England’s Water Companies: Up Schitt’s Creek Again
Things are going from bad to worse for the privatised water industry, argues Feargal Sharkey. The rivers are running with sewage, and now there are warnings the whole South East could run out of water. We discuss possible fixes with the ex-Undertone, fisherman and water campaigner, from nationalisation to using “grey” water to flush your bog.
Presented by Jonathan Ford and Neil Collins.
With Feargal Sharkey.
Produced and edited by Nick Hilton for Podot.
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Neil Collins, Feargal Sharkey, Jonathan Ford
Jonathan Ford 00:06
Hello and welcome to a long time in finance with Jonathan Ford and Neil Collins, in partnership with briefcase dot news, the service that brings intelligent curation and analysis to your media monitoring. For years, people like me and Neil have bemoaned the fact that England’s privatise water industry was used like a cash point by international private equity firms. vast fortunes were made by financiers in Sydney, New York, and Abu Dhabi, as well as a company’s run up debts of more than 50 billion pounds paying huge dividends over 60 billion today to their owners. True some Brits did benefit, but mainly the CEOs of those same companies rewarded for being willing accessories to plunder, plunder that needless to say, we’ll have to be paid for by customers already facing soaring bills elsewhere in household budgets. But it’s not just the financial mismanagement we need to worry about. It’s the state of England’s waterways, many of which are routinely polluted with sewage and are now drying up thanks to years of corner cutting abstraction by the companies. Our guest this week, has campaigned fiercely on these issues for years, and he’s now leading an all out head on a soul to the water industry. I refer to none other than that great fisherman, rock musician and all round Irishmen around town they’re great Fergal Sharkey. Hello, Fergal,
Feargal Sharkey 01:33
incredibly glorious of you, Mr. Jonathan forward, obviously and tonight all of those scurrilous accusations. Good to see you guys again.
Jonathan Ford 01:41
Good to see you. Fergal. I thought we’d start by talking about a long article you wrote recently in the Daily Mail, where you said the SouthEast of England could simply run out of water. Do you think it really will come to that?
Feargal Sharkey 01:52
Well, the simple truth of the matter is, as you personally highlighted, there has been a colossal failure of regulation and oversight, both politically and the regulatory basis of the water industry that has created a vacuum and the water companies have gamed the system to their benefit. Now, I know a lot of attention has been put, and a lot of scrutiny on sewage provision in the state of the sewage system, and the state of our rivers. But in reality, there’s a much greater threat. And it’s running in parallel, and again, being caused by the same neglect in terms of investment under investment. And if I might say so, actually, a very interesting way to interpret your duties in terms of running of World Water Company and where to make an invest the money that you have been afforded by the regulator, and by what you’re allowed to charge your customers. So whilst the sewage system is failing, it’s not quite clear water supplied to London in the southeast, is heading into the same crisis point. According to the National Audit Office, we are now facing a massive shortfall and indeed, a deficit water supply. In London in the southeast. 25 million people are now getting perilously close to running out of drinking water.
Neil Collins 03:17
So what do the company’s sale particularly Thames Water, which is obviously London supplier, say when you put this charge to them that we’re going to run out of water within a year or three?
Feargal Sharkey 03:29
They again may say Oh, well, we’ve put together this organisation called rapid and that is no comprised of the water UK, the Environment Agency of what the drinking water inspectorate, who knew there was such a thing. And it’s again, a bunch of people know scurrying about like cockroaches, simply because somebody has walked into the kitchen at three o’clock in the morning and turned on the lights.
Neil Collins 03:56
And we all know, of course, that there’s never only one cockroach in the kitchen.
Feargal Sharkey 04:02
Yeah, it’s recently come to my attention of what the end of last year wrote to the water companies, reminding them of their statutory obligations to build, operate and maintain
sewage systems capable of dealing with whatever amount of effluent was being put into the system. You have had the money for 30 years, you’ve clearly not spent it on the sewage system. question becomes, what happened the money?
Jonathan Ford 04:29
Yeah, that’s a good question. There’s also a legal duty that they have, under all the legislation that the water companies have to provide water to every household in England and Wales. It’s the water companies have to provide water to every household in England and Wales. It’s not a kind of best effort, sort of, if we’ve got it available, we’ll give you as much as we can. They are under a legal obligation to do it. And if your National Audit Office report is right, and by 2040 I think it’s the date that they’re talking about. The water system in the southeast will be so stressed But they will not be able to supply people that breaking the law.
Feargal Sharkey 05:04
For me they’re breaking the law on so many levels. Clearly they have to go through this five yearly cycle where they sit down from base zero forecast workup population increases building increases liaised with local authorities with the National Audit Office, the census office and come up with justifiable robust population growth figures within their service area. From that calculate the level of demand increases, they’re going to see they’ve got to come up with a debate the discussion as to where they’re going to source that water and build all of that in and any and all investment needed to meet those forecasts into the pricing proposals. All of that is then scrutinised by the regulator in the shape of off what and apparently a bunch of very clever people comes up with a price of water to charge customers, which allows the water companies all of the investment needed to meet any growth and forecasted demand that they’ve seen the foreseeable it
Neil Collins 06:04
Sounds like a thoroughly good system. But the problem with the latest round is that several of the water companies appealed against the ofwat ruling, and off what was essentially overturned by the Competition Commission. In other words off what is not really in charge of this, it’s just a sort of intermediate step for the water companies to say, Well, if we don’t like this will go to the Competition Commission. And we will win our case. Surely that must be one of the problems if I was off, what I would say, Well, why am I doing all this?
Feargal Sharkey 06:40
For the record? Obviously, the appeal they made was actually over the cost of borrowing. Was it over the money they’d been allocated to fix the sewage system? No was over the amount of money they’ve been allocated to build reservoirs and desalination plants and secured the water supply for 25 million people? No, it was over the cost of borrowing that off what had said should be enough to return reasonable value back to their shareholders.
Neil Collins 07:05
Nevertheless, once of what authority has been challenged, the chances of them being allowed to impose the next round are significantly reduced because their authority is clearly damaged.
Feargal Sharkey 07:19
For me, their authority has been clearly damaged decades ago.
Jonathan Ford 07:24
I mean, I have to say I’m bit with Feargal on this, if you look at the performance of the regulatory agencies, since privatisation, the conclusion you have to draw I think is that this attempt to balance the interests of the investor, the consumer, this sort of dynamic regulatory arrangement is incredibly difficult to run. And all the evidence is, of course, that the water regulators who spend almost all their time with the industry and none of their time with the customers have, of course, come to see the world very much through the eyes of their regulated companies, rather than those who they regulate, theoretically, on behalf of Neil’s a bit more optimistic than me about this, he sort of thinks there is a bit of a change of heart in the industry and and they’re starting to invest a bit more. But I still think you’re dragging around this colossal ball of chain and ball and chain have a system that doesn’t really work.
Neil Collins 08:21
Well. Yes, the ball and chain is the debt that the industry has seen a debt is clocked up.
Jonathan Ford 08:27
As a symbol of the failure the regulation.
Neil Collins 08:29
isn’t I’m not defending the current position, which we can all agree is not exactly optimal.
Feargal Sharkey 08:36
Clearly off watch reputation within the industry is bruised. Not that it was actually that good in the first place as it transpires.
Neil Collins 08:45
Let me turn it round and ask you of the 10 water companies that were privatised is the one that you would say, provide some sort of model for the industry?
Feargal Sharkey 08:57
Oh, no, no, there isn’t. As we speak right now, six of the nine English water companies are currently being investigated for what off what the EA have referred to as widespread serious non compliance with the law.
Jonathan Ford 09:15
And what about the other three? They’re no good either the other three are not
Feargal Sharkey 09:19
off the hook. They just have not yet. But when you’ve got six or nine under that kind of scrutiny for that kind of serious, widespread non compliance, you have to ask the question, What the hell was the regulator doing for the last 30 years?
Jonathan Ford 09:37
What you also have at the moment, I hate to use this expression because it’s such a tremendous cliche, but you do have this sort of perfect storm coming together at the same time. First of all, you have this as you say, this prolonged problem of underinvestment which has left the sewage system unable to cope with new households coming on to the system. And also you the whole thing, the whole system that they create She was very much propped up. You mentioned earlier the discussion, the debate between off water and the water companies about the cost of borrowing was very much propped up on a system where interest rates were declining or staying at very low levels. And of course, all of these things are coming apart.
And as you pointed out in your piece, at the same time, you have this prolonged drought over the southeast, which is, of course, intensifying the problem in that particular part of the country. Even if there is some sort of reform, you have to ask yourself, whether it’s really going to be enough, given the massive sort of challenges they face to get the system back on track the scale of investment that’s probably going to be needed to secure the sewage system, and secure water supply for 25 million people I can see and I do get the sensation that water companies are no scurrying about trying to come up with some kind of structure and plan it for me bears no resemblance to anything yet actually looks like a strategy.
Nevermind the plan. And I’m not sure the industry in isolation by itself is going to be in a position to actually finance and raise the money and deliver the scale of investment that’s truly going to be needed to solve and secure water supply for 25 million people. Nevermind actually dealing with repairing and doing something to modernise and bring up to date, a sewage waste system that is clearly failing.
Neil Collins 11:26
I think you’re right. And we have seen an example of that with the Thames super sewer, that Thames Water did not have the financial capacity to be able to fund it itself, which is why it’s being done by a separate organisation. But there has been some sort of sea change in the public perception here. I think more people than you think, have understood that there is a serious problem here. As with all these things, the only way we’re going to solve it is actually by paying more for water and clean rivers. This year, there’s been so much stuff in the papers, for instance, I don’t think that the male would have run your piece a couple of years ago, that has said, Oh, this guy’s a nutcase. You know, he doesn’t know what he’s talking about. He’s only a bloody superannuated pop singer, you know, and down off the off the face. Now, they think, yeah, he’s the sort of guy we want. And this is the sort of piece we want to run.
Feargal Sharkey 12:30
I would like to furiously disagree with those latter part of your assessment, but I really can’t.
Jonathan Ford 12:36
Be superannuated or popstar.
Feargal Sharkey 12:40
The inference I can give you is ironically enough, that have spent decades of my life with
people randomly walking up to me in the street and wanting to say hello and talk about pop
music and have photographs taken and sign autographs and all of that kind of gloriously
wonderful stuff that over the last two years has morphed. I’ve just come away from a weekend Cornwall. I was stopped in St. Dave’s by umpteen people, all of them wanting to talk to me about sewage and rivers.
Neil Collins 13:11
Well, there you are.
Jonathan Ford 13:12
It’s a bit of a busman’s holiday then.
Neil Collins 13:15
But it does make my point that the further up the public consciousness this problem gets the more pressure there is on the water companies actually to take it serious enough to do
something about it.
Jonathan Ford 13:26
Now Feargal, you in your article have made a terrifying to the capitalists of West London suggestion, that of renationalisation that the whole thing because they are, in quote, greedy and useless. No, I was a bit nervous about that sort of idea. It sounds a bit going a bit far. There’s clearly a case for saying just just sweep it away. But you don’t think it’s capable of reform.
Feargal Sharkey 13:52
So the suggestion I was putting out there was to a dot a variation on what took place with BT, and broadband in this country in the late 1990s, early 2000s. And that you don’t nationalise the companies, you nationalise the infrastructure that does two things allows the state to make the investment needed in the infrastructure, potentially creating a huge asset, which could then be privatised, and equally at the same time, there’s another little trick where it allows you to actually open up supply of water and sewage treatment to direct competition at a local level. Exactly what happened with broadband. Edie is owned by BT wholesale, but it is massively regulated, and every other supplier has universal access to that network, which is why to a consumer. You can go online in London and punch in your postcode and ask for broadband and you will get a whole host of companies offering your broadband connection to the consumer looks like something resembling a functioning market, but it clearly isn’t because it’s only one bloody now National Network all owned by BT, with a regulator breathing down your neck 24 hours a day?
Neil Collins 15:05
Well, I think it’s a bit of a dream, really, because, well, you know nationalisation costs money anyway, you have to buy out the shareholders. You can’t just confiscate it. You might as well if you want to put the bite on them say, Well, this is the maximum, you’re allowed to charge, this is what you’ve got to do. And if you don’t do it, we can take back the licence for your region. It’s just asking for more complexity. And I think it’s quite complex, enough.
Jonathan Ford 15:36
I don’t wholly agree with that. So the way to look at this I would have thought is if you nationalise the network, it depends what the terms are, you clearly have to buy it back from the water companies. But effectively, you totally change their business model. So they cease to be infrastructure companies. And they’ve essentially it’s a way of forcing them to repay all their debts, because they can’t run with 20 billion or whatever it is of debts with no assets. They’re basically just customer service businesses at that point. The issue then is what is the cheapest way of financing the network and its needs. And there’s certainly a
case for saying that the cheapest, I’m afraid way, even though you can’t basically, ultimately bang everything on the taxpayers balance sheet, is either to do it through the state, or to do it through some sort of asset holding company, which really, literally has one job in life. It doesn’t have need to have a logo and a huge head office. And you basically just run a very, very simple long term asset business, which is owned by the state.
Feargal Sharkey 16:42
All agreed no matter how this gets done, one way or another is going to be ended up on customers bills, or the taxpayer picking up the tab directly, or a variation thereof.
Jonathan Ford 16:53
I’m not sure about nationalisation. My approach has always been the first thing you’ve got to do is force them to recapitalize your scheme would do that feargal But you possibly could do that well, keeping them as listed companies, but I’d certainly sweep away all these foreign kind of private equity investment vehicles that have dominated a lot of the sector.
Neil Collins 17:15
But you can’t do that. You can’t just confiscate it. No, they’re the owners, the shareholders.
Jonathan Ford 17:21
No, put it this way, you can change the terms of their licences, you can say you have to be a listed company. Why not? It’s not confiscating anything. It’s just saying, You got to be listed. And that means if you own 100% of it, you have to sell some of it to public shareholders. Well, tough. Yeah, I think that’s quite a good idea. Thanks. Okay. But I didn’t want to get stuck in my brilliant idea to move things on.
Feargal Sharkey 17:44
That’s what basically is needed right now. It’s just a very bit of bold, progressive thinking. And all I see going on right now is a repetition of the same circular debate and conversation
between regulators and industry that’s been going on for 30 years.
Jonathan Ford 18:01
Yeah, I think we all agree, we need to change at the corporate level. But let’s talk about us as consumers. I remember years ago, where you and I went around the talk streams of
Hartfordshire, you were talking about all the things that we were doing wrong in our own
homes. I remember back in the 70s. When I was a kid, people were told to put a brick in their system. during the hot summer of 1976.
Feargal Sharkey 18:20
We see ironically enough, we are heading back into the 70s. And looking at water levels right now, we potentially could be actually heading into another drop within the next few weeks and months. Yeah. Now in terms of water in the consumer. I know that in the late 80s. Through the 90s. It was a big thing within government was given commercial companies some sort of statutory obligation to educate and reach out and market to consumers and the case of the radio industry, radio companies were given a legal obligation to promote DAB radio. And in terms of the water industry, they have a legal obligation to educate their consumers about water consumption. They’ve done it with the most lacklustre approach that if
Neil Collins 19:09
that’s if you’ve noticed this at all on that.
Feargal Sharkey 19:11
there’s my point, we do need to do two things. One, the consumer needs a massive prompting to alter their behaviour. For me we are into the same kind of territory is wear your seatbelt because you’re costing the NHS the taxpayer a massive amount of money every time we have to try and patch you up after a car accident. And while you’re all at it, but your mind terribly stopped drinking so much. And now that I’ve come to think of it, Can y’all please stop smoking because again, it’s costing the taxpayer a massive fortune trying to fix your wall when we should be building schools in employing more doctors and nurses.
Neil Collins 19:46
Yeah, but I mean that the seatbelts Of course were compulsory. So you will be breaking the law if you didn’t wear it. You can’t really make water conservation, a criminal offence if you fail to do it.
Feargal Sharkey 19:59
Wouldn’t the least the point I’m making is that we are burdening individual water companies
and I have some empathy for life.
Neil Collins 20:05
and never thought I’d hear you say that not sympathy. You can be Mr. Reasonable after all.
Feargal Sharkey 20:13
Alongside all of that, please do not ever forget that as we speak, water companies currently
leak about 3.1 billion litres of water every single day from their own underinvested disjointed, badly maintained network. So don’t criticise your customers, guys, glass houses throwing stones, we need both. I think the government could take a lead with the industry as a whole and come up with a national drive and a national campaign to help influence people and their behaviour towards water usage. But at the same time, the industry needs to start getting really involved and to dealing with their leaky pipes. As any attempt to fix that coating. The regulator has basically flatlined for the last five or six years.
Jonathan Ford 21:01
Two quick questions. One is should we metre everyone? And secondly, should we have these sort of grey water? I’m not sure how they work but grey water system so you don’t use clean water to flush the loo. For example,
Feargal Sharkey 21:12
the first question the political pushback was you’re then actually possibly disadvantage in some of the less profitable in society by metering everybody. So personally, if there is an issue around affordability a I would metre everybody, if there genuinely it’s an issue around
affordability, I can’t see why we cannot come up with a fixed rate.
Neil Collins 21:35
Yeah, and beyond that, you have to pay more for it a progressive tariff.
Feargal Sharkey 21:40
Absolutely. So if Jonathan wants to refill his swimming pool every other afternoon, he’s
completely happy to do it. But we will charge you 75,000 time.
Jonathan Ford 21:49
every time you’re watering the pool, I’m a slave to that thing.
Feargal Sharkey 21:53
Grey Water Systems, a protect nothing more than a change to the Building Regulations. Well, what that simply means is that the water you use in your dishwasher, clothes washer, and your hand basin all goes into a either your own house, or it can be the street or in the community reservoir. So the next time you go to do something like water your plants, like wash your clothes, like flush your loom, it actually comes out of this communal system, which was the water you use to wash your hands.
Neil Collins 22:26
And yesterday, there was no chance of that at all, except with a new development, you could probably make it but changing the setup of a street of houses is that that’s a fantasy.
Feargal Sharkey 22:36
I wasn’t suggesting retrofitting the whole country by any means. But I can tell you right now, I recently had a conversation with a big national house builder, as you may or may not know Combi boilers have been banned Cy 22. Now, all house builders love the damn things. They’re going to have to put in heat exchangers, heat pumps for having to redesign the basic fundamentals of a house. And the question they were asking me was fertile. If we have to redesign a house, we would rather take the hit and do both jobs at the same time.
Neil Collins 23:08
Yeah. And how long would it take for 10% of the housing stock to comply with that about a
decade, maybe 15 years
Feargal Sharkey 23:18
and make a massive impact on the amount of water we’re consuming. It’s a start, we’re going to have to deal with this. None of these things in isolation are going to provide a silver bullet. It is going to have to be the classic array of Vulcain of individual items. And I have absolutely no doubt Jonathan grey water systems are going to be part of that because they already are in the rest of Europe. Okay,
Jonathan Ford 23:42
that’s fantastic. I’m gonna step in here before Neil comes up with some more reasons why
nothing should be done. So he can continue on, continue grumbling about the lack of action.
Neil Collins 23:55
That was a long time in finance with Jonathan Ford and Neil Collins, editing and production spy Nick Hilton, and our sponsorship partner is briefcase dot news. Join us again next week.