There is only one answer to the problems in the water industry, and that is nationalisation.
I’ve been looking at the accounts for the last 20 years of England’s nine water and sewage companies.
I combined their accounts into one single set, which produced quite astonishing data about the industry.
Firstly, the operating profit margin as a whole is 35%.
That is staggeringly high, and it goes up to 38% when other income is taken into account. 38p in every pound you pay for water is operating profit.
Second, 20p in every pound paid to these companies, on average, goes on interest for the huge amounts they have borrowed.
That still leaves them profitable though. And they do pay tax. The average tax rate is 19%, way below the expected tax rate for this period when it was as high as 30% for some of it. And much of that tax has not been paid: more than £8billion has been deferred.
Finally, of the almost £25bn they have made in profit over the years they have paid out every penny, and more, in dividends. In other words, the shareholders have taken 15p in every pound paid for water. There was nothing left for reinvestment, at all.
No wonder the water industry is in trouble. The public is being fleeced by these companies who are simply treating the fact that the English consumer has had no choice as to who to buy water from as a means to extract profit from them.
And we all know these businesses are routinely polluting England’s rivers and beaches with sewage. That pollution cannot be allowed to persist.
To stop it, the industry has offered to invest £10bn over seven years, or £1.4bn a year. The Government has decided that £56bn is required over 27 years, or just over £2bn a year.
The trouble is neither sum will come close to getting rid of the crap in England’s water. The House of Lords concluded the most likely estimate of the cost of getting rid of all the pollution in our water was £260bn. If that investment was made, we might have clean water in ten years.
So why has the Government set such a low investment target that still leaves us with polluted water?
The only possible answer is that they wanted to make sure that the private water companies would not go bust by having to spend too much. In other words, the Government thinks saving the private water companies is more important than stopping them polluting our water, rivers and beaches.
They are wrong, but if the required £260bn was spent then the water companies would go bust – because they are environmentally insolvent. This means they cannot make their businesses environmentally friendly, as climate change and ending pollution requires, and still make a profit.
There is only one answer, and that is nationalisation.
This should be without any compensation to shareholders – because these businesses are environmentally insolvent. Providers of loans might also have to take a hit too: they made a bad decision lending to these companies.
The Government will then have to support the industry using borrowed funds. I suggest issuing water bonds via ISAs to the public to do this. Wouldn’t you want to save in a way that ensures we all get clean water in the future? I would.
* tweets @RichardjMurphy
