Politics: shortages by design

By Richard North - August 8, 2022

In the Sunday Telegraph letters yesterday led on the subject: “Why is Britain so poorly prepared for dealing with water shortages?”, with the first correspondent, Philip Hall, suggesting that the problem stems from a lack of strategic planning.

In making his comment, Hall makes the same mistake that I have made in assuming that the current situation arises from failures of the water companies and other bodies to perform their functions effectively.

But, as I was later to conclude, there are no failures as such. Largely, the system is performing as intended. The supply shortages we are experiencing are a necessary and predictable consequence of the way the system is designed. In effect, we have shortages by design.

Going back to 1989 and the privatisation of the water industry, for once Wikipedia is quite helpful on this subject (although relatively limited).

To my recollection of the time, the main driver of privatisation (apart from Tory doctrine) was the need to inject capital into the industry to finance improvements to the system, primarily at that point to meet EU requirements for drinking water purity and sewage treatment plant effluent discharge standards.

Under public ownership, any borrowing to finance the improvements (which was expected to be substantial) would be included in the public sector borrowing requirement (PSBR), a highly sensitive measure which the Thatcher administration was under pressure to reduce.

It thus, it made political sense to privatise the industry, allowing it a attract private investment without adding to the PSBR with the added bonus of removing any limits which a cash-strapped government might impose.

Interestingly, in the 19th Century, most water works in the UK were built, owned, and operated by private companies but by the beginning of the 20th, most had been passed to local government.

One of the early proponents of public ownership had been Joseph Chamberlain, who argued in 1884 that “It is difficult, if not impossible to combine the citizens’ rights and interests and the private enterprise’s interests, because the private enterprise aims at its natural and justified objective, the biggest possible profit”.

Ignoring that admirable principle, Thatcher delivered a privatised system comprising ten regional companies in England and Wales (in Scotland and Northern Ireland, the systems remained in public ownership), creating the only fully privatised water and sewage disposal system in the world.

Arguably – and I am quite content to make the argument – at that point (or progressively therefore) – the system had been fundamentally transformed, having been acquired by organisations which were no longer primarily dedicated to the provision of water and the treatment of sewage.

Rather, the private companies, controlled largely by foreign owners, converted the operations into financial instruments, the purpose of which was to maximise profits while minimising their investment exposure.

The water business was simply the means to an end, cash rich with a captive customer base, and extremely lucrative as long as expenditure could be contained.

For the government, though, the water companies provided an essential service, detaching the provision of these essential services from the public purse, thereby absolving successive governments from any responsibility to finance the necessary improvements.

However, there turned out to be much more investment required than that needed to meet EU standards. With a fast-growing population – arising from unrestrained immigration – the industry had to increase its capacity to meet the increased demand.

Then, with the aging infrastructure, the water distribution system needed a massive programme to reduce its massive leakage problem, while sewerage likewise needed massive improvement.

Nowhere does there even seem to have been a coherent attempt to quantify the investment requirement – or even define clearly the improvements to the system which were needed, which remain both controversial and obscure.

It is, though, entirely fair to assert that, if the privatised companies had been forced by governments to implement even basic capacity increases, leakage controls and sewerage upgrades, their businesses would no longer be profitable, with the risk to government that they would pull out, leaving the necessary funds having to come from public borrowing.

This problem, as we have established, seems to have come to a head around 2010, when the government relieved the water companies from having to fund capacity increases through additional reservoirs – by vetoing a number of proposed schemes – while setting extremely relaxed targets for leakage reduction.

With no formal requirement for the improvement of waste management, the water companies were also able to minimise spending on sewers and sewage treatment, with the result that pollution incidents have increased to epic proportions.

As regards the water supply, caught between increasing population, no increase in storage capacity and an entirely inadequate leakage control programme, it was entirely predictable that we were headed for problems – even without any effects attributable to climate change.

To compensate for these deficiencies, therefore, the government sought to rely on a programme to encourage reduced per capita consumption (PCC), which the water industry was charged with implementing, at which it has so far spectacularly failed.

This situation is not necessarily troublesome for the government. As long as it is able to transfer to consumers the responsibility for matching the (leakage depleted) supply with consumption, it gives the water industry its alibi for when shortages occur.

What is especially useful to the industry is ministers effectively instructing them to impose restrictions, allowing them an escape by which means they seek to avoid the worst of the blame for running out of the commodity which they are paid to produce.

The only minor problem at this stage is that the public is beginning to see through the charade. Attempts by the government to transfer blame to customers for the shortages is seen as gaslighting, while there is growing hostility to industry-inspired restrictions in the light of the lamentable leakage reduction efforts.

Here, the public is being entirely reasonable in rejecting industry protestations that it is doing its best to reduce leakage. Apart from its reputation for mendacity and manipulating the figures, the programme adopted, which is largely reactive – based on the detection and rapid repair of leaks – is doomed to failure.

Here, the Tokyo experience (summarised here) demonstrates that a different approach must be taken. The key component of the programme must be aimed at leak prevention, the replacement of distribution and service pipes, with high grade materials, in order to get on top of the problem.

The UK industry knows this referring to the Japanese approach in its recently published “Leakage Roadmap”. The industry body, Water UK, also knows this, remarking in an internal research report (Achieving zero leakage by 2050) that “the age and material of pipes in the network, specifically the proportion of older cast iron and asbestos cement pipes, contribute to difficulties in reducing leakage”.

But, it adds, neither are more recently laid polyethylene networks entirely leak free. “Achieving zero leakage” it concludes, “is therefore an extremely ambitious target”, adding: “It will not be achieved with existing processes, techniques and equipment, even if deployed with much greater intensity than at present”.

Effectively, away from the rhetorical bullshit, this is an admission of failure as there are no plans to enhance the response – and no funding agreed. With no new reservoirs scheduled for operation until 2037, failure is baked into the system.

And this is only the first of a series of issues confronting the government. Although the most topical – for the moment – by comparison with energy, looming food shortages, the NHS and the cost of living, it is probably the least of its problems. But it cannot even get a grip of this issue, so the chances of things getting better seem dismally remote.

In time though, it will rain. But then, as the saying goes, après moi le deluge.