In the run-up to last year’s general election, Labour made the environment one of its standout campaign themes, with promises to cut emissions, create thousands of green jobs and launch a state-run energy company taking centre stage.
Of all these commitments, the plan to create Great British Energy – a publicly owned utility – drew the most attention, which is no surprise given the disastrous results of privatised services. Skyrocketing energy bills, failing flood defences and rivers full of sewage have all highlighted why handing critical infrastructure to companies focused solely on generating profit might not have been the wisest move.
Other industries such as rail and energy have also struggled in the face of privatisation. But, nowhere illustrates the failure more acutely than the water sector. Left unaddressed, it could easily become a major obstacle to meeting the UK’s climate objectives.
Introduction of privatisation
When the Thatcher government sold off the water industry in England and Wales in 1989, it promised better efficiency, greater investment and improved service quality. But more than three decades on, those promises have largely evaporated.
Backers of the move claimed that privatised water firms would reinvest profits into infrastructure, drive innovation and offer customers more competitive pricing. Yet the water companies were set up – and remain – as monopolies. Unlike energy suppliers, they cannot be switched, meaning the competitive pricing never materialised.
Instead, they have chased short-term profits and hefty dividends, while neglecting essential upgrades. As the UK’s ageing water infrastructure continues to crumble, executives rake in huge bonuses and shareholders enjoy payouts totalling tens of billions.
Decades of failure
Since assuming control, water companies have repeatedly failed to upgrade infrastructure, leaving Britain with outdated sewage systems that simply cannot cope with modern-day demand.
Millions of litres of untreated waste are dumped into the nation’s lakes, rivers and seas daily, causing environmental damage on a monumental scale. In 2023 alone, sewage spills more than doubled, rising from 1.75 million hours to 3.6 million.
United Utilities stands out as one of the worst performers, having discharged massive volumes of raw sewage into Lake Windermere between 2021 and 2023.
The situation is so dire that most designated swimming spots fail to meet basic safety standards, with high levels of harmful bacteria including norovirus, Salmonella and E.coli present. Government websites now carry warnings about the risks of gastrointestinal illness from outdoor swimming, a stark and depressing contrast to the UK’s former reputation as a place with clean bathing waters, when substantial improvements were made during the early years of EU membership following the introduction of water quality directives.
In 2023, a group of engineers and public health experts warned that human waste in rivers across England and Wales posed a serious risk, especially as more people turned to wild swimming. Professor Barbara Evans of the University of Leeds said, “One of the most dangerous things in our lives is human faecal waste.”
“With more of it entering the environment, and more people using bathing waters, the risk of outbreaks from faecal-oral transmission increases,” she added.
Of course, sewage isn’t the only issue with our archaic infrastructure. As climate change makes extreme weather more common, the UK’s worn-out flood defences are also proving alarmingly inadequate.
Thousands of flood barriers remain in disrepair. In 2022, Greenpeace’s Unearthed found that more than 4,200 crucial defences in England were graded poor or very poor. Since then, a string of major storms has exposed these weaknesses further.
Leaks are another major concern. Billions of litres of treated water are lost each day due to poorly maintained mains pipes. These are not simply domestic leaks, but failures in the public system, increasing the risk of water shortages during hotter summers and placing further strain on the already overstretched supply network.
The debt crisis
So what’s gone wrong? And where has all the money gone? With revenues in the billions, these water companies certainly aren’t short of income!
A BBC documentary titled Our Troubled Rivers revealed that more than £70 billion has been paid out to shareholders since privatisation, all while critical infrastructure has been allowed to deteriorate.
It’s a familiar story. Other sectors that were sold off – from the railways to energy and postal services – have seen the same pattern: rising prices, poor service and neglected systems.
The main issue lies in the profit motive as investors only get involved when there’s a clear financial return, so to attract investment these companies need to offer dividends.
Strip away the incentives, and the interest of these investors vanishes. That makes all the talk of reinvestment and innovation sound hollow, and the current state of our waterways serves as a grim reminder.
Meanwhile, financial mismanagement has reached crisis point. Thames Water, the UK’s biggest supplier, recently secured a £3 billion government loan to avoid collapse, despite racking up around £20 billion in debt. Its owners include overseas pension funds and investment groups.
Worryingly, Thames Water is more the rule than the exception, as many other water companies are in similarly poor financial health. United Utilities (£8.2b), Southern Water (£5.7b), Severn Trent (£6.3b), Anglian Water (£6.7b), Yorkshire Water (£6.1b), Northumbrian Water (£4.5b) and South West Water (£2.5b) all face serious financial strain too.
Much of this debt has not been used for long-term investment but to finance dividends and buyouts. These companies have borrowed extensively on private markets, leaving them exposed to interest rate rises and making it harder to prioritise capital works. Despite their financial fragility, many continue to reward shareholders and executives generously. In this sector, even failure is lucratively rewarded.
Labour’s climate goals
In December 2023, Keir Starmer set out his six-point “Plan for Change”, including a pledge to deliver 95% clean energy by 2030, a more ambitious target than anything seen under previous governments.
This complements the UK’s long-standing Net Zero goal for 2050, underlining Labour’s intent to make Britain a clean energy leader.
However, these plans would be helped by fixing our broken water infrastructure. Water treatment accounts for around 6% of UK energy use, and there are many ways this sector can help – or hinder – progress.
The most obvious issue is leakage. It takes significant energy to treat and pump water, so every litre wasted through broken, poorly-maintained pipework means more emissions and greater environmental impact.
Upgrades such as smart meters, automated leak detection and efficient pipe networks could deliver major savings, both in energy and water.
Sewage treatment is another energy-intensive process, with many plants still reliant on fossil fuels. Some facilities have started using energy recovery systems, which capture and reuse energy from sewage sludge, and have begun integrating renewable energy sources such as biogas and solar. However, uptake is uneven and far from sufficient, so greater investment and regulatory pressure is needed if the sector is to play its part in achieving national climate goals.
Healthy rivers and wetlands aren’t just nice to have, they act as natural carbon sinks and help clean up the environment. Pollution, for example through faecal matter, undermines that, making clean-up efforts even more vital if the UK wants to stay on track environmentally.
Obstacles
If water companies embraced modern green technologies, such as advanced anaerobic digestion, energy recovery from sewage, solar-powered treatment plants, and AI-based leak detection, they could play a significant role in reducing emissions and preserving natural resources. Yet, given their track record and growing financial instability, there is little reason to believe a voluntary transformation is on the horizon. As such, stronger regulatory oversight is urgently needed.
Therefore, stronger regulation is desperately needed. Ofwat, the body tasked with overseeing the sector, has faced sharp criticism for letting firms pollute, overcharge and mismanage without consequence.
The regulator needs to get tough, imposing harsher penalties for environmental breaches and forcing companies to invest properly in their networks. But given the scale of the problem, it’s fair to ask whether regulation alone is enough, or whether a return to public ownership is now unavoidable.
Opponents of nationalisation often argue it would be too costly, as the government would need to buy back private stakes. But when taxpayers are already funding emergency bailouts and suffering the consequences of decaying infrastructure, that argument starts to look weak.
Public ownership would allow water services to be managed for the public good rather than shareholder returns, with profits reinvested into infrastructure instead of paid out as dividends. It could also foster greater transparency and accountability, with clearer lines of responsibility for failures and a stronger emphasis on long-term environmental outcomes.
Scotland’s public water system, for instance, operates without shareholder pressure and has generally avoided the scandals seen south of the border.
However, we need to remember that nationalisation is not without its own challenges. Taking control of heavily indebted companies would burden the public coffers with liabilities that exceed £60 billion. Managing such a transition would require either significant government borrowing or creative solutions such as phased acquisitions, not-for-profit trusts or public interest company models.
An alternative path might involve tightening regulation, capping dividends, linking executive pay to environmental performance and requiring ring-fenced investment in infrastructure.
Ultimately, whether through public or reformed private ownership, what matters is building a system that prioritises public health and future sustainability ahead of private profit.
