Water is a natural monopoly and we haven’t got privatisation right - by Tom Stevenson - 25.08.22

With regard to our utilities, the case for private over public monopoly has yet to be made according to Tom Stevenson in an article for the Telegraph. And no more so than in the water industry where lack of investment, leaking pipes and rising bills over many years have led to growing levels of customer dissatisfaction.

“The finger has inevitably been pointed at the industry’s privatisation, close to the end of the Thatcher government in 1989.

Even for those who accept that most industries are better served by private ownership, there is a nagging feeling that water may have been a bridge too far, the last hurrah of a revolution that had already run its course.

The case against has several strands. The first is that selling off the water companies failed to create an incentive for the necessary investment in infrastructure.

Another argument against water privatisation is that it provided companies with the justification for maximising shareholder returns at consumers’ expense by loading their balance sheets with debt.

A third entirely reasonable criticism of what has happened over the past 30 years is the way in which control over the most basic of life-sustaining resources has been handed to foreign concerns.”

The underlying problem lies in the nature of a monopoly:

“Because, when competition cannot play its part, as it cannot with a natural monopoly business like water and sewage, regulation needs to fill the gap.”

An effective regulator has two essential tasks:

“The first…should be to ensure that balance sheets are constrained so that companies increase equity returns via improved productivity rather than by taking the far easier route of cranking up financial leverage. The second job is to ensure that corners are not cut to circumvent price controls. On both fronts, regulation has fallen short.”

Both jobs need to be addressed if the current policy is to have any traction with the public.

Otherwise its track record will be no better than it was in public ownership.

The full article can be read below with a link to the original here:

Article by Tom Stevenson for the Telegraph - Water is a natural monopoly and we haven't go.

Download • 177KB

CREDIT: Carlos Jasso/Bloomberg