Labour has been pressed to transfer water into mutual ownership as the route to reversing the industry’s privatisation.
In a debate on the future of the water industry, held in the House of Commons’ Westminster Hall on Tuesday (22 January), Gareth Thomas MP called for water companies to be turned into co-operatives that would remain in the private sector and continue to be regulated by a “more effective” Ofwat.
The water suppliers’ boards would be appointed by trusts composed of consumer and employees which could issue bonds to buy back shares in the companies.
The Harrow MP suggested that the trusts would have to be underwritten through a government guarantee on loans or debt that would give them internal equity reserves to borrow against.
This buffer would enable large unexpected investment needs will be met and could be replaced over time as the trusts accumulate profits that no longer need to be distributed to shareholders.
The boards of the new companies would include elected employee and customer directors, who would be responsible for audit, remuneration and company governance decisions, as well as how profits are invested or distributed.
And the new not-for-profit water companies would have to be protected against the risk of future demutualisation through an asset lock.
Thomas, who is the chair of the Co-operative party that is affiliated to Labour, also called for a “full review” of the industry’s regulation, branding Ofwat “woefully weak” with English consumers carrying “little weight against the interests of distant investors”.
Given that the industry is in the middle of its latest pricing review, he said ministers could put greater pressure on Ofwat to use its existing powers to bear down on water if they had the “gumption”.
Specifically, he called for Ofwat to reduce the cost of equity in its price review calculations and for a cut in all English water customer bills after “30 years of being used as cash cows by the owners of water companies”.
Ofwat should also be given new powers to ensure that water companies encourage employee and customer participation in the oversight of the water industry under the new co-operatively owned model that he mooted.
The proposed employee and consumer trusts would also have a role in the scrutiny and decision making of Ofwat, with a consumer-led scrutiny panel to review the operations of the regulator and help make appointments to its board.
Luke Pollard, the opposition’s shadow water minister, said he will be publishing Labour’s proposals on the future of the industry in the “next couple of months”.
The Plymouth MP attacked the government for not “cranking the handle” to achieve sufficiently rapid change in the industry but said the latest round of price reviews and business plans contain proposals that hint at a “slow move in the right direction”.
Theresa Coffey, water minister, defended the privatisation of the water industry and denied that the government is being complacent about leaks.
“Too much water still leaks out from our system,” she told the audience. “Significant investment is needed to improve the resilience of our water supply, and corporate and financial behaviours need reform.”
Responding to the comments, a spokesperson for Ofwat said: “Through our 2019 price review, we’ve challenged water companies to deliver more of what matters to customers in the coming decade, by being ever more resilient, efficient and innovative in the services they provide.
“We’re confident that the sector can rise to meet this challenge.”