Water companies exist to sustain life. They must respond to citizens, not shareholders | will huton
Jhere is a change in the air – a vast change. Two years before the next general election, it is evident – just as it was in 1977 before Margaret Thatcher won in 1979 – that the existing political framework has reached its expiry date. Then it was post-war settlement – including incomes policies and public ownership – whose weaknesses became increasingly difficult to defend, even among those of us who recognized its strengths. At the very least, it needed a wholesale redesign and makeover, or, as Thatcher argued, repudiated with a bracing new framework adopted in its place.
So in 2022 we have the prospect of inflation of 13% or even more, energy bills that will push millions of people into misery. Add to that privatization failures dramatized by excessive water leakage and raw sewage ravaging many beaches and rivers, an incredibly overstretched NHS and workers branded irresponsible for simply trying to resist dramatic cuts of their real income. All of this has crystallized how the whole Thatcherite edifice of economic and social policy, decaying for years, is suddenly and obviously redundant.
The Conservative Party’s response – electing Liz Truss as its leader to double down on a non-functioning executive – is totally out of step with what is needed and out of step with the popular mood. The Conservatives’ substantial polling deficit with Labor – the highest in a decade – is certain to widen further.
The evidence of the mood swing is everywhere. Later this week, Ofgem is expected to announce that the energy price cap will double in October to £3,500, with a peak of £5,000 expected in April. The social impact will be catastrophic. The Truss team have yet to show their hand, but the range of floating options limits additional household help to hundreds of pounds when thousands are needed.
People are really scared: consumer confidence is approaching historic lows. Labor leader Keir Starmer’s simple solution – freezing the cork for six months over the winter – is understandable and effective. He not only has the support of 85% of Labor voters but, above all, of 75% of Conservative voters. It was about time, just a year or two ago, that a confident Conservative party and its press called the freeze “Marxist”. Not in August 2022.
So it continues. In the current context, the leader of the RMT union, Mick Lynch, is winning arguments on the need to strike to preserve the standard of living. A respected former senior BP executive, Nick Butler, writes damningly about an incompetent Ofgem taking advantage of energy companies, and agrees that the weaker ones may need to be nationalised. Former Prime Minister Gordon Brown also admits that weaker public services may have to be owned by the state as part of the price to pay to address the cost of living crisis. Only 15 years ago, when the financial crisis hit, he resisted public ownership for fear of mockery from the Tories. Not in 2022.
A centerpiece of Thatcherism – that privatization plus “light” regulation could be enforced in any public service – is under siege like never before. Camilla Cavendish, head of political unit No 10 under David Cameron, seizes the moment as she writes in the FinancialTimes that the privatization of water as designed has failed. What matters for utilities is that they respond to the public interest of cost-effectiveness, resilience, reliability and service. The same cannot be said today for the world of energy and water companies.
What to do? Even Truss offers a review of how UK utilities are regulated, leaning towards the idea of merging all regulators into one. (Wrong answer.) The Corbynite left and some members of the labor movement propose total renationalization. But there is a chasm between that and last resort public ownership of individually failing utilities of the kind that Brown and Butler accept. There is little evidence that spending up to £200bn to support each utility will deliver the universal benefits needed; moreover, it is liquidity that could be better deployed elsewhere – on leveling up and net zero crossing.
The best option is more forensic. Look closer and there’s an intriguing spectrum of performance. The government’s 2021 environmental assessment of nine English water companies shows, lamentably, that six receive one or two stars. (The South and South West, the chief beach polluters, are one-star performers.) But there are three companies – Northumbrian Water, Severn Trent and United Utilities – that all get the full four stars. What is needed is a regulatory, licensing and governance regime that favors more top performers, with public ownership being the option of last resort for star performers.
It is important to note that the most successful companies all place the social objective at the heart of their business. All engage customers closely in their decision-making, variations of the way public company Scottish Water, another very successful company, has established an Independent Customers Group (ICG) as a permanent independent watchdog that it consults and informs closely. It doesn’t have to be the prerogative of the best. Every water company should adopt a public interest requirement with an ICG. Imagine, for example, activist Martin Lewis as chair of the Thames Water ICG: overnight the dynamics would change.
Ofwat must not only ensure that this happens, but insist that every company meets strict statutory universal service obligations. He began to move in that direction, but was far too accommodating to complaints and counter-challenges from weak performers. No more. If water companies cannot meet public interest targets for leakage, pollution and capacity, licenses must be revoked and companies must be run by the state for a period of time. They exist to support life, not to maximize shareholder value.
A similar regime should be established for energy companies, always with a dedicated regulator respecting the particularity of the sector. It is not nationalization but undoubtedly something higher: the affirmation of the public interest as a system and a culture. This is what Starmer is aiming for – still imperfectly but nonetheless his clear direction. It is, unlike his left-wing bubble critics who don’t care about winning elections, entirely in the interest of every citizen that makes the proposal so powerful. If he manages to keep his party split, he also promises to appoint him prime minister.