Grass once green and luscious has long since turned to yellow straw. All across the country, the asphalt on the streets is melting, sticking to a passing tennis-shoes like a million spat-out chewing gums. Following a weekend of sweltering temperatures, reaching upwards of 36 degrees celcius in the south, forecasted storms and rain over the next few days are unlikely to make up for weeks of unusually dry weather.
The introduced hosepipe bans by water companies in southern England and the Isle of Wight do not help in making the situation any less alarming, and newspaper headlines have also added to the uncertainty of what is about to come. But there is one solution that has been proposed by some that goes much further than banning people from washing their cars or from watering their yellow straw in their yellow backgarden: nationalising water.
Proponents of this idea – interestingly enough Labour is not one of them anymore, according to Sir Keir Starmer – argue that sky-rocketing bills, mismanagement and greedy company bosses are more than enough reasons to bring this industry into public ownership.
But will this genuinely provide a solution to the heated situation we are in?
The foremost argument for nationalising water is often that out of all the industries, water is one of life’s necessities, making good quality standards and affordable prices a matter of life and death. But this can be said about many other industries too, like food and shelter, which begs the question why we don’t nationalise supermarkets or the housing sector altogether.
Especially in regard to keeping the service and product environmentally-friendly as well as affordable, it has been argued that this can be better achieved by a public body than ‘greedy’ private individuals, who are only in it for themselves. But what does history have to say to this?
For most of the 20th century, the water industry in the UK remained publicly owned with government seizing control and regulation of the sector. After new EU legislation in 1975 set out standards for rivers and drinking water the UK embarrassingly couldn’t meet, the industry began the process of privatisation after Margaret Thatcher won the general election in 1987.
As of today, the existing privately-owned water (and sewage) companies operating within England and Wales are heavily regulated by Ofwat in terms of price reviews, performance, as well as sustainable development. According to a 2015 report by the National Audit Office, it is true that between 1989 and 2014-2015, average water bills increased by 40 per cent in real terms. But did this price hike occur because of privatisation or despite of it?
First of all, it is important to note that the free-market is not in fact operating within the water industry. One of Ofwat’s responsibilities is to set and control prices by a one-size-fits-all formula, which essentially prohibits the dynamic process of relentless competition that would consequentially lower bills and generate higher quality. This shows that one of the stated goals of nationalisation – the government taking ownership and regulating water prices – is in essence already the case and a nationalisation would happen in name only.
Additionally, considering the below average standard of water in the UK back in the 70s, it comes as no surprise that huge investments were necessary to bring the supply of water to an acceptable standard – progress that will necessarily be visible on customers‘ bills initially but reduce over time.
Closer examination reveals that the majority of the price increase happened in fact in the first years of privatisation between 1990-1995 under the government’s initial price controls. Since 1995, the price increased by 9 per cent only and at the 2014 Ofwat price review, it was determined that average bills should fall by 5 per cent in real terms, following a 2.6 per cent fall between 2009 and 2014-2015.
This progress can also be seen by the fact that leakage is down by a third, environmental work has revived wildlife along rivers long deemed dead and customers are now on average five times less likely to experience interruption of their water supply – all of this is comparing the privatised industry with when it was in the hands of the government.
Additionally, even in these apocalyptic times of drought and misery, it is worth noting that things could always be worse: only because the industry is not nationalised in the strictest sense of the word, does not mean that full nationalisation will make things better – it could just as well go the other way.
The state is hardly ever the solution to any problem, for it cannot do anything an efficient private company can’t do. So who says a better-managed and less regulated private firm that has to renew itself under the constant threat of dynamic competition is not the answer?
Certainly with nationalised railway industries, we have often seen the case where an artificial reduction in ticket prices below the market price is reflected in a higher tax subsidy, which ultimately comes back to costing the tax payer more – whether he takes the train or not.