Fin-ancialisation 🦈
England's water is highly financilised. How did we get here and what does it mean?
A brief history of ownership of water companies in the UK
From the late nineteenth century onwards, water services in England and Wales followed a pattern similar to most European countries. Water services were owned by a mixed bag of local authorities, with some individual authorities running water companies, some large inter-municipal operators, and a surviving handful of private water-supply only companies, which were strictly regulated by a simple cap on their profits at a maximum rate of return of 5%.
In 1974 the service was reorganised. 10 unitary regional water authorities (RWAs) were created, each covering a river basin area, each responsible for water quality, water supply and sewage treatment. These authorities were appointed by the government, not by municipalities, and so were not accountable to local government any more. The RWAs recuced the number of employees from 80,000 to 50,000 between 1974 and 1989.
The Thatcher government originally proposed water privatisation in England and Wales in 1984, but due to strong public opposition the proposals were abandoned before the issue could influence the 1987 election. Once this was won, the privatisation plan was resurrected and implemented rapidly.
Under the Water Act 1988, the newly formed water companies became owners of the entire water system and all assets of the RWAs in England and Wales. The RWAs were sold by issuing shares on the stock market. In Scotland and Northern Ireland however water remains controlled and operated by public authorities.
Privatisation did not create any competition. The companies were given monopolies in their regions for 25 years, without having to compete even once for the business. The government was desperate to mark the sale of common assets to privater owners a success. It wrote off all the debts of the water companies before privatisation, worth over £5 billion pounds and gave the companies an additional ‘green dowry’ of £1.6 billion from the public purse.
The initial water pricing regime, set by the government, resulted in pre-tax profits of the ten water companies to rise by 147% between 1990/91 to 1997/98 with sewerage and water prices rising respectively by 42% and 36%. The companies were also given special exemption from paying profits taxes.
OFWAT, the financial regulator for private water companies is statutorily responsible for ensuring that the companies were profitable, a task which it performed very well, and for encouraging efficiency. As there is no competition, OFWAT compares the companies performance with each other.
The water companies were protected from takeover for 5 years by the government’s ‘golden share’. Once the 5 year period was up, many were bought off the stockmarket by giant multinationals, restructured, stripped and mortgaged and then resold for huge profit, a process commonly known as 'financilisation'. A process in which making profits from financial constructs, becomes more profitable than trading real products and sertvices.
The current result of financialisation is best understood by looking at a specific example: Thames Water Ltd - Europe's largest Water and Sewerage company.
Sources:
https://libcom.org/library/uk-water-privatisation
https://en.wikipedia.org/wiki/Water_privatisation_in_England_and_Wales
Thames Water
- 1974 - The Thames Water Authority was formed as the largest regional water authority in the UK.
- 1989 - Thatcher's privatisation handed all water system and assets of the region to Thames Water Ltd, free of debt and a 'green dowry' of more than £100 million.
- 2001 - RWE, a German energy giant bought Thames Water off the stock market and burdens the company with a £3.4 billion 'mortgage' debt
- 2006 - Macquarie Group, an Australian global financial services group buys Thames Water for £8 billion.
- In the next eleven years Macquarie Group adds another £7.1 billion 'mortgage' debt to the company while paying themselves £2.8 billion in dividends. Over this time Macquarie sells of Thames Water in chunks to the highest bidder
- 2017 - Macquarie successfully sold all Thames Water shares at healthy profit for themselves. Two thirds of Thames water is now owned by pension funds in different parts of the world.
- Over the last 35 years in private ownership Thames Water has accumulated a debt of £17 billion which acrues many millions in interest charges every mont. These charges now add 20% to the water bill ove every Thames Water customer
- 2024 - Thames Water is in existential crisis and may collapse under its burden of debt
- continued to borrow more and more money to the point where now
https://en.wikipedia.org/wiki/Thames_Water#2023%E2%80%932024_financial_crisis
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The pillage of Thames Water and the implications for all of us
- “Financialisation ... a process in which making profits from financial instruments,such as the selling of bonds, grows more influential as a way of making profit than does trading in real products”
- Thames is just the worst - indebtedness is questioned ( and here) across the industry
- Burden of debt, interest, tax liabilities hidden in the offshore registrations of holding companies, extravagant services fees, and disproportionate salaries, bonuses, dividends - unnecessary expenses borne by the customers, while necessary investment and maintenance is under-funded.
- The results are intolerable for all life in our land and coastal waters.
- The abuse of monopoly supply has effectively gone unchecked by successive governments. We must correct this mess now. Different models and ways of funding are available. It’s time for the people to have their say.
https://www.theguardian.com/business/2023/jun/30/in-charts-how-privatisation-drained-thames-waters-coffers
https://www.theguardian.com/business/2023/dec/12/thames-water-apologises-to-mps-for-confusion-over-500m-loan
https://www.theguardian.com/business/nils-pratley-on-finance/2024/jan/03/thames-waters-owners-only-have-themselves-to-blame-for-the-write-downs https://www.theguardian.com/business/nils-pratley-on-finance/2023/jun/29/ministers-no-bailout-thames-water-backers
https://www.theguardian.com/business/2024/jan/02/thames-waters-second-largest-investor-slashes-value-of-its-stake
https://www.theguardian.com/business/nils-pratley-on-finance/2023/dec/12/thames-water-nationalised-ofwat-mps-customers
https://edhec.infrastructure.institute/wp-content/uploads/2024/01/Press_release_EDHECinfra_Thames_Water_Jan3.pdf https://publishing.edhecinfra.com/papers/2024_low_tide_research_paper.pdf
https://www.parliamentlive.tv/Event/Index/9a770fe2-13e4-4e79-919b-2c4375ce9ea7#player-tabs
This is a Guardian graphic showing the ownership structures of English water companies:
