“Research shows that public ownership would save households £100-£160 per year or allow £3 to £5 billion more investment a year in reducing sewage”
By We Own It
The main argument the government now uses against public ownership is the cost of buying back the water companies. New research from the University of Greenwich has found that an average of 35% of customer bills in 2023-2024 paid for the interest on the companies’ ever-growing debt piles, and dividends to the shareholders.
Publicly owned Scottish Water doesn’t have to pay dividends to private shareholders and lost just 8% of revenue in interest payments in 2023-24: less than a quarter of the cost in England and Wales.
If privatisation is such a rip off, how can it be less expensive to carry on with it? The University of Greenwich has crunched the numbers on the different scenarios for public ownership. Should the shareholders receive full “market” value, even though the market is one whose terms are set by government? Should they receive back the money they’ve invested? Or should they receive nothing if they have failed to deliver what they promised? Under any of these scenarios, public ownership provides a better deal for taxpayers and households.
The government claims that bringing water into public ownership would cost £100 billion. This is based on a 2018 report by the Social Market Foundation which was funded by the water industry: United Utilities, Anglian Water, Severn Trent and South West Water. The SMF estimate is based on market value, but the privatised water companies’ market value is high precisely because they are ripping off households and polluting for profit. The “market” for water is not a real market and has allowed the companies to extract value for 36 years.
Water is a profitable industry. Every penny of investment since 1989 has come from our bills. This means that the water companies are an asset which produces a revenue stream. If the government buys this asset, they will also receive the money from customer bills. The SMF report added together three elements: the market value of the privatised water companies, an additional payment on top which they say shareholders would request, and the net debt. If the government did pay this level of compensation, they would also be paying off 100% of the companies’ debts. This would mean a huge saving on the interest from the current debt mountain. One estimate suggests it would save around £3 billion a year.
The Financial Times reported in 2019 that nationalising water by compensating shareholders for the money they’ve actually invested could cost as little as £14.5 billion. The research says that today, according to the company balance sheets, shareholders have invested £13.2 billion. As most of this is retained earnings from profits (where profits are held onto for the future) shareholders have only actually injected £4.8 billion.
The most sensible way to bring the water companies into public ownership is to use existing legal powers of “special administration”. The government has these powers because water provides an essential service, and so water companies cannot just “go bust”. Thames Water is drowning in £19 billion of debt and is now being bailed out by its 16 million customers, who have no choice but to pay £250 per household for an additional debt of £3 billion. Thames could be brought into special administration for not fulfilling its statutory obligations, for example investing to stop sewage. Shareholders for the failed company would not be compensated in the case of special administration. The Treasury has estimated that 40% of the debt would be cut in the case of Thames Water. If it were then refinanced as public sector debt at a lower interest rate it would be much cheaper to pay back.
In England and Wales we are all paying a privatisation tax. The water companies are assets which bring in revenue. Research shows that public ownership would save households £100-£160 per year or allow £3 to £5 billion more investment a year in reducing sewage, depending on how much shareholders are compensated. The government is choosing to force billpayers to pay extra forevermore so that privatisation can continue. The only thing we have to show for this is that the national debt is 3% lower than it would be in the worst case scenario but the reality is that the government could make it far cheaper than that to buy back the water companies.
The most expensive scenario for nationalisation is still better for households in England and Wales. Even if shareholders are compensated at so-called “market” value, public ownership is still the best deal for the future.
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- This article was originally published in the May 2025 edition of Labour Briefing magazine.
