In 1989, the state-owned regional water boards in England and Wales were packaged up into ten shareholder companies and the shares sold to private investors on the open market. The total raised, after expenses and debt write-offs, was about £6.5 billion. This is shown by the blue section of the image.

These companies proved highly profitable. Between their sale in 1989 and the year 2019 they are reported to have paid out £57 billion in dividends to investors - almost 9 times the amount the government received from the sale. This is shown by the green section of the image.

The same report shows that from 1991 to 2021 the water companies, which were debt-free at privatisation, took on debt of £52 billion - almost the amount they have paid out in dividends. The cost of servicing that debt has been calculated at about 20% of customers’ bills. Meanwhile, between 1991 and 2018 they invested £123 billion of bill payers’ money in the water and sewage systems.

If these huge numbers might make one's head spin, that is precisely the intention. There is no wish to provide clarity. One thing is clear, however: the object of the managers of large private companies is to extract as much money as possible for shareholders, with the interests of employees, customers and the environment subservient to that. The law and the regulators may require certain standards, but their capacity (and willingness) to enforce them is limited, as persistent leaks, sewage spills and other scandals show.

This should not be surprising. Water is a natural monopoly, and once everyone has access to the water that they need it is not a business that can realistically grow. From an investor point of view, therefore, it is simply an income stream - an opportunity to extract a percentage of the £12 billion or so that customers pay every year through their bills. The only way to increase this income is to hike prices and cut spending.

Any entrepreneurship, innovation and creativity on display, therefore, has very little to do with improving people’s lives collectively, and much to do with financial engineering. Since the loans and the dividends cancel each other out, it appears that all the investment in the water and sewage systems has come from people paying their water bills. If the government had not sold the water companies, either people’s bills could be 20% lower or there would have been another £50+ billion to fix those leaks and sewage spills.

So why was the government so eager in the 1980s and ‘90s to sell off the UK’s publicly owned utility companies, when it was clearly such a bad deal?

Data sources:

The proceeds of privatisation are from House of Commons Library Research Paper 14/61, here. The original figure of £3.6 billion has been restated at 2019 prices. This paper also gives the proceeds of other privatisations during this period.

Dividend payments and investments in infrastructure, in 2019 prices, are drawn from a paper by David Hall, here, also reported in The Guardian here.

The cost of servicing water company debt is given in an article here.