Renationalisation—the water industry

Renationalisation—the water industry

Environment analysis: As part of a series on the continued debate around renationalisation, we analyse the current sentiment in the water industry and the potential impact of renationalisation. Steve Gummer, partner at Sharpe Pritchard, considers the reasons for the recent discussion on nationalising the water industry, the arguments for and against it, and examines what legal avenues the government could take to renationalise the sector

Original news

Water industry must ‘up its game’ against climate change, politics and pollution, LNB News 14/05/2019 81

Sir James Bevan, Chief Executive of the Environment Agency, has named politics, operations and climate change as the ‘three big challenges’ for the future for water. Speaking at the Water Industry Forum, Bevan said that ‘we have to crack all three if the sector, and the country, is to thrive’. He urges companies to first and foremost address pollution, water leaks, drought and long-term approaches to climate change as a good place to start.

What are the key arguments for and against nationalising the water industry?

The most frequent arguments heard in favour of nationalisation are performance and payment-based. Namely some people hold the view that excessive returns have been made in the water sector, but that necessary investment has not been made sufficient to curb service failure and leakage.

It’s worth exploring each of those in turn.

In terms of payment, the amount water companies are allowed to charge is determined by the water regulator, Ofwat. Regulatory settlements determine what water companies will deliver for customers and what charges can be made. Water companies take performance and financing risk. The settlement regime works both ways—companies can achieve benefits if their costs are lower than the charges determined by Ofwat but can lose out if their costs exceed amounts set by Ofwat.

There are competing claims as to whether bills would be cheaper under a privatised or nationalised model. A figure often stated is that household water bills have risen by 40% since 1989.

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