The question mark over the future of Britain’s largest water supplier, Thames Water, has put its 16 million customers across London and south-east England – myself included – in an uncertain position. While water will still keep coming out of our taps, the price of these financial woes will probably be borne by customers and taxpayers. Meanwhile, Thames Water’s shareholders have spent the last three decades benefiting from the company’s massive financial gains. If ever we needed an example of the risks of selling essential infrastructure to investment firms, this is it.
Auditors warned in late 2023 that the debt-laden company could run out of money by April if shareholders did not inject it with much-needed cash. Now investors are saying they won’t provide Thames Water with £500m of emergency funding, leading to speculation that the company will be temporarily renationalised.
Since privatisation in 1989, water bills across Britain have increased 360%, more than twice the rate of inflation (in Scotland, water is government-owned, and bills are lower). At these rates, you would think that our water system would be state of the art. Instead, news broke this week that Thames Water was responsible for almost 17,000 occasions of dumping raw sewage in 2023 because of poor overflow systems that have had insufficient infrastructural investment.
In Margaret Thatcher’s imagination, selling off this public asset was meant to bring about shareholder democracy, but it has instead resulted in a major wealth transfer to Thames Water’s nine shareholders – institutional investors that are mostly based overseas in places such as Abu Dhabi, Beijing and Brisbane. The result is a company buckling under the weight of unserviceable debt, which over the years had not had sufficient investment, and had value extracted in the form of dividends. For their part, the shareholders released a statement criticising the water regulator, Ofwat, for the current crisis, saying it had “not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces”.
The largest shareholder – owning 31% – is the Ontario Municipal Employees Retirement System (Omers), a Canada-based public pension fund. Funnily enough, Omers happens to be the pension plan covering my grandmother, who collects a widow’s pension left behind by my grandfather, José. As a construction worker employed by the city of Toronto, José contributed to his pension using wages earned by paving the city’s roads in the summer and clearing the snow in the winter.
This is a bizarre arrangement, in which I (and millions of others) pay escalating prices for drinking water so that my grandmother in Canada and thousands of other pensioners can live out their golden years. Yet this model of ownership is becoming increasingly common as Britain’s essential infrastructure is bought by institutional investors with portfolios worth hundreds of billions of dollars. These firms typically manage money on behalf of their clients, which include pension funds, university endowments and insurance companies.
As a result of this system, public infrastructure changes hands in quick succession as investors turn a profit and leave companies in worsening financial states with each exchange. This has had grim consequences for people who rely on these essential services in their daily lives. During the pandemic, for instance, care homes loaded with high levels of debt (a staple business practice of institutional investors) saw death rates twice as high, according to one study that linked the rates to cost-cutting practices such as reduced staffing and limited supplies of personal protective equipment. The morbid effects of institutional investor ownership are also experienced by workers, as seen recently with the Body Shop’s employees facing probable layoffs while under the management of a private equity firm. Water systems, care homes and chain stores are all transformed into assets to be squeezed of their value.
Even the supposed beneficiaries of this system, such as my grandmother, enjoy quite muted gains from this ownership arrangement. The average Omers pensioner receives 28,040 Canadian dollars (£16,348) a year, not nearly enough to afford the cost of a bed in a long-term care home – another asset increasingly acquired by investment funds. Care for my grandmother’s complex health needs, resulting from a lifelong physical disability, would require her to pay $96,000 (£55,970) a year in a private facility. This means that my mother has become her full-time carer while she waits up to two and a half years for a bed to become available in a public nursing home.
By far the largest winners in this whole arrangement are the executives at the helm of investment firms that reap massive profits from these business practices. In 2022, the Omers CEO, Blake Hutcheson, made the equivalent of £3m. Hutcheson’s earnings pale in comparison to those of the CEO of Macquarie, an Australian asset manager that sold its share in Thames Water to Omers. The chief executive took home a whopping 30m Australian dollars (£15.5m) last year alone. These extraordinary figures are a severe indictment of a truly ludicrous system.
The solution, rather than tinkering with the ownership structure or again trying to regulate a privatised industry, is to ultimately end the exploitation of our public goods. England must follow the lead of the rest of the world – and bring water back into public ownership. Water systems act as a natural monopoly, meaning there is little to be gained in terms of “competitive innovation” through privatisation. Returning Thames Water to public ownership would mean that profits would no longer seep out through shareholder payouts, but would instead be reinvested back into the system by lowering water bills, upgrading crumbling infrastructure or funding future research and development. Public ownership of water companies could plug the leaks in the system, physical and financial.
