How Water Industry Privatisation Failure Is Harming UK's Climate Goals

By Darryl Rigby

When Labour was campaigning for office in the lead up to last year’s general election, the environment was a key talking point, with bold promises to reduce emissions, create thousands of green jobs, and set up a publicly-owned power company grabbing plenty of headlines.

Of all the pledges made, it was the one to create the state-owned Great British Energy that arguably generated the most buzz — unsurprising, given that the benefits of privatised utilities have been pretty absent of late!

Whether it’s the astronomical energy bills, inadequate flood defence systems putting entire villages underwater, or the record levels of sewage rendering our fresh waterways no-go zones, Britain is now waking up to the harsh realities of outsourcing its utilities to private companies that exist purely to make a profit.

The water industry is perhaps the most obvious example of this failure. It also happens to be one that could undermine the government’s climate goals if nothing is done to revamp the flawed system we currently have in place.

Introduction Of Privatisation

When Margaret Thatcher’s government privatised the UK’s water industry back in 1989, the country was promised greater efficiency, increased investment, and improved services. But almost three decades on, it’s now abundantly clear that what we actually got was the complete opposite of what was promised.

Rather optimistically, Thatcher and other free market proponents claimed that water companies would reinvest some of their profits back into the system, building improved infrastructure and driving innovation. They also argued that privatisation would give customers more choice, contributing to lower bills.

But rather predictably, what’s actually happened is these private water companies have prioritised profits and shareholder dividends over long-term improvements. So as Britain’s decrepit, Victorian-era infrastructure languishes and customers make do with some of the worst services in Europe, water company executives receive six-figure bonuses and shareholders are given handouts totalling tens of billions of pounds.

Decades Of Failure

Since water was taken out of public hands, these firms have continually refused to modernise infrastructure, with outdated sewage systems, in some cases built hundreds of years ago, unable to handle modern demand. This neglect is now causing serious environmental and public health issues.

Every day, millions of litres of raw sewage pour into Britain’s lakes, rivers, and seas — turning once-pristine waters into toxic dumping grounds. In 2023, sewage spills in England more than doubled, soaring from 1.75 million hours to 3.6 million hours.

One of the worst culprits appears to be United Utilities, with the North West-based supplier responsible for dumping millions of litres of human waste into Lake Windermere between 2021 and 2023.

Things have become so bad that most designated bathing waters now fail basic environmental safety standards, with dangerous levels of pathogens like norovirus, Salmonella, pathogenic E.coli bacteria, and parasites present. Even the government’s own website warns of the increased risk of gastrointestinal illness or stomach bugs when swimming in open waters — a real fall from grace for a country once championed for its clean bathing sites.

Last year a group of engineers and scientists warned that faecal matter in our rivers is posing a real public health risk, warning the issue is only set to get worse if action isn’t taken. Prof. Barbara Evans, chair of public health engineering at the University of Leeds and one of the study's co-authors, told the BBC: "One of the most dangerous things in our lives is human faecal waste."

“We now know that more of [this waste] is going back into the environment. And we know that more people want to use bathing waters. So we have to say that there's an increased risk of an outbreak of infectious faecal oral disease."

Worryingly, sewage contaminating our waterways is by no means the only consequence of having poor infrastructure in place. With rising sea levels and freak weather incidents more common, floods are becoming an increasingly potent threat — something our antiquated defences are ill-equipped to deal with.

Indeed, with a significant number of Britain’s flood defence systems currently in a state of disrepair, the increase in floods couldn’t come at a worse time. Back in 2022, Greenpeace’s investigative arm, Unearthed, found that approximately 4,204 of England’s key flood defences were classified as either poor or very poor. Since then, severe storms in 2023 and 2024 have merely highlighted these vulnerabilities and deepened the crisis.

Elsewhere, leakage continues to put strain on supply with billions of litres of water lost every single day as a result of broken pipes, raising the risk of shortages in some areas. For some parts of the country, a particularly hot summer may pose some serious challenges.

The Debt Crisis

So why exactly has the UK’s water system been so badly neglected? More to the point, what happened to the reinvestment that was promised when privatisation was first mooted? Collectively, private water firms take in tens of billions in revenue as customers’ bills rise at a steady rate. So there’s certainly no shortage of money.

BBC documentary ‘Our Troubled Rivers’ which aired in 2023 revealed that since privatisation, companies have paid out over £70 billion in shareholder dividends, while allowing pipes, treatment plants, and reservoirs to decay.

This should surprise absolutely nobody. After all, we’ve seen exactly the same fate befall our railways, energy sector, and postal service which were also sold off to the private sector, by Conservative governments looking to make a quick buck at the country’s long-term expense.

The problem with privatising your essential services is these investors only get involved in a business venture if there’s a chance to make a profit. Take away the juicy returns on offer and they’d run a mile. So any talk of innovation, investment, and the majority of profits generated being poured back into the development of infrastructure is, quite frankly, hogwash. We know that now, and anyone still in denial need only take a dip in their local lake or reservoir for a stark reminder!

The failure of these water companies to maintain our ailing infrastructure is matched only by their failure to manage cash. Take Thames Water, for instance. The country's largest supplier, which is owned by a consortium of overseas pension funds and investment firms, was recently bailed out by the government with a £3 billion loan after signalling it was set to run out of cash within weeks. The company’s debts currently stand at around £20 billion.

What’s worse is Thames Water is by no means an outlier. In fact, being billions in debt appears to be par for the course among Britain's biggest water firms these days, with United Utilities (£8.2b), Southern Water (£5.7b), Severn Trent Water (£6.3b), Anglian Water (£6.7b), Yorkshire Water (£6.1b), Northumbrian Water (£4.5b), and South West Water (£2.5b) all displaying similar financial incompetence.

What’s perhaps most worrying is this mismanagement has occurred alongside a continued commitment to rewarding shareholders and paying executives some of the most lucrative salaries and bonuses in the land. Industrial-scale ineptitude must be handsomely rewarded, it seems!

Labour’s Climate Change Goals

Back in December, Keir Starmer delivered his “Plan for Change” speech where he earmarked six targets for the British public to measure his tenure on. Part of the plan was a pledge to deliver 95% clean power by 2030, a lofty target that surpassed anything the previous administration had aimed for.

This was in addition to the UK’s 2050 Net Zero target, which looks to eliminate all carbon emissions by the midpoint of the century, demonstrating Labour’s commitment to turning Britain into a leader on clean energy.

But with these objectives in mind, it’s worth remembering that our crisis-hit water industry will play a key role in determining whether or not we reach these ambitious targets. While water treatment and distribution only account for around 6% of the UK’s total energy use, there are plenty of reasons why reducing our overall emissions relies heavily on sustainable water management.

One of the most obvious issues is the leaks and inefficiencies in our systems, which waste billions of litres of treated water daily. Pumping and purifying this water requires significant energy, substantially adding to our emissions.

A great way for water firms to counter this would be to invest in modern leak detection, smart meters, and efficient distribution networks. This kind of proactive investment could reduce both emissions and waste simultaneously.

Another major hurdle lies in our flood defence systems. As flooding becomes more frequent due to rising sea levels and extreme weather, poorly maintained flood defences will inevitably lead to widespread infrastructure damage, forcing costly and carbon-intensive repairs. Additionally, more frequent flooding will also disrupt transport networks, energy grids, and supply chains, while waterlogged land reduces the effectiveness of carbon-absorbing ecosystems like peatlands and forests, weakening the UK’s ability to offset emissions.

Meanwhile, wastewater treatment plants (WWTPs) contribute significantly to greenhouse gas emissions as they heavily rely on energy often sourced from fossil fuels. Encouragingly, there's a growing focus on transitioning to renewable energy sources and energy recovery from wastewater and sludge to reduce reliance on fossil fuels and achieve energy neutrality, so it’s good to see progress being made with WWTPs.

Lastly, beyond the moral responsibility to protect flora and fauna, healthy rivers and wetlands serve as vital natural carbon sinks. Pollution, on the other hand, destroys vegetation and biodiversity, diminishing their climate-cleaning benefits.

Cleaning up the water system would therefore directly support Labour’s broader environmental goals. So if the government is serious about tackling climate change, modernising the water system is essential.

Obstacles

If water companies were to invest in modern green technology, they could contribute to Labour’s climate goals significantly. However, as we’ve seen over the past few decades, improving infrastructure isn’t exactly top of their list of priorities. Therefore, it’s unrealistic to expect a complete change of approach now, especially when they owe tens of billions between them.

Stronger regulation is also crucial. Ofwat, the UK’s water regulator, has been accused of falling asleep at the wheel, allowing suppliers to run roughshod, trash the environment, and rack up eye-watering debts they’re now servicing by hiking our bills.

Ofwat must take a tougher stance, punishing water suppliers for high pollution levels with heavier fines and strict investment requirements. But given the dire state of affairs, it’s doubtful even that would be enough. Which leads to the ultimate question: Is it time to abandon privatisation altogether and return to public ownership?

Those opposed to taking these companies back into public hands argue that it would be costly, as the government would be forced to buy out these private owners. However, considering we’re already heavily subsidising the development of water infrastructure, and the government is being forced to bail out the likes of Thames Water because they continue to prioritise dividends over paying off their creditors and running their business efficiently, this argument is a non-starter.

It’s worth pointing out, too, that Britain remains the only country in the world to have a fully privatised water supply. Even America — the land of free market capitalism where profit is made even from life-saving medication — views water as too essential and sacred a resource to monetise, raising serious questions about why Britain continues to be an unfortunate outlier.

Maybe the rest of the world knows something we don’t.

Darryl Rigby is a Copywriter at TradeSparky, a UK-based electrical and solar PV wholesaler.