Water firms exist to sustain life. They should answer to citizens, not shareholders | Will Hutton

An oversight system with teeth would stop utilities from inflicting misery by profiteering

There is change in the air – vast change. Two years before the next general election it is obvious – just as it was in 1977 before Margaret Thatcher won in 1979 – that the existing policy framework has reached its sell-by date. Then it was the postwar settlement – including incomes policies and public ownership – whose weaknesses were becoming ever harder to defend, even among those of us who recognised its strengths. At the very least it needed a wholesale rethink and makeover, or, as Thatcher argued, be repudiated with a bracing new framework adopted in its place.

So, in 2022 we have the prospect of 13% inflation or even higher, swingeing energy bills that will topple millions into destitution. Add in the failures of privatisation dramatised by excessive water leakages and raw sewage blighting many beaches and rivers, an impossibly overstretched NHS, and workers being badged as irresponsible for merely trying to resist dramatic cuts in their real incomes. All this has crystallised how the whole Thatcherite edifice of economic and social policy, decaying for years, is suddenly and obviously redundant.

The Tory party’s response – to elect Liz Truss as its leader to double down on a framework that does not work – is wildly out of keeping with what is needed, and out of step with the popular mood. The Conservatives’ substantial poll deficit with Labour – the highest for a decade – is certain to widen further.

The evidence of the mood change is all around. Later this week, Ofgem is expected to announce that the price cap for energy will double in October to £3,500, with a peak of £5,000 expected in April. The social impact will be catastrophic. The Truss team has yet to show its hand, but the range of floated options limits extra household assistance to hundreds of pounds when it needs to be thousands.

People are genuinely fearful: consumer confidence is broaching all-time lows. The Labour leader Keir Starmer’s simple solution – freeze the cap for six months over the winter – is understandable and effective. It not only has the support of 85% of Labour voters but, importantly, 75% of Conservative voters. Time was, just a year or two ago, when a confident Tory party and its press would have dismissed the freeze as “Marxist”. Not in August 2022.

So it continues. In today’s environment, the leader of the RMT union, Mick Lynch, wins arguments over the need to strike to preserve living standards. A respected senior ex-BP executive, Nick Butler, writes damningly of an incompetent Ofgem, profiteering energy companies, and accepts that the weakest may need to be nationalised. The former prime minister Gordon Brown accepts too that the very weakest utilities may need to be publicly owned as part of the price of redressing the cost of living crisis. Only 15 years ago, when the financial crisis broke, he resisted public ownership for fear of Tory taunts. Not in 2022.

A centrepiece of Thatcherism – that privatisation plus “light touch” regulation could be applied in any utility – is under siege as never before. Camilla Cavendish, head of the No 10 policy unit under David Cameron, catches the moment when she writes in the Financial Times that water privatisation as designed has failed. What matters for utilities is that they deliver the public interest of cost effectiveness, resilience, reliability and service. That cannot be said today of the universe of energy and water companies.

What to do? Even Truss proposes a review into how British utilities are regulated, inclining to the idea of merging all the regulators into one. (Wrong answer.) The Corbynite left and some in the union movement propose wholesale renationalisation. But there is a gulf between that and the last resort public ownership of individually failed utilities of the type Brown and Butler accept. There is little evidence that laying out up to £200bn to take over every utility will bring the universal benefits needed; moreover, this is cash that could be better deployed elsewhere – on levelling up and the drive to net zero.

The better option is more forensic. Look more closely and there is an intriguing spectrum of performance. The government’s 2021 environmental evaluation of nine English water companies shows, miserably, that six receive either one or two stars. (Southern and South West, beach polluters-in-chief, are the one-star performers.) But there are three companies – Northumbrian Water, Severn Trent and United Utilities – that all earn the maximum four stars. What is needed is a regulatory, licensing and governance regime that fosters many more top-star performers, with public ownership the last resort option for the one-stars.

Importantly, the top performers all place social purpose at the heart of their business. All closely engage customers in their decision-making, variants of how the publicly owned Scottish Water, another high performer, has established an independent customer group (ICG) as a permanent independent watchdog that it closely consults and informs. This should not be the preserve of the best. Every water company should embrace a public benefit requirement along with an ICG.. Imagine, for example, campaigner Martin Lewis as chair of Thames Water’s ICG: overnight, the dynamic would change.

Ofwat should not only ensure that this happens but insist each company meets tough statutory universal service obligations. It has begun to move in this direction, but has been far too accommodating to the complaints and counterchallenges from weak performers. No more. If water firms can’t meet the public interest targets on leaks, pollution and capacity, licences should be withdrawn and the companies for a period be run by the state. They exist to sustain life: not to maximise shareholder value.

A similar regime should be established for the energy companies, again with a dedicated regulator respecting the particularity of the sector. This is not nationalisation but arguably something superior: the assertion of the public interest as a system and a culture. It is what Starmer is aiming for – still imperfectly but nonetheless his clear direction of travel. It is, contrary to his critics in the leftist bubble who are careless of winning elections, very much in the interests of every citizen, which is what makes the proposition so powerful. If he can hold his fissiparous party together, it also promises to make him prime minister.

• Will Hutton is an Observer columnist


Will Hutton

The GuardianTramp

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