Nationalisation – a lot of water under the bridge before it happens?

Nationalisation – a lot of water under the bridge before it happens?

A recent report by the Social Market Foundation, the non-partisan centrist think tank,  estimated that the up-front cost of nationalising the water industry would be £90bn. The SMF also estimated that the government would need over £100bn over the next 25 years to meet the long-term investment needed within the sector.

There is, as yet, little meat on the bones of Labour’s nationalisation policy. If the costs are anywhere near the figures estimated by the SMF it is right to question how they will be funded, and how will ongoing investment be sustained? At a time of budgetary pressures, what impact would this have on other spending commitments and tax rates?

At the All-Party Parliamentary Water Group’s most recent meeting, the nationalisation question featured strongly. In the context of the National Policy Statement for Water Resources, water companies made the point that privatisation has enabled the sector to access large-scale, sustained investment. This investment, they argued, is needed to shore up resources at a time when climate change, population growth and environmental degradation are having an increasing impact on water supply. One question particularly struck a chord with the audience – what will happen if funding for water has to compete with schools, the NHS and defence budgets?

We can expect the nationalisation debate to hot up over the coming months. Labour has signalled no intention to row back on its pledge, with questions about executive pay and offshore financial arrangements comfortably fitting into the nationalisation narrative.

Pressure is not only limited to the Labour benches. Environment Secretary, Michael Gove, recently signalled his willingness to hand more power to the industry regulator, OFWAT, if water companies do not act on issues such as excessive executive pay, offshore financial arrangements, high dividend payments and securitisation.

Speaking at the Water UK conference today, Gove reiterated this warning and said that he will give OFWAT “whatever powers necessary” to get water companies to up their game. Although Gove described renationalisation as a “terrible backward step” his strong rhetoric suggests that the Conservatives are reluctant to let Labour set the terms of the debate.

OFWAT will respond to Gove’s concerns early next month. We can expect the industry to be watching closely. As Michael Gove put it “unless we see change, the pressure for renationalisation will only grow.”

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