England’s water companies are ‘environmentally insolvent’, study says
England’s water companies are “environmentally insolvent” because they do not have the financial means to raise the £260bn needed to deal with their sewage spillages, academic research has found.
The report, by Prof Richard Murphy of the Corporate Accountability Network and Sheffield University, recommends nationalisation without compensation and raising the necessary funds through government ISAs for the public and higher charges for heavy water users.
His findings come as fears mount over water companies’ high debts, with particular concern about the future of Thames Water. The UK’s largest water company, which serves 15 million customers in London and the south-east, is in emergency talks with the water regulator Ofwat, ministers and government departments amid concerns about its ability to continue operating given a potential £10bn hole in its finances.
Murphy’s report looks at the accounts of nine major water companies, including Thames, and concludes that their estimate that they need £10bn over seven years to end sewage discharges is inadequate. It also says the environment department’s tally of £56bn over 27 years is an underestimate. Instead it finds a House of Lords assessment that the problem requires £260bn of investment more accurate.
The research says the accounts of the nine water and sewage companies show they have been investing less than £4.6bn between them a year on average over the last 20 years. It also found that all of this investment has been paid for with borrowed money and none appears to have been funded by their shareholders, who over that same period took all the profits the companies made out of them by way of dividends, leaving nothing for reinvestment.
Murphy calculates that the net value of the companies is £13bn.His “sustainable cost accounting” analysis suggests that without price increases the water industry will lose almost £16bn a year paying to deal with sewage, largely because of increased interest costs.
“As a result, we think that these companies are environmentally insolvent. That is because we do not think they will be able to raise the finance to ensure that they can meet their contractual commitments to deliver clean water without polluting our rivers and beaches,” the report said.
“To address this issue we suggest that the companies be nationalised without compensationWe suggest that to raise the required capital to fund clean water the government should issue new bonds to be made easily available to the public paying competitive interest rates. These should be tax free like ISAsTo cover some of the costs we suggest progressive water charges.”
Murphy said businesses that can only make money by polluting the planet and the country in which its customers live cannot survive.
“That why England’s water companies should be nationalised now. They are environmentally insolvent. They can only pay their way by filling our rivers with sewage. That has to stop.”
The government has not ruled out temporary nationalisation of Thames Water in the same way that some rail companies were taken into public hands. Labour has also not ruled out nationalising water companies, although Ed Miliband, the shadow energy secretary, said on Thursday that the party was cautious about the idea.
A spokesperson for Water UK, which represents the nine companies, said:“In England private investment has brought more than £190bn into an industry that was previously starved of cash while improving water company efficiency by over 70%. Meanwhile water bills remain lower, in real
terms, than they were a decade ago. “Nationalising private water companies without compensation would have a profound effect on the pensions of almost 6 million people across the country with household losing, on average, around a £1,000 each.
“Water companies across the UK, and around the world, are facing profound challenges including the impacts of climate change and population growth. Regardless of the ownership model these national and global challenges remain the same.”