide into the water supply?

    In practice, there are numerous safeguards to ensure these extreme scenarios don’t happen.

    Think of British owners – usually merely partial owners, of course – of companies abroad. Why would they want to destroy their investment by behaving diabolically? It makes no sense.

  • Nonconformistradical 18th Aug '22 - 1:37pm

    @Chris Moore
    I am thinking of an overseas owner where profits are going overseas, maybe at the expense of the actual UK infrastructure they own. Asset stripping.

  • Chris Moore 18th Aug '22 - 2:05pm

    Say a French Company holds 17% of a British water company?

    By what mechanism would it “strip assets”?

    If the company declares a dividend, that’s a return to shareholders. Contrary to popular belief, dividends are usually a very small percentage return on investment.

    And no owner wants practices that undermine the capital value of her investment.

    Personally, I’ve not found foreigners to be any more devious and dishonest as a class than English people. These worries seem misplaced.

  • @Chris Moore – It will crash the share price and make ALL investors highly unlikely to invest in utilities not just “foreign” investors.

    I don’t actually see a long-term problem with this, remember we are talking about “utilities” who historically were regarded as safe and steady investments. As a long-term solution, i suggest we either apply the same profits formula as the MOD applies to defence contractors, or require them all to convert, like Welsh Water, to CIC status with their customers as shareholders.

  • Chris Moore 18th Aug '22 - 5:00pm

    Where is the capital going to come from for the massive investment necessary to renovate water supply infrastructure?

    This has been neglected for many many decades. A change of ownership structure is not the answer.

  • Where is the capital going to come from for the massive investment necessary to renovate water supply infrastructure?
    The customers!

    It would seem (from this Guardian article: https://www.theguardian.com/environment/2022/aug/16/ofwat-chief-defends-water-companies-over-lack-of-new-reservoirs ) the Exec’s have done a nice job of saddling the companies with $56bn of debt, and “invested the monies received” in £72bn of dividends for the shareholders (and bonuses for themselves) and Ofwat is okay about it. So they are either going to find it difficult getting loans for capital projects, or will want to only use news loans to fund future dividends and bonuses…

    Given this, we can assume Armitt’s (chair of NIC) claim “We think at least £20bn needs to be invested in new supply infrastructure, alongside work to sort out leakages. …
    This cost will need to be shared fairly between consumers and investors”
    [source: https://inews.co.uk/news/environment/uk-needs-30-new-reservoirs-protect-water-supply-drought-31-years-1793414 ], means the consumer will pay, there will be no call on the shareholders to return dividends that weren’t derived from actual profits…

    Aside: CICs have access to cheap capital not normally available to PLCs…

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