Discuss the desirability of combined private/public management of water resources.
Since 1750 and the start of the industrial revolution, agricultural economy has gradually moved over for manufacturing and private industry, therefore instigating a rise in population and increased urbanisation, leading to a need for water resources, provision and waste management.
The structure of water management that exists in England and Wales today is based on the 1973 Water Act. Ten publicly controlled water authorities, including Thames Water, Severn Trent and Yorkshire Water, took over from the 180 separate bodies that were responsible for water supply and waste removal services and developed treatment of effluent, flood control and regulatory control into their tasks (Haughton, 1998). This greatly improved upon the varied way the bodies operated previously with a more streamlined management strategy. The ten new authorities are defined by river basins, rather than political boundaries, so as to avoid any conflict over utilisation of resources, which is a scheme that is now being looked into by mainland Europe due to issues that have occurred between countries sharing the same source.
Old times
In comparison, in the 19th century the water industry was mainly privatised but provision was varied, causing much local opposition. This was overridden by central government primarily due to the fact that many MPs had personal stakes as shareholders in the water companies (Hassan, 1985). This shows how even service industries are led by investment and profit gain, rather than for the good of the people. In the 1830s and 1840s there was a waste water crisis, caused by a lack of proper organisation for the removal of sewage from homes and the transportation from towns to the coast (Hassan, 1985). Some premises had cesspits and others used illegal connections to channels and drains but there was no effective treatment of waste and therefore issues of disease arose, primarily Cholera. Eventually the infamous “Great Stink”, brought on by an unusually hot summer, fuelled the government to finally act and commission Joseph Bazelgette to build a sewer system that is still in use today (Cook, 2001). Improvements have now been planned with the 2004 “Super Sewer” proposal but because of privatisation, it will be the customers who will have to foot the bill, estimated to be an extra £40 per year with no guarantee it will not rise.
Two regions differed from the rest of the country in the 19th century in their public ownership views: Leeds and Liverpool. These cities maintained parallel public-private ownership with the public side acting as a regulator, like Ofwat now, and this formed the basis for part-nationalisation legislation in the 1840s (Hassan, 1985). By the 1850s the water industry had developed a long way to protect the sources and supply of drinking water and was in need of an effective waste water management system, leading to further power being taken back into public control in 1870s.
New beginnings
The 1980s were a boom period in the UK after the crisis of the 1970s, such as the Winter of discontent, the energy crisis and the need to go to the IMF for an emergency loan. The change started in 1979 when labour was kicked out of office and Thatcher and her Conservative thinking moved in. This was, in some ways, a difficult time as the newly elected government began to move away from primary and secondary sectors, such as mining – leading to pit closures, and towards a tertiary focus with services and the growing dominance in the developments of high technology. Within these adaptations, the beginning of privatisation of industries previously under state control was born, regarding gas, electricity, airways, British telecom and lastly water. This was popular with the public, who could buy shares in the new companies, in some cases even being able to apply for purchasing the shares before the public companies were even floated (Haughton, 1998). All this lead to a landslide election in 1983 and the success was noted for gas and BT. Rail and water privatisation on the other hand began to cause problems and therefore a switch in the public opinion of the decision occurred in the 1990s.
1989 is the year that marked the beginnings of part-privatisation of water resources where the industry split into the utility function, including the water companies such as Thames Valley, and the regulatory function, including Ofwat and other organisations that supervise the service given to the public. The private water companies had two functions. The first was the provision of water supply, involving abstraction of groundwater supplies, storage, treatment and distribution, and the second was of sewerage and sewage treatment, involving maintenance of the sewage systems and the return of treated effluents to rivers and from there the maintenance of river quality. To put it into perspective; Thames Valley water company serve 12 million people in 5.23 million premises using 50’000km of sewers with 2300 sewage pumping stations and treat 4400 million litres of sewage per day.
On the public side of the industry there are the regulators, including Ofwat, the Environment Agency and the Drinking Water Inspectorate, all of which are quasi-autonomous non-governmental organisations (or QUANGOs). That is to say, they are all organisations or agencies that are financed by the government but act independently of it and spend their money without being directed on how or where to do so. The Environment Agency, based on ten region agencies, was formed in 1995 to regulate land drainage, water resource management, flood defence, fisheries and conservation, recreation (including rivers, lakes, reservoirs and other in-land sources) and pollution control and river quality management.
Ofwat’s presence is to monitor water companies’ responsibilities and financial activities, promote economy and efficiency and facilitate competition. It is financed by private equity and investment and regulates the public’s value for money by having each water company submit a business plan ever five years, including how much they would like the charge, what they are currently doing and what they plan to do to develop and improve in the future. The plans are then analysed by Ofwat to find the best deal possible for the public and from that the prices are announced. (Dore, Kushner and Zumer, 2004)
A question that has arisen is whether or not consumers are getting a fair deal from water companies. The average water bill in 2004 was £255 whereas in 1989 the average was £118. At the start of privatisation, the government gave a £6 billion lump sum to water companies to get them started and since then 70% of their income has come from their customers (Bradley, 1999). Ofwat began to question the prices and therefore the K factor, which is the percentage increase or decrease for price, became more in favour of an income through investment. The debate continues over the success of a protected business environment. (Bakker, 2003)
Ups and Downs
In the early 1990s there was a privatisation backlash and public opinion, fuelled by the media, turned on the issue. At the same time the Conservative party started to have problems and labour was finding its feet again so the privatisation decision was good to hit the government with. One argument was about the huge salaries water company directors were awarding themselves when they had inherited a crumbling pipeline system with high leakage rates, increasing costs and needing investment to repair.
It almost came to a head with the 1995 Yorkshire Water drought crisis and all the blame was put onto Yorkshire Water for not having any plans for a worst case scenario. The profit figures and payment of salaries were released and caused outrage, resulting in the media laying into water companies and the government. There is the opinion that the situation would not have been any different if the industry was not part-privatised, but that is not the point to those who were severely affected at the time. To make matters worse, Yorkshire Water’s PR team triggered even more bad publicity when it blamed the public (Haughton, 1998). At that point the government intervened and put the blame back onto the company and told them to fix it, although they could not enforce this as the did not have the power over the private company, which is a negative example of how privatisation brought about a loss of control. Looking back on the disaster now, one could say that it was never in fact a failure as no stand-pipes had to be brought in and there was never a lack of tap water, but a £40 million fine to Yorkshire Water was upheld to make the point and in fact the whole incident ended up being a trigger for wholesale improvement and investment in broadening business interests and upgrading the region’s clean and waste water infrastructure (Haughton, 1998).
In more recent times, outrage has again been sparked over the questionably large salaries executives are receiving when the 2007 floods gave reason for the suggestion that customers’ bills would be increased to fund additional flood defences instead of the massive bonuses that directors had been awarded being paid back. It is in this case lucky that the public regulators have been set up in the way they have as it is Ofwat who control public funds and therefore it is only in their power to raise the rates.
For Privatisation
An argument for the case of privatisation is that England and Wales’ compliance with Regulatory Standards have been very high, and breaches in the water pipelines had reduced massively by over 70% between 1994 and 2003, which reflects the improvements on investment since the 1995 Ofwat report (Saal and Parker, 2001). The question remains: would the situation be the same if the industry had remained under solely public control, but my personal opinion is that it would not as there would be less income directed towards the enhancement of the service. In addition, the private water companies have to deal with decisions made by the government while in control that are causing them additional cost in the water quality standards. For example, after the second World War the Ramblers Association decided to push for the opening of catchment areas that were cut off so as to reduce the risk of contamination and decrease the amount of treatment needed on collected water. They succeeded principally due to the fact that they had a strong holding on the government with many powerful people in their ranks. If the water industry had already been put back into privatisation at this point then the government would not have had the power to open the catchment areas to recreation and this would be saving the customers money on the running costs of treatment, although at the cost of losing the enjoyment some beautiful landscapes.
References:
Bakker K J, 2003 “From public to private to… mutual? Restructuring water supply governance in England and Wales” Geoforum, 34, 359-374.
Bradley A, 1999 “Divining the Profits” Newstatesman [www] http://www.newstatesman.com/199907260059 (December 13th 2007)
Cook G C, 2001 “Construction of London’s Victorian sewers: the vital role of Joseph Bazelgette” Postgraduate Medical Journal, 77, 802-804.
Dore M H I, Kushner J and Zumer K, 2004 “Privatization of water in the UK and France – What can me learn?” Utilities Policy, 12, 41-50.
Hassan J A, 1985 “The Growth and Impact of the British Water Industry in the Nineteenth Century” The Economic History Review, 38:4, 531-547.
Haughton G, 1998 “Private Profits – Public Drought: The Creation of a Crisis in Water Management for West Yorkshire” Transactions of the Institute of British Geographers, 23:4, 419-433.
Saal D S and Parker D, 2001 “The impact of privatization and regulation on the water and sewerage industry in England and Wales: a translog cost function model” Managerial and Decision Economics, 21:6 253-268.
