The problems with private ownership of water in England Labour South East Regional Economic Conference, Southampton, 3rd March 2018 Kate Bayliss kb6@soas.ac.uk Research Associate, SOAS, University of London, University of Leeds David Hall halldj@gmail.com Visiting Professor, Public Services International Research Unit (PSIRU) University of Greenwich Bayliss & Hall, Southampton, March 2018

Bayliss & Hall, Southampton, March 2018 Summary What does the sector look like? Who are the investors? What are the problems? Wider context. This presentation is based the following research papers: ‘Bringing water into public ownership: costs and benefits’ K. Bayliss and D. Hall May 2017 UK Case study for European Union-funded research project FESSUD.EU Bayliss & Hall, Southampton, March 2018

Bayliss & Hall, Southampton, March 2018 WASCs in UK Public water utilities in Scotland and Northern Ireland 10 integrated water and sewerage companies in England and Wales privatised in 1989. Current structure: Listed on London Stock Exchange: Severn Trent, United Utilities, South West Water Not-for-profit: Welsh Water International conglomerate: Wessex, Northumbrian Financed-owned SPVs: Anglian, Thames, Yorkshire and Southern Water. Bayliss & Hall, Southampton, March 2018

Bayliss & Hall, Southampton, March 2018 What are the problems? Dense corporate structures – lack of accountability and transparency, off-shore ownership for de-listed companies Debt-financed investment High debts at the same time as high dividends Meanwhile affordability is declining Bayliss & Hall, Southampton, March 2018

Corporate structures: Where does the money go? Bayliss & Hall, Southampton, March 2018

Bayliss & Hall, Southampton, March 2018

Debt and equity in the water sector 1990-2015 Source: NAO 2015 Bayliss & Hall, Southampton, March 2018

Highest paid director (£m) WASCs data 2015/16 Company Highest paid director (£m) Gearing (%) Thames Water 0.96 80 Anglian Water 1.20 79 Yorkshire Water 77 Southern Water 0.70 78 Northumbrian Water 0.71 67 United Utilities Group Plc 2.80 63 Wessex Water 0.60 62 South West Water 0.76 Severn Trent Water 2.40 61 Welsh Water 0.77 60 Total / average 1.21 70 Source: Company reports 2015/16, Ofwat website Bayliss & Hall, Southampton, March 2018

Bayliss & Hall, Southampton, March 2018 English water and sewerage companies post-tax profits and dividends 2007-2016 £m Source: Authors’ calculations based on company reports Bayliss & Hall, Southampton, March 2018

Allocation of revenue from customer bills (%) (2010-2015) Operating Costs 38.6 Infrastructure renewals 8.5 Current cost depreciation 23.1 Return on capital 26.8 Tax 3.0 Bayliss & Hall, Southampton, March 2018

Declining affordability in England Bayliss & Hall, Southampton, March 2018

One third of households struggles to pay for water Source: Ofwat Report “Affordability and debt 2014-15” Bayliss & Hall, Southampton, March 2018

Bayliss & Hall, Southampton, March 2018

Financial Times City Editor Sept 2017 On privatised water: “…. Quite why this natural monopoly should not operate through not-for-profit, public interest companies is ever less clear.” Water privatisation looks little more than an organised rip-off FT Sep 10 2017 by Jonathan Ford , City Editor On public ownership: “For the first time in four decades, an intellectual revolution is taking place in British politics. …it is the right that risks being left behind. Radical ideas from the hard left … now have mainstream appeal.” Tories are being swept away by Labour’s intellectual revolution FT Sep 28 2017 Sebastian Payne

Bayliss & Hall, Southampton, March 2018 The UK in context The English system is unique in the world. Despite much study and publicity, no other country has adopted this model in the last 28 years. Even where water is privatised, this typically takes the form of a fixed term concession rather than complete transfer of ownership The great majority (90%+) provide water and sewerage services though municipalities or regional authorities (as in the UK before privatisation in 1989). Even in the USA, 85% of water is public, carried out by municipalities. Strong trend in Europe and elsewhere in the last decade to re-municipalise private water services including the cities of Paris and Berlin Private water unpopular everywhere e.g. Italian referendum Also consistently unpopular in UK from 1980s onwards Putting water in public hands would put us in step with the rest of the world. Bayliss & Hall, Southampton, March 2018

Remunicipalisation of water services 2000-2015 Source: Our public water future ed. Kishimoto et al 2015 https://www.tni.org/files/download/ourpublicwaterfuture-1.pdf Bayliss & Hall, Southampton, March 2018