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LABOUR PLANS TO NATIONALISE THE WATER INDUSTRY

Brexit legislation, and in particular the transfer of European Union law to national law by means of the European Union (Withdrawal) Bill will have major impacts upon EU and UK water law and regulation. However, the water industry will also be alive to the plans announced by the Labour party to re-nationalise the water industry, which was last privatised under the Water Act 1989.

It is worth re-visiting what Labour party sources have actually said about this policy. In this note the main focus is on what has been said about the water industry, although of course Labour’s overall plans also cover rail, energy companies and Royal Mail.

The Labour Manifesto of May 2017 stated –

“Many basic goods and services have been taken out of democratic control through privatisation. This has often led to higher prices and poorer quality, as prices are raised to pay out dividends. For example, water bills have increased 40 per cent since privatisation and our private energy providers overcharged customers by £2 billion in 2015…

Across the world, countries are taking public utilities back into public ownership.

Labour will learn from these experiences and bring key utilities back into public ownership to deliver lower prices, more accountability and a more sustainable economy. We will:

  • Bring private rail companies back into public ownership as their franchises expire.
  • Regain control of energy supply networks through the alteration of operator licence conditions, and transition to a publicly owned, decentralised energy system.
  • Replace our dysfunctional water system with a network of regional publicly-owned water companies.
  • Reverse the privatisation of Royal Mail at the earliest opportunity.

Public ownership will benefit consumers, ensuring that their interests are put first and that there is democratic accountability for the service.”

Shadow Chancellor of the Exchequer John McDonnell, in a speech on 25 September 2017 at Labour’s party conference, also promised to “take back” key public services run by private companies, declaring that –

“Ours will only become an economy for the many, if we significantly broaden ownership. That means supporting entrepreneurs, small businesses, the genuinely self-employed and massively expanding worker control and the co-operative sector.

Building an economy for the many also means bringing ownership and control of the utilities and key services into the hands of people who use and work in them. Rail, water, energy, Royal Mail: we’re taking them back.”

Labour leader Jeremy Corbyn in his conference speech at Labour’s party conference on 27 September 2017 added that –

“Now is the time that government took a more active role in restructuring our economy. Now is the time that corporate boardrooms were held accountable for their actions, and now is the time that we developed a new model of economic management to replace the failed dogmas of neo-liberalism… That is why Labour is looking not just to repair the damage done by austerity but to transform our economy with a new and dynamic role for the public sector particularly where the private sector has evidently failed. Take the water industry. Of the nine water companies in England six are now owned by private equity or foreign sovereign wealth funds. Their profits are handed out in dividends to shareholders while the infrastructure crumbles, the companies pay little or nothing in tax and executive pay has soared as service deteriorates.

That is why we are committed to take back our utilities into public ownership to put them at the service of our people and our economy and stop the public being ripped off.”

In a later reply to Jeremy Corbyn’s remarks, Michael Roberts, Chief Executive of the Water UK, a body which represents the water companies, stated that -

“Mr Corbyn painted a badly distorted picture of the water industry, saying
that infrastructure was crumbling and the service was deteriorating. He’s
wrong, because water companies have invested around £150 billion in
the industry since privatisation, and customer satisfaction levels have
been rising – they’re now around 90% according to the independent
consumer watchdog."

The costs of re-nationalisation of the water industry in England and Wales could be the subject of a whole separate debate, with some reports that the capital value of the 32 water companies in England and Wales being assessed by Ofwat at £69 billion, and there have been suggestions that shares could be exchanged for bonds, with the government paying interest but profits shared with consumers.  Much more detail would be needed in order to understand fully how the re-nationalisation would be structured and financed.

However, it is worth noting that not all the critical commentary about some aspects of the current water industry is contained in the Labour press – see for example the Spectator Article by Nick Cohen of 16 September 2017 , and the Financial Times article of 10 September 2017,  with a letter in rebuttal of the criticisms of regulators from Cathryn Ross of Ofwat published in the FT on 11 September 2017. Some of the critical commentary referred to the treatment by the Australian bank Macquarie of some £2 billion of debt arising from the costs of its acquisition of Thames Water,  leaving the debt with Thames and its customers, whilst taking the dividends and profits.

What is clear is that the water sector could be about to embark on a period of very significant change to the underlying structure of the industry, legislation and regulation that has been in place since the Water Act 1989. Whatever the complexion of the next government, water regulation could be a candidate for significant legislative reform.  

There is the additional complication that all environmental and water legislation based upon EU legislation, including the Drinking Water Directive, Water Framework Directive, Groundwater Directive, Urban Waste Water Treatment Directive and so on will all be caught up in the wholesale reform implied and required by the European Union (Withdrawal) Bill, and may thereafter be subject to extensive further reform as the temporary fixes introduced by that legislation need to be re-enacted.

For further information about environmental and water law and regulation, please contact William Wilson, Barrister-Director, Wyeside Consulting Ltd at info@wyesideconsulting.com tel. +44(0)1225-730-407