You have to go back to the days of “Cedric the Pig” to recall a time when utilities were last so firmly in the public firing line. The unions used the pig, named after Cedric Brown, to pillory the then chief executive of British Gas over the size of his pay hike in the mid-1990s when the recently privatised company was cutting jobs.

Now the issues are high prices on the part of energy companies and excessive profits in the water industry. And it is this increased focus on the sector that has prompted Utility Week to launch the New Deal for Utilities campaign, which seeks to promote a debate about the future of the sector.

One of the drivers of the campaign has been the Labour party’s plans to bring utilities back into public ownership if elected to form the next government. This poses an existential threat to some of Britain’s best known companies.

The opposition’s plans are popular, exclusive research carried out by Harris Interactive for Utility Week shows (see Utility Week, 18 January). A majority of consumers surveyed back some form of public ownership. When asked who should own utility companies, 37 per cent said central and 14 per cent local government respectively. Just 14 per cent plumped for private ownership.

And public ownership looks like a vote winner for the opposition. Over a third of those polled said Labour’s pro-public ownership stance makes them more likely to vote for the party, nearly three times the 11 per cent who replied “less”. Most (55 per cent) shrugged and said it would make no difference.

Exactly half of respondents believe nationalising utilities will deliver cheaper services, while 36 per cent would expect to see them improve.

Shadow chancellor John McDonnell has said that an incoming Labour government would prioritise restoring public ownership over water and rail. Last autumn’s party conference saw the publication of a policy document entitled “Clear Water”, which set out Labour’s emerging thinking.

The call for nationalisation is one element in a wider debate about the future direction of the party’s policy on the sector. A union source says: “Work is being done on various options across the spectrum. There are a number of individuals with strong views in the party.”

One of these is former hard left MP Alan Simpson, who advises party leader Jeremy Corbyn on environment issues and is a passionate advocate of green energy.

Given the timing of Labour’s plans, the questions are understandably most urgent for the water industry. A spokesman for Water UK says: “There are still huge questions that are not answered like how the new bodies would run and be financed.”

Scott Corfe, chief economist at the Social Market Foundation, agrees: “It looks quite vague about what exactly they want.”

However, broad agreement appears to exist across Labour on the desirability of bringing water back into public ownership. During a debate on the future water industry in parliament last week, all of the party’s MPs who spoke supported the restoration of public ownership. They included moderates like Gareth Thomas, who outlined proposals for co-operative ownership of the sector.

The debate set out the pros and cons of the industry’s track record since privatisation.

Thomas highlighted figures showing that the UK’s water companies have each paid out an average £200 million in dividends a year, making a total of £2 billion a year.

Research, carried out by the trade union-backed Public Services International Research Unit at Greenwich University, estimates that £48 billion of dividends have been paid out over the past 30 years. Over the same period, the same companies have taken on “at least” £51 billion of debt.

Thomas also said investment in water supply infrastructure had fallen by about 10 per cent over the past ten years.

Richard Benyon, the former water minister, countered that the industry’s investment needs had been “absolutely ignored” when it was in public hands, and that £150 billion has been ploughed in since privatisation.

In addition, he said customers are now five times less likely to suffer from supply interruptions and leakage has reduced by a third since the 1990s.

He also said that households are 100 times less likely to have low water pressure. For its part, Ofwat estimates that the combination of private ownership and regulation has saved the average household £120 a year on its water bill.

Networks

Similar benefits can be seen on the energy networks.

Colin Nicol, managing director of SSE Networks, told the recent Utility Week Congress in Birmingham that the average customer is now 50 per cent less likely to suffer a power cut than in 2002. And when supplies are cut off they are likely to be restored much more quickly with overall reliability having increased from 95 per cent in 1990 to 99.99 per cent today.

This improved service has achieved been off the back of £100 billion-worth of investment in upgrading and expanding infrastructure, which represents a 50 per cent increase on pre-privatisation levels.

And there are big question marks over how feasible it will be to restore public ownership over utilities.

A Greenwich University paper published in 2017, which has heavily influenced Labour thinking, estimated that restoring public ownership over the water industry could be achieved for as little as £2.3 billion. This was based on the book value of the water companies minus the public subsidies they have received since privatisation, including having their debts written off.

However, the Social Market Foundation’s Corfe disputes this figure. “The idea that paying below market price is a free lunch is nonsense. There are losers from that policy who haven’t been accounted for,” he says.

He points out that all of the listed water companies have employee share schemes, which would be out of pocket if this cut-price approach was pursued, as would the UK pension funds that have investments in the sector.

“It sets a potentially dangerous precedent with an impact on long-term investment decisions in the UK if there is a concern that assets effectively can be taken away at below market price,” he says.

One of McDonnell’s key defences of public ownership is that the government would recoup the profits from providing services like water and energy rather than see them siphoned off into the pockets of shareholders. These revenues would in turn pay for the borrowing needed to bring utilities back into public ownership.

But it could be optimistic to rely on these revenues, given the potential for utility prices to become politicised under public control, says Corfe. “If it becomes very politically difficult to increase water prices, that would undermine the financial viability of the sector in the long run.

“When you have nationalisation, you have the risk of price signals being ­politicised.”

And utilities would have to compete for the scarce attention and resources of policymakers, with potentially damaging consequences for long-term investment in the sector. “Water is less of a vote winner than areas like policing and health,” argues Corfe. “One of the key reasons for privatisation is that the water sector was plagued by years of underinvestment. We are potentially returning to that situation where water is overlooked because of demands to spend public money elsewhere.”

Ed Gill, head of public affairs at the ENA, agrees: “We would be moving from price controls, which are a very effective lever for policy, to a system where arguably there is more competition for attention. Decision-makers will only have so much bandwidth to deal with issues.”

As for networks, the potential disruption resulting from the threat of nationalisation could arrive at a potentially “pivotal” moment, just when networks need to be upgraded to cope with greater decentralisation of generation and uptake of electric vehicles. “This is advanced stuff and decisions are being made now about how we are going to do it,” says Gill.

A new narrative

However, utilities need to make a “step change” in countering the nationalisation narrative, argues Corfe.

Utility Week’s survey showing that around half of consumers trust their utility suppliers and are satisfied with the job they are doing may be reassuring for the sector, he says: “One of the responses of the sector to the nationalisation debate is to talk about how well they are performing and how customer satisfaction levels are high.”

But these apparently reassuring findings point to a deeper problem, Corfe says: “Consumers seem to be genuinely satisfied with the prices they are paying but they would still rather the sector be nationalised. The sector needs to doing more to counter that whole nationalisation narrative. He says water in particular needs to think creatively about how it offers a fair deal to consumers.

“If you are a short-termist business you might have very high profit margins, but if the long-term risk is an increase in the chances of being nationalised, perhaps the more enlightened view is to accommodate a lower rate of return in the future. If that takes the heat out of the nationalisation debate it could be worth it in the future.”

The Social Market Foundation is exploring tariff reform, such as a progressive pricing regime, which would see customers enjoying a free allocation of water and only having to start paying once usage passes a certain point. “They can be more creative about tariffs and show that they are helping people on lower incomes who spend a higher percentage of their income on water. Tariff reform could go a long way to assure people that the privatised model is the way forward,” he says.

This is the kind of imaginative thinking that utilities need if they want to halt the public ownership bandwagon.

Labour’s Clear Water

The opposition outlined its plans for the water industry, which it says will be brought back into public ownership before energy, in a document entitled “Clear Water” last autumn.

• Ownership of regional suppliers transferred to new Regional Water Authorities (RWAs) with safeguard to prevent reprivatisation.

• Ofwat to be scrapped with regulation of the industry transferred to a new National Water Agency, responsible for policing economic and performance standards.

• Each RWA board to contain elected representatives of the region’s local councils, the industry’s three biggest trade unions, and an environmental and a consumer ­representative.

• RWA boards to hold monthly public meetings broadcast live on the internet and all papers published.

• Current owners to exchange shares for bonds with deductions for pension fund deficits, “asset stripping since privatisation” and subsidies received since privatisation.

• Water companies to be self-financing from user charges and debt except for occasional government grants awarded for specific public interest projects, such as Transport for London.