As Thames Water announces a ‘one-off’ extra levy on millions of customers to pay for infrastructure, Co-Chair Martin Tiedemann considers the future of the water industry.
Yesterday Thames Water announced a one-off levy of £29 for every household they service – 14 million customers across Southern England. This represents a 13% rise and comes after of price increases already of 6.7% in the last year, while wages have dropped in real terms and families face a rise across the board in the cost of living. Meanwhile Thames Water made revenues of £1.8 billion this past financial year and profits of £550 million, paid its chief exec Martin Baggs £450,000 plus a £270,000 bonus yet paid almost no corporation tax in the UK. It has made a wopping £1.7 billion in profit over five years! Thames Water is owned by Kemble Water Holdings, whose main investors are ultimately controlled by Macquarie, the global financial firm based in Australia.
The increased charge is apparently to pay for bad debt – making paying customers pay more for those who haven’t – and for property costs and infrastructure associated with the ‘super-sewer’.
Sir Tony Redmond, London and South East Chair of the Consumer Council for Water, said: “Many other water companies absorbed the costs that Thames say they are facing – and they have done so without applying for a further price increase. We believe that Thames Water should do the same.”
Thames Water is, of course, a monopoly. Their customers have no choice to take their business elsewhere, simply to turn their taps on or off. For the benefit of having running water, households have to face rising and hidden costs and the prospect of worse to come.
Then there’s leakage. 650 million litres a day of leakage. Water wasted or causing havoc to homes and businesses. Just last week, in my own neighbourhood in South London, a pipe burst and caused an estimated £4 million of damage in Herne Hill. Some businesses will be closed for months. While clear that aged infrastructure is to blame, it is infrastructure that the industry has had decades to plan for its repair. Privatisation happened almost 25 years ago, with Thames Water making billions in the interval off the back of publicly built infrastructure. Thames Water is the most fined water company, with 87 pollution incidents since 2005 on top of the major leakage issue.
And for all this, Thames Water director Robert Collington received an OBE in June for ‘services to consumers in London and the Thames Valley, particularly during drought’.
In Wales, things are done differently. When the privatised water company folded, it was replaced by a not-for-profit model, Glas Cymru. Glas Cymru has no shareholders and is operated solely for the benefit of the customers of Welsh Water. It is run by 57 independent members whose key role is to ensure that the business remains focused on its primary purpose of providing high quality water and sewerage services to the communities served by Welsh Water. In doing this, Members carry out an important corporate governance role, and for this reason membership is personal and Members are not appointed to represent any particular group or stakeholder interest. Members do not receive a fee.
Over coming decades, things could get worse. Our infrastructure will get older. Water will become scarcer as the effects of climate change bite. And competition for water will increase – especially if hydraulic fracking with its huge use of water goes ahead. This ‘one-off’ levy will in fact be the first of many if things don’t change, given the business model of the water companies. To deal with rising costs they have only two answers – to charge more to consumers or ask government for a bail-out. And this Government is not prepared to ask for anything in return. Imagine if, instead of turning a blind eye when bonuses are up and taxes are unpaid, ministers demanded a roll-out of the Glas Cymru model with profits ploughed back into the service and consumer voices represented at the highest levels of the organisation ensuring that it was householders not shareholders who were the primary voice in the industry.
Currently, like the banks before them, the water industry is planning to nationalise the risks and privatise the profits.
Cue the Government’s Water Bill, which had its first reading in June. It will allow, for the first time, customers to choose water companies to increase competition, building on the last Labour Government’s review by Martin Cave, which concluded that ‘introduced in the right way, competition and co-operation between companies… can encourage innovation and the delivery of lower prices, a better service and improved environmental outcomes.’ Labour will support this part of the Bill but there is concern that the ‘upstream’ proposals could actually add to the cost of capital for water companies and drive up costs to consumers.
Water UK noted the ‘upstream reform proposals have potentially serious implications for customer bills and for national resilience’. Consumer Council for Water Chief Executive Tony Smith has said he ‘would be concerned if anything caused the cost of capital to rise.’
Labour’s shadow water minister Gavin Shuker MP said of the draft bill that it didn’t “detail a new abstraction regime, or give a primary environmental responsibility to the regulator Ofwat, or implement outstanding measures to respond to the threat of flooding. It doesn’t deal with bad debt, or sustainable drainage, or even tighten regulations on reservoirs. It doesn’t even provide a fig leaf to cover the huge embarrassment of government inaction on achieving affordable flood insurance for households and businesses.”
Get this wrong and the Water Bill made law could drive up the cost of consumers and the damage to the environment even more. When the Government should be addressing water poverty, the ever increasing scarcity of water and reform of the privatised model to give consumers a voice, instead it is pursuing ideological change. Thames Water today shows the worst of the industry. It’s time to aim for the best.