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