The Water Dissensus – A Water Alternatives Forum
More regulation can’t fix the failures of privatised water in England and Wales
By Kate Bayliss and Frances Cleaver
The crises
The water system in England and Wales is in a bad state. The sector faces numerous crises; water companies currently face eighty-one criminal investigations into illegal spills of raw sewage,[1] while the largest, Thames Water, is close to financial collapse.[2] Serious maintenance and operational problems cause supply interruptions.[3]
Examination of the drivers of the crises reveals two key problems: inadequate infrastructural investment and irresponsible financial engineering. The investment that has taken place has been funded by debt. Privatised debt-free in 1989, companies have since accumulated net debt of around £70 billion. During this period, they have found the money to pay their shareholders dividends of over £83bn (adjusting for inflation) (Malby et al. 2025).
This state of affairs is a searing indictment of the extreme form of privatisation that was instigated in England and Wales.[4]
How did it come to this?
In 1989, the publicly owned, state-run regional water authorities were floated on the London Stock Exchange (LSE). The privatised companies were given full ownership of the infrastructure and indefinite license to provide the services. The state needs to provide 25 years notice to revoke a company's licence. A regulatory regime was established which included the Environment Agency, responsible for regulating pollution; and Ofwat, the economic regulator charged with balancing the interests of investors with those of water users.
Initially, the publicly listed companies were owned by a dispersed set of shareholders but from 1994 (when government sold their 15% golden share), most were de-listed, bought up in their entirety, and taken off the LSE. Initially, the owners were traditional utility infrastructure firms (such as Lyonnaise des Eaux and RWE) but, from the 2000s, institutional financial investors such as private equity, and sovereign wealth and pension funds began to take an interest.
Today four of the ten regional water-and-sewerage companies and all four of the smaller water-only companies are owned by financial investors. Three companies are still listed on the LSE; two are owned by Asian global conglomerates; and one (Welsh Water) is owned by a not-for-profit company. The financial investors adopted a distinctive approach to water company ownership, setting up special companies for the purpose of taking over the water utility. Most established a complex financial securitisation structure, allowing them to raise high levels of debt. These companies became highly indebted with funds flowing up and down complex corporate chains (sometimes via tax havens) in the form of loans and interest and dividend payments. It is very difficult for an outsider to track the flow of funds.
Most investment in the water system has been financed by borrowing rather than with shareholder funds; surplus funds have been taken out in dividends rather than reinvested. Water has become a financial asset with equity shareholdings bought and sold by global investors, in which high returns are often un-related to productive activity (Bayliss and Galvin 2024)
Regulation is an important part of the privatised model. But the controls introduced at privatisation and subsequently modified have failed to adequately protect either society or the environment. Estimates indicate that between a quarter and a third of revenue from water bills goes towards funding debt service and dividends, rather than to investment. The economic regulator, Ofwat, was slow to realise the risks emerging from the financialisation practices of institutional investors and also slow to react (Bayliss et al. 2023).
Meanwhile, environmental regulation was pared back from 2009 in a shift to 'operator self-monitoring'. Companies were to check themselves and report any pollution incidents to government, subject to audits from the Environment Agency. Economic austerity policies from 2010 cut Environment Agency resources and it was ill-prepared to detect practices of water companies illegally discharging raw sewage into water ways (Usher 2023).
A New Vision for Water?
In January 2026 the government announced 'A new vision for water'[5].But rather than proposing wide-reaching systemic reform, this new policy focusses on regulatory and managerial adjustments (e.g., proposing a new single regulator and integrated sector planning). The vision attaches considerable weight to the "investability" of the water sector and to the UK growth agenda. The measures proposed will ensure that the private companies which caused the current crisis will remain in place and can generate a profit. Alongside the regulatory reforms, a planned price increase of 36% plus inflation between 2025 and 2030, is set to restore business confidence.Thus, consumers are to pay the price for the continuation of a malfunctioning system.
We argue that such tweaking of regulatory measures cannot solve the problems caused by the privatised water system. The framing of regulation as a neutral, technical tool belies the political power of the shareholders behind the utilities. The companies that own the water sector also have stakes in energy, transport and other key British infrastructures. They are close to the government and deploy energetic lobbying tactics; they have considerable resources to shape the institutional framework and the public discourse in their favour. This has been matched by the erosion of voice in the public realm; trade unions, civil society, and local municipalities are all relatively weak after decades of restrictive policies and reduced funding.
This combination has been powerful enough to block a return to public ownership for water in England and Wales. The government refuses to consider the idea on the grounds that it would be expensive (cited costs of £100bn are based on a flawed evaluation model promoted by the water companies), would lead to years of legal wrangling, and detract from the goal of recovery in the sector.
Privatisation has brought the sector to its knees. In responding to the scandals of underinvestment and financial mismanagement, the state has closed ranks around the shareholders. Those that wrought havoc in the system will stay in place, profitability will be restored, and consumers and the environment will continue to bear the costs.
Reshaping the debate?
How can this deeply engrained culture of private sector dominance be combatted? Critical water scholarship offers positive examples of returning water to public ownership (Hall and Lobina 2024) and proposes alternative models of financing and governance (Calafati et al. 2025). There is a lively civil society campaign demanding change[6] and opinion polls suggest that 82% of people favour public ownership of water[7]. And yet we seem to be stuck with this dysfunctional system in which international financial interests benefit at the cost of the public and the environment. How can we shift the political dial in favour of progressive change? What factors could push the current system to a tipping point after which financialisation of water is no longer seen as an acceptable solution?
References
Bayliss, K., Van Waeyenberge, E., & Bowles, B. O. L. (2023). Private equity and the regulation of financialised infrastructure: the case of Macquarie in Britain's water and energy networks. New Political Economy, 28(2), 155–172. https://doi.org/10.1080/13563467.2022.2084521
Bayliss, K., Galvin, M. (2024). Financialisation: An intractable breach of integrity in the water and sewerage systems in England and Wales. Water Integrity Network Research – Working Paper 3. Berlin, Germany: WIN
Calafati, L., Froud, J., Haslam, C., Johal, S., & Williams, K. (2025). Murky Water: Challenging an unsustainable system. Manchester University Press.
Hall, D., and Lobina, E. (2024) Clean water: A case for public ownership. UNISON.Available at https://www.unison.org.uk/content/uploads/2024/07/385-clean-water-reportJune2024.pdf
Malby, R., Cleaver, F., Bayliss, K., and McGaughey, E. (2025) People's Commission on the Water Sector Report. https://www.thepeoplescommissiononthewatersector.co.uk
Usher, M. (2023) "Making Shit Social: Combined Sewer Overflows, Water Citizenship and the Infrastructural Commons." Infrastructuring Urban Futures: The Politics of Remaking Cities, edited by Alan Wiig et al., 1st ed., Bristol University Press, 2023, pp. 109–36. JSTOR, https://doi.org/10.2307/jj.3452814.11
[1] https://www.gov.uk/government/news/record-81-criminal-investigations-launched-into-water-companies-under-government-crackdown
[2] https://www.theguardian.com/business/2025/dec/03/thames-water-half-year-profit-leaps-to-nearly-400m-even-as-collapse-risk-remains
[3] https://www.theguardian.com/uk-news/2026/jan/14/grim-tunbridge-wells-residents-struggle-several-days-without-water-again
[4] Welsh Water was privatised in 1989 but is currently owned by a not-for-profits company and not the prime focus of this blog.
[5] https://www.gov.uk/government/publications/a-new-vision-for-water-white-paper
[6] https://www.sewagecampaignnetwork.org.uk/
[7] https://www.theguardian.com/business/2025/jul/07/public-ownership-of-water-in-england-and-wales-is-best-way-to-improve-industry-peoples-commission-finds
Comments 9
Equity fines were proposed by a member of the London Water Group. Unfortunately I cannot remember who. Instead of the regulator imposing a monetary fine it would be paid by issuing more shares which would be transferred to the regulator. The water companies have failed in their job of managing sewerage treatment, leaks etc. but they have succeeded in hood winking the regulators and shifting the cost of fines from their shareholders onto their customers. This would be more difficult with additional shares. This would over time cause real concern to the original shareholders as they saw their equity being diluted.
The other problem that is swept aside by the present crisis is water management during climate change. The current crisis in the British water industry is essentially a problem Britain solved more than one hundred years ago. The new crisis is the extremes of flooding and drought cause by climate change. Cities around the world are developing ideas to manage the change but Britain is distracted. New methods of saving "clean" storm water need to be developed. Consumption of domestic water needs to be fine tuned and many other issues addressed.
I told Sir Ian Byatt, the first DG of OFWAT, that someone must really have hated him to give him this job as it was entirely impossible. In a capital intensive industry such as the water industry, price regulation always devolves to determining the opportunity cost of capital. In addition, I was once introduced to someone who said that he was the Minister who privatised the water industry. This was not a memorial I would want engraved on my tombstone as economic efficiency either results from competition or from the economies of scale and scope. The industry was not privatised in pursuit of either alternative; either the Water Authorities which combined potable water and wastewater should have taken over the remaining small potable water only companies. Or the Water Authorities should have been broken up, and new smaller companies formed. There was in turn, no learning from the C19th experience with privatised potable water companies in England.
At the same time, the convoluted mess of water management in England (Internal Drainage Boards, Highway Authorities, Riparian Duties etc) should have been systemised. The privatisation of the water industry in England and Wales is a case study of how not to do it; the first question being: what do you hope to achieve? And how will privatisation contribute to these goals?
The water industry was essentially privatised to move the substantial debt that would be required to provide the investment needed to meet the requirements of the EU Directives, to which the then government had committed the UK, from one pocket, the Public Sector Borrowing Requirement, to another pocket, that of the water consumer. Subsequently, a new direction was towards sustainable water management in the form of demand management (eg towards the potable water demands per capita seen in Germany) and Sustainable Urban Drainage. Providing for profit firms with incentive to reduce demand is a challenge.
I think I would look at such things the Water Districts in the USA (eg the East Bay Municipal Water District) as an alternative more likely to be successful.
Your article raises an interesting and important point about what might be meant or implied by 'more regulation'? If this means simply tightening the rules regarding pollution, water use/abstraction and the financial conduct of water companies (i.e., a 'reset' as described by Defra and also separately by the Welsh Government), then this seems unlikely to go far enough and do little to tackle the tackle the enormous power imbalances that exist between the water companies on the one hand, and the regulators on the other. Since privatization in 1989, the water companies and their owners/investors have learned to be very adept at playing the game, particularly the Price Review process, and have essentially run rings around the financial and environmental regulators. The water companies have more data and more in-depth understandings of their own operations and infrastructure, and are able to pull in large teams of experts to bolster and support their claims and arguments. It's no wonder the regulators failed to hold the companies to account and weak future investment agreements were made as a result.
If re-sets are likely to be insufficient, then what are some of the alternatives which might offer the promise of a re-envisioned water sector?
One of the interesting things here is that we are no longer talking about a single sector for England and Wales. There are some similarities between the White Paper published by Defra and the Green Paper published by the Welsh Government, but some important differences too. For Wales, the focus is on sustainability and community well-being, attention to the needs of people and places, and a sharper focus on catchments as the the main units for water planning and management. The Welsh Government has also been keen to emphasize its view that water in Wales belongs to the Welsh nation. For England, the government view appears to be quite different, in part because they are contending with international water company owners and investors, coupled with nervousness about the potential collapse of some of those companies such as Thames. Another factor is that the UK economy in general is currently weak (sluggish), and there isn't much political appetite for spending large amounts of public money on a problem that just might conceivably be resolvable via other, market-based means. So for England, the current government narrative seems to be about financial security and keeping investors confident and interested for the longer term.
Much remains to be debated and determined, and both governments have committed to producing transition plans where important details not included in the White and Green papers will be, or should be, spelt out.
From a water governance perspective, there is likely to be keen interest in the details regarding the proposed regional-scale water planning and management bodies/authorities and whether these amount to a shallow reset or a deeper reform of the sector as a whole. Potentially, these new bodies could be similar to the Regional Water Authorities (RWAs) of the pre-privatization era, although it is unclear how much power they might be given, what their functions would be, and what their relationships with the new water regulators might look like. Arrangements akin to the old RWAs could prove popular and there might be advantages in terms of democratic control, public accountability, transparency, catchment-wide coordination etc. However, it is worth remembering that the RWAs themselves ran into major difficulties in the 1980s, with mounting debts, failing infrastructure and yes, polluted rivers and beaches, much like we have seen over the last few years.
Many thanks for this.
Some perspectives:
https://www.resilience.org/stories/2024-06-06/busted-flush-why-the-big-water-corporations-have-to-go/
https://bit.ly/3Z1bmbQ
https://bit.ly/4lqLnTN
etc ..
From the outset, it was a bad idea to put basic public services such as water, health, education and security in the hands of private companies, whose primary interest is making profits for shareholders. However, nationalisation does not necessarily lead to improvement, given the poor performance of many governments, including the UK's Labour Party (see the work of Blue Community Ambassador David McDonald from Queens University, Canada, Director of the Municipal Services Project, a global research network that explores progressive forms of public services with a focus on equity, sustainability and democratic engagement (https://blue-community.net/blue-ambassadors/our-blue-ambassadors/david-mcdonald/).
I can well understand Labour's resistance towards nationalisation, as they might not do much better in water then in health or education. In my experience, the most effective models are those closely connected to people and their interests, with active participation in decision-making. For example, communal services run by municipalities. Public scrutiny guarantees accountability from institutions and politicians who want to be re-elected by their voters. Would such a model be feasible for the UK? Cities and municipalities could take ownership of, and control over, running and regulating their own local/regional water and sanitation services (and other services defined as human rights).
You might like to take a look at the website https://blue-community.net/#, especially the Blue News articles on 'Privatisation' (https://blue-community.net/tag/privatisation/) or 'Remunicipalisation' (https://blue-community.net/tag/remunicipalisation/)
Thank you - yes Remunicipalisation has a big potential for resolving water sector problems. Separating water services provision from other municipal planning was retrograde. In an era where Nature Based Services are recognised (even if still poorly acknowledged by governments), this concept changes potentially the entire modus operandi of potable and 'waste' water services provision. Some notes in my comments above.
The comments above raise interesting questions about what sort of institutional arrangements could replace the privatised water companies.
Unfortunately such questions are also being used by those resisting change - citing the bogeyman of past failures of nationalisation to suggest that there is no viable alternative to privatisation. The government explicitly instructed their 'Independent' Water Commission (the Cunliffe Commission) NOT to consider public ownership options. As a result the government is committed to supporting a failing privatised system without evidence of possible alternatives. Scandalously, the government doesn't even know what the relative costs of private versus public ownership are. In response to a request for such information the responsible department said ' the government has no intention to nationalise and therefore has not assessed the ongoing costs of continuing with the current privatised model versus public ownership of the water industry' (Defra January 2026).
As we argue in the report of the People's Commission on the Water Sector there are many different models of public ownership in Europe, the USA and elsewhere that we could learn from and adapt to the UK context. We also argue that a new public ownership system in the UK should be democratically accountable, participatory and built around an ethos of public and environmental good. Encouraging engaged water citizenship is going to be essential for addressing the challenges of restoring the crumbling infrastructure and planning for climate change mitigation. Addressing these challenges may well mean persuading people to care for water more, use less of it and, in the longer term, to pay more for it - a message many of the campaigning groups shy away from.
But the overall question remains - how can the stranglehold of private financial interests and their dominance of the discourse on water governance be broken?
Dear Frances. My point was exactly on this. In our network of Blue Communities, we strive for institutions and organisations to commit by becoming a Blue Community (see https://blue-community.net/turn-blue/ ). Cities like Paris, Berlin, Hamburg already are Blue Communities and therewith commit to water and sanitation as public services. Why not Liverpool, London, Leeds... As much as I like the campaigns running for nationalisation, they focus on individuals only (to sign petitons etc.). Our approach would be to win municipalities and challenge the private companies on an institutional level. Do I explain myself? Best, Roland
In response to your post Roland, I disagree that the campaigns are only focusses on individual actions and petitions. Here in England and Wales were have a plethora of community groups, NGO's, academics and trade unions lobbying for change, conducting citizen science monitoring of water quality, taking water companies to court, exposing the deficiencies of the regulators . Just this week some of us were in Parliament meeting MP's and Peers to discuss how we could forward the case for public water ownership through parliamentary channels. The examples of re-municipalisation in European countries seem to suggest that successful campaigns are able to bring together citizen campaigns from below and political action from above. At the moment we have vibrant campaigning and action from below but lack political will from the government for change.
And just a note of caution about comparisons - the municipal model as in much of Europe is interesting (and often inspiring) but in England and Wales many local councils (municipalities) are bordering on bankruptcy, lack capacity and struggle even to deliver statutory services. What is needed is a proper feasibility study setting out viable options for a democratically accountable form of public ownership that could work in this political system.