Water companies are taking the used toilet water
The thing about privatisation is that it’s a really good idea-on paper. Business become efficient; costs are minimised and customer service maximised so everyone wins. Unfortunately, the problem with privatisation is that it involves capitalism, where someone is always out to make a buck. And that someone is never the consumer.
Now, it seems, even industry regulators are annoyed with the free market, and the associated right of private companies to do as they want (and they generally want to make as much profit as possible), with both the current and former heads of Ofwat openly criticising the naughty behaviour of some water companies.
Both Jonson Cox, chair of Ofwat and former chief Sir Ian Byatt are particularly narked over the large dividends water companies have paid out to their shareholders, many of whom are now private equity firm investors. Instead of paying out profits to shareholders (as a public/private company normally does), they think any excess over a ‘reasonable amount’ of dividend should in fact be returned to customers in the form of a bill rebate. Kind of how it used to work before privatisation.
Supporting a report by thinktank CentreForum, Sir Byatt advocated “some form of dividend control” where “payments of dividends above those assumed by the regulator when setting price limits, would be accompanied by reductions in the tariffs paid by customers”. Mr Cox told the Telegraph last month that some water companies' profit levels and tax-reducing corporate structures were “morally questionable”.
To further annoy the regulator, many water companies are described as borrowing ‘excessively’, while paying out large dividends. This makes perfect sense for a profit-making company, as loan interest is tax deductible, but dividend payments are not. The final bugbear is Thames Water’s attempt to secure public (taxpayer) funding for its multi-billion pound “super sewer” project, despite earning huge profits (and paying no tax. Allegedly) in recent years.
The problem, of course, is that water companies are selling a commodity we all need, but much like the energy companies, have become a victim of their own success. The whole point of privatisation was to make companies more efficient and thereby profitable, but now that they are doing (very) well, this is no good either. Ofwat already caps the prices that can be charged for water, and this includes an element of profit. Surely if water companies can make large profits on top of that they either deserve those profits owing to impressive cost savings and excellent business management, or Ofwat is setting the prices wrongly. And any number of private companies get handouts from the Government to support their own, profit-making businesses; Amazon and Honda and Jaguar to name but a few. And while energy bills are sky-rocketing, are water bills at an average of £32 a month for all the fresh running water you could want really so extortionate?
Answers on a postcard.